June 21, 2007

The Honorable N. N.

U.S. House of Representatives

Washington, DC 20515

Dear Representative N.

I write on behalf of the member companies of the National Textile Association (NTA). NTA is the nation’s oldest industrial trade association and, by count of members companies, the largest organization representing the interests of companies who weave or knit fabric in the U.S. or dye, print and finish fabric in the U.S. I ask you to cosponsor H.R. 2600, the “Border Tax Equity Act of 2007.”

This bill is designed to address the single greatest factor leading to the systematic trading inequity confronting U.S. manufacturers and their workers—the $201 billion subsidy for foreign manufacturers who export to the U.S. and the a $93 billion penalty tax on companies that export U.S. products abroad.

The imbalance results from the international trade rules put in place by the World Trade Organization (WTO). The WTO rules permit the 137 nations that employ an indirect tax, such as the VAT, to rebate those taxes on exports, while also levying them on imports. The U.S. uses a direct tax system—taxes on income or on owning property. Under the WTO rules, no portion of these taxes may be rebated. And the U.S. does not impose on imports a fee equivalent to these direct taxes.

The result: a U.S. company pays corporate income tax and property tax in the U.S. If it exports its product to, say France, they will pay a 19.6% French VAT in addition to any import duties. In other words, the U.S. company will pay the full amount of both the U.S. and the French taxes. On the other hand, when a company in France sends its products to the U.S., they are not subject to any U.S. taxes in addition to our relatively low (typically not above 10%) import duties. Additionally, the government of France will rebate to the exporter the French VAT. Net result, the French company pays neither U.S. nor French tax.

Every country the U.S. does significant trading with has the VAT. The amount of VAT refund—government subsidization of exports—is $201 billion a year. The VAT imposed on U.S. exports to those countries is $93 billion a year.

Due to the VAT disadvantage, American companies have realized little benefit from foreign market openings promised in the many rounds of trade talks. Take, for example, Europe (the EU 25). IN 1968 the average tariff rate for U.S. products exported to Europe was 10.4%; in 2006 the average rate was 4.4%--on the face a significant reduction which should have made it easier to export to Europe. But when we add the VAT to get the true total tax burden on imports, the picture looks quite different. In 1968 the total of duty plus VAT on U.S. exports to Europe was 23.84% (10.4% duty plus 13.44% VAT); in 2006 the total was 23.76%. In other words, the reduction in tariff was matched with an equal and offsetting rise in the VAT (to 19.36%). Over the same period U.S. tariffs on goods from Europe were slashed by at least a third.

Border Tax Equity Act requires that upon completion of WTO negotiations by a set date, the U.S. Trade Representative must certify to Congress that the goals of equitable border tax treatment for goods and services have been met. If these efforts fail, the bill 1) directs the United States to begin charging a fee on imports from VAT countries equal to the VAT rebate each product receives and 2) mandates that US exporters receive a tax rebate equal to the amount of VAT imposed on importation into a foreign market.

The Board of Government of the National Textile Association, meeting in New York, New York, on Thursday, March 8, 2007,

VOTED:

Recognizing the severe market disruption due to the differing global tax systems, such as the value added tax (VAT) used by every major trading partner, the National Textile Association supports efforts, including the Border Tax Equity Act, to address this tax inequity, and directs the NTA staff to study these issues and report to the Board for further specific actions.

If we truly want to fix our run-away trade deficit and earnestly desire to preserve critical middle class jobs provided by the manufacturing base, the U.S. government must fix international trade rules that have so generously allowed our foreign competitors to develop the VAT advantage.

For all these reasons the U.S. should and must level the trade playing field. I strongly encourage you to join as a cosponsor of HR 2600 and to actively encourage your colleagues in the House of Representatives to also join as a sponsor of this critical legislation. Thank you for your consideration of this request.

Sincerely,

Karl Spilhaus
President