Below the Radar/Customs Bill (Feb. 16)

Mike & Co.  —

A national holiday, a snowstorm, and a congressional recess stilled DC yesterday and a quiet week is expected.  It gives us a chance to have a look at some developments thus far this year that have flown below the radar.

Today’s item is the one bill on its way to the President’s desk — the Customs bill — and the caboose attached to it that extends the internet tax moratorium permanently  and may be the bill’s important title… at least until the TPP comes up on the Senate floor.





The Customs Bill:  Comity on the Hill

The Senate cleared the first overhaul of the Customs and Border Protection (CBP) agency in more than a decade in a 75-20 vote last Thursday, sending the bill to the President and ending months of wrangling over the measure.  The Trade Facilitation and Trade Enforcement Act of 2015 (H.R. 644) retools CBP to increase its focus on blocking illegal trade and ensuring that legal trade moves smoothly.

The major facets of this legislation are:

  •  new protections on intellectual property rights
  •  new tools to fight currency manipulation
  • . a permanent extension of the Internet Tax Freedom Act

Said Senate Finance ranking member Ron Wyden:  “This bill is about coming down hard on the trade cheats who are ripping off American jobs, and the truth is past trade policies were often too old, too slow or too weak for our country to fight back.”

Wyden was perhaps the most outspoken Democrat in support of the bill, continuing his role as a strong backer of free trade legislation.  He was a key factor in getting Trade Promotion Authority legislation passed through Congress last summer, splitting from some of his colleagues in voicing support for that act.

Unusual Coalition

27 Democrats, 47 Republicans, and 1 Independent voted affirmatively.  Industry groups including the National Retail Federation, as well as the U.S. Chamber of Commerce were supportive of the legislation.  National Association of Manufacturers’ president Jay Timmons said “if senators want to grow manufacturing in the United States, then they should pass this bill immediately.”

Notable “Nay” votes include Sens. Durbin and Reid, who both expressed disappointment that the legislation was a “watered down” version of a bill previously passed by the Senate.  ”I like that [Senate] version, and that strong language on currency manipulation,” Durbin said – that language required Commerce to consider “undervalued” currencies to be equivalent to countervailable subsidies.  “The conference report that’s back to us now and before the Senate at this moment is a much different bill.”

Purpose and Provisions

House and Senate negotiators agreed on a final customs bill in December.   The House passed the measure 256-158 but the legislation stalled in the Senate over a provision added in conference that permanently extends a moratorium on Internet access taxes.

That provision is perhaps the most reported on section in the bill – it’s almost certainly the most popular – it applies to localities, states, and the federal government itself.   Sen. Lamar Alexander cited it though as explanation for his “nay” vote: “the federal government shouldn’t be telling the states what their tax structure should be.”

Another important provision, known as the ENFORCE Act, would require the CBP to more aggressively investigate complaints that companies are evading anti-dumping or countervailing duties on imports by mislabeling or disguising the shipments.

The bill includes a new Trade Enforcement Fund to bring trade cases through the WTO, to investigate the implementation of trade requirements by other countries, and to respond to complaints of trade violations.  It also creates a nine-member Advisory Committee on International Exchange Rate Policy, whose members must be comprised of individuals from the private sector who are selected by both chambers of Congress and the President (three members each).

Currency Manipulation

Currency manipulation has been a long-standing concern of American policy-makers and a particularly contentious issue in global trade relations; claims that China has been chronically undervaluing its currency have made the news for a number of years.  Advocates for stricter enforcement of currency manipulation provisions claim that undervalued currencies operate similarly to export subsidies – a prohibited practice within the World Trade Organization.
The final bill dropped a Senate provision that would have required the Commerce Department to treat undervalued currency as an illegal subsidy under U.S. countervailing duty law.  This provision would have opened the door for compensatory tariffs to be levied against goods which originate from countries which are found to purposely undervalue their currency in order to boost their exports. The bill does, however, include other measures that give the Treasury Department new tools to fight currency manipulation:

  •  creates a special fund for the CBP to ensure trading partners follow the rules and to bring disputes before the WTO
  •  increases funding to the National Intellectual Property Rights Coordination Center
  •  establishes the Commercial Customs Operations Advisory Committee jointly between CBP and Treasury
  •  requires CBP to investigate claims from other agencies of evasion of anti-dumping or countervailing duties.

Relation to TPP

Sen. Majority Leader McConnell has said that the Senate will not vote on the Trans-Pacific Partnership before the November elections, so it may come as a surprise to see a bill which deals with enforcing trade deals like TPP pass both houses of Congress.  However this bill’s provisions for protecting IP rights, toughening countervailing duties, and tackling currency manipulation are a necessary prerequisite for agreements like TPP (or the far more nebulous TTIP).  The new age of trade agreements  will deal extensively in issues like intellectual property protection, trade in services, and high-tech product trading; types of commerce which are far more difficult to regulate compared to the trade of physical goods.

So, despite the fact that TPP won’t get a vote until after November (and perhaps not in 2016 at all), and may not pass even then, the protections set forward in the customs bill are necessary to allow American companies to continue to compete in the global marketplace.
Price of Passage

In order to include the permanent extension of the Internet Tax Freedom Act, McConnell had to promise that a vote would be held this year on the Marketplace Fairness Act.  That legislation grants states greater authority to collect sales taxes from online businesses who sell products within their borders.  While McConnell himself opposes the bill, it was the only way to get the customs bill (with the tax amendment attached) unstuck.

Just because McConnell has promised it will be brought to a vote doesn’t mean it will be a smooth process – the Senate passed the Marketplace Fairness Act in 2013 with 69 votes, and most of the lawmakers who voted for it are still in the chamber.  Some lawmakers like Kelly Ayotte, who is facing a tough reelection campaign this year, have vowed to fight tooth-and-nail against it.  Despite these detractors in the Senate, the real battle may occur in the House, where two competing proposals have been brought forward.



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