Lawmakers may lose role in granting tariff exemptions
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WASHINGTON -- When you hear words like dimethylisopropylamine and tebuconazole, it usually means the National Spelling Bee is in town.
Surprise. It's just lawmakers trying to help businesses in their districts import goods -- such as chemical components for their products -- less expensively.
It's something Congress has been doing since 1982 in straightforward bills that usually pass easily, but this time some lawmakers are throwing a wrench in the plan. They liken the tariff exemptions to earmarks -- funding for pet projects and parochial interests -- which the Obama administration has banned.
Western Pennsylvania has a good share of them, and now there's an effort to take them out of lawmakers' hands.
The issue has become thorny since Sens. Rob Portman, R-Ohio, and Claire McCaskill, D-Mo., introduced a bill that would send exemption requests directly to the International Trade Commission, bypassing lawmakers and committees that currently must sign off first.
An alternative proposal by the Senate Republican leadership would authorize regulators to review every import tax that could qualify for a suspension, negating the need for individual companies to ask for them and making them less like earmarks.
Unless there is an objection from a domestic producer of the import, the exemptions typically pass without a hitch. They expire within three years. Lawmakers on both sides of the aisle say the exemptions protect jobs, insulate manufacturers from overseas competition and reduce costs to consumers.
Some, though, liken the exemptions to earmarks, saying 88 percent of them benefit fewer than 10 companies and 40 percent benefit just a single importer.
"The tariff reduction is widely available," said Jeff Ostermayer, spokesman for the National Association of Manufacturers. Without the exemptions "manufacturers will be faced with a tax that will harm their global competitiveness," he said.
Typically, a bill is withdrawn if a single domestic producer of the import objects.
The number of exemptions has grown dramatically since the temporary exemptions were first allowed in 1982, when 58 were enacted. This year, more than 2,000 exemption bills have been introduced for goods ranging from artichokes to violet dyes. Some are new exemptions, while others extend current ones that otherwise would expire at the end of the year.
Sen. Bob Casey, D-Pa., and the Western Pennsylvania congressional delegation have introduced 177, most benefiting local companies that want to avoid paying tariffs on polymers, aspirin, fabrics, sprinkler parts, ceiling tiles and more. Would-be beneficiaries operating in Pittsburgh include Bayer Corp., PPG Industries and Lanxess.
Typically, the exemptions apply to raw materials that are used to manufacture components of other products produced further down the supply chain. Some lawmakers from other states, though, are looking to remove tariffs on straight-to-market items such as eyelash curlers, sugar-free chewing gum, marinated artichokes, ski boots, inflatable swimming pools, basketballs, children's plastic wallets, coupon holders and bamboo kitchen devices.
The current exemptions result in about $298 million in uncollected revenue over three years, according to the Congressional Budget Office. The government collects about $29 billion in tariffs per year.
The exemptions are important to companies that are operating here and importing products for further processing here for sale in the market, Greg Babe said during a visit to Washington last week. At the time, Mr. Babe was CEO of Bayer Corp., but since left the company to become Orbital Engineering's chief executive.
The exemptions help level the playing field in the global marketplace, said Elaine M. Olsen, international trade consultant for Delaware-based DuPont, which operates a facility in Bradford County.
"The process is available in other countries and we want to be able to take advantage of it as well so we can compete with products produced overseas," Ms. Olsen said in a telephone interview.
Mr. Casey is sponsoring five tariff exemption bills that would help DuPont avoid a 6.5 percent tariff on ingredients used in herbicides and fungicides.
With dozens of bills submitted on its behalf -- many by Mr. Casey, and Rep. Tim Murphy, R-Upper St. Clair -- Bayer is among the companies with the most to gain. It's also among those spending the most on lobbying efforts, including those related to tariff exemptions. Records show that the company spent nearly $1.5 million on lobbying the House and Senate during the first three months of this year alone. The scope of its lobbying covered numerous issues from veterinary medicine to renewable energy. Four company lobbyists worked on tariff suspension issues, according to disclosure reports.
The company persuaded numerous lawmakers to sponsor dozens of tariff exemptions in this go-round. Because each tariff exemption initially is filed as a stand-alone bill, it is difficult to ascertain exactly how many. Pennsylvania lawmakers filed at least 48 for chemicals and compounds ranging from aspirin to herbicides and fungicides.
"The problem is that most companies believe [that getting an exemption introduced] entails hiring a lobbyist to get favorable treatment and, many times, they feel they need to contribute to candidate's campaign," said Wesley Denton, spokesman for Sen. Jim DeMint, R-S.C., a longtime critic of the current exemption process. "Most members of Congress would say that's not necessary, that their door is always open, but the fact remains that this is the way the system is set up."
Mr. Casey, who is sponsoring 139 exemptions -- more than any other lawmaker -- said lobbying and campaign contributions have nothing to do with it.
"I know some would draw that nexus or make that connection, but it means nothing to me," Mr. Casey said. He said he'd help any company that requests a qualifying exemption and doesn't remember ever turning anyone away.
Still, some of those requesting exemptions do hire lobbyists and pony up campaign dollars.
PPG Industries reported spending $293,000 on lobbying last quarter, Arkema spent $220,000 and Kennametal spent $10,000. The Dupont Co,, which is based in Delaware but has facilities in Towanda, Bradford County, in northeast Pennsylvania, reported spending $1.2 million on lobbying last quarter. Tariff exemptions were among the topics all four companies reporting lobbying on.
Later, Western Pennsylvania lawmakers wound up filing legislation that would give Dupont five exemptions, PPG four, Arkema 10 and Kennametal three.
Meanwhile, Air Products & Chemicals Inc. wound up with eight Casey-sponsored exemption bills after the company's officials and political action committee contributed $37,800 to the senator's re-election effort, according to data from the Center for Responsive Politics.
Air Products lobbyist Richard Goodstein said the company's contributions to Mr. Casey aren't connected to exemptions and there's little pattern to suggest other companies' contributions are either.
"Sen. Casey routinely introduces [tariff exemption] bills for companies that never contributed a cent to him and, as far as I can tell, have no lobbyists. I just don't accept the premise of that notion," Mr. Goodstein said.
Meanwhile, Bayer and its executives have contributed $12,000 to Mr. Murphy this cycle, the highest total among the 80 congressional campaigns it has funded this year. Now Mr. Murphy is sponsoring 10 Bayer-requested exemptions, which the congressman's office says are necessary to help manufacturers and preserve jobs.
There's "zero connection" between the contributions and exemptions, said Susan Mosychuk, Mr. Murphy's chief of staff.
"Anyone waiting for Tim Murphy to apologize for fighting to save southwestern Pennsylvania manufacturing jobs will be waiting a long time," she said.
Mr. Babe said tariff exemptions "keep an industry competitive on the global scale, and I think a company appreciates a legislator who understands the dynamics of global competition."
For the most part, manufacturers are keeping out of the fray as lawmakers wrestle with proposals to change the system.
"The current process is transparent, but we're not adverse to changing it," said Ms. Olsen, of DuPont.
Some lawmakers seem to like it, she said, because introducing exemption bills allows them to demonstrate to constituents that they're working to preserve local jobs.
Mr. Casey says the current process is imperfect, but companies can't wait for Congress to find agreement on reforms.
"There ought to be a way to help companies without going through this complication of filing all these bills, but until any kind of reform takes place that streamlines it and makes it more workable, we've got to do everything we can do for these companies," he said.
If exemptions are allowed to expire, companies in Pennsylvania and elsewhere would take an economic hit, he said.
Sen. Pat Toomey, R-Pa., isn't sponsoring any tariff exemptions bills, but it's not that he opposes the tax relief; he said he wants it to be broader and to be achieved through regulatory processes rather than legislative ones.
"I do want to see [exemptions put in place], but I'd like to see the process reformed," he said in a telephone interview. "A company that is deserving of tariff relief shouldn't have to come on bended knee to their member of Congress." He would like to see it go straight to the International Trade Commission.
Mr. Denton said that would remove the perceived need for lobbying and campaign contributions, allowing more businesses to benefit from exemptions.
In an emailed statement, Mr. DeMint, the South Carolina senator, said the Portman-McCaskill legislation would put an end to corporate lobbying for import tax breaks by removing Congress from the equation.
Leaders of the House Ways and Means Committee say the current system works. Ways and Means and the Senate Finance Committee act as gatekeepers between exemption-bill introductions and the International Trade Commission.
"Currently we have a process with bipartisan support and support of business groups. It's a very long, transparent process," said committee spokeswoman Sarah Swinehart.
Others who want to maintain the status quo say the McCaskill-Portman measure is unconstitutional because it hinders Congressional responsibility to regulate international trade.
Manufacturers like DuPont don't care whether Congress reforms the process or sticks with the status quo, so long as it acts before Dec. 31 when many exemptions expire.
"Any way we can create that level playing field is fine with us," Ms. Olsen said. "We just can't have exemptions expire."
First Published June 24, 2012 12:00 am