Tariff suspensions debated

Rep. Brown fights to suspend taxes on chemicals; some question lawmaker's motivation in waiving fees

The Post and Courier

Henry Brown

With little fanfare or public debate, First District Rep. Henry Brown has fought to suspend tariffs on more than 20 chemicals made overseas, saving four coastal companies thousands of dollars. However, the overall practice is drawing increased scrutiny from domestic manufacturers and watchdog groups.

Slightly more than 100 of Brown's colleagues in the House of Representatives have put in similar requests to suspend tariffs, although Brown ranks as one of the top lawmakers to participate in the practice. Six other representatives have matched or topped his number of requests.

Brown said he seeks suspensions only for goods that aren't made in the United States and mostly to help companies in South Carolina. To him, it's another form of constituent service.

"If there's somebody who objected to it, nobody has raised a flag to me," he said. "This has been going on for 20 years. I found the process here when I arrived. We decided to continue that same process."

Tariff suspensions have been a relatively ignored phenomena in Washington, but in recent years, a growing number of people have begun to scrutinize who is asking for breaks and who is benefiting in the end. When the tariff suspension bill hits the floor this summer, there could be more eyes on it than ever before.

And that sits well with some government watchdogs, who question whether seeking specific tariff breaks for certain products is creating an unnecessary complexity that benefits only lobbyists, lawyers and those who support them.

How it works

Congress has the right to waive tariffs up to $500,000 for any particular product, and about 20 years ago, it began bundling dozens, even hundreds of these requests into a big bill that could attract enough votes, said Steve Ellis, vice president of the independent watchdog group Taxpayers for Common Sense.

"It was a classic logrolling exercise," Ellis said. "If you can get 300 members of Congress, well then you've got a majority and everybody's happy and everybody gets

along. That's what has been happening with this bill. Unfortunately, it purports to be a very transparent process, but it's not been a very transparent process."

The House Ways and Means Committee is collecting tariff suspension proposals and could send out a single bill wrapping them all together by this summer.

Tariffs are meant to protect domestic manufacturers from cheaper chemicals made abroad. Globalization has led to fewer U.S. manufacturing jobs and more chemical production elsewhere.

Companies that import foreign-made goods for their U.S. operations rely on tariff suspensions to save money.

"It's really an effort to preserve a competitive edge and keep plants operating here in the Lowcountry," said Philip Wiegreffe, head of business operation and manufacturing for Lanxess Corp., which employs 75 manufacturing workers in Berkeley County's industrial Bushy Park.

Company officials asked Brown to propose a bill that would waive the tariff on 4-aminodiphenylamine, a liquid made in Europe. It strengthens tire rubber, prolonging the tire's life, Wiegreffe said.

The company bought the chemical from a Louisiana plant before it shut down a few years ago. Since then, Bushy Park workers have had to import it.

The proposed tariff suspension would save the facility about $500,000 each year.

Most of Brown's proposals would benefit another Bushy Park company, Symrise Inc. of Germany.

Company officials requested tariff suspensions on obscure chemicals like methyl cinnamate and Frescolat MGA.

Local workers mix those chemicals and ship them to other manufacturing companies, which use them to flavor sauces, scent perfumes and give beverages their citrus, vanilla or fruity taste, Symrise spokeswoman Katja Derow said .

The total annual savings from the proposals would amount to $1.2 million. That money likely would be used to buy new equipment and improve infrastructure at the company's Bushy Park and New Jersey facilities, she said.

Rhodia Inc., a French company that employs 150 at its Charleston Neck area facility, asked Brown to suspend the tax on sodium hypophosphite, a white powder made in China that is used in nickel plating.

Workers mix the powder with water to different concentrations before shipping it to customers elsewhere, Rhodia spokesman David Klucsik said. It's a small part of what the local plant does, he added, estimating that the waived taxes on the chemical have saved the company slightly less than $200,000 in the last two years.

"It certainly helps keep Rhodia competitive overall," he said.

Metglas Inc., based in Japan, also asked Brown to suspend the tariff on chemicals that are used at its metallic glass alloy production facility in Conway.

Company officials from the local operations stressed that, as long as U.S. companies aren't already making the chemicals, there's little harm done, and Brown agreed.

"These are products that aren't made in the United States, so we don't have any competition between these imports and domestic products," he said. "That's the reason we suspend tariffs, so these products could be made and be competitive here in the domestic market."

Who is harmed?

The American Manufacturing Trade Action Coalition is one group that works to ensure that domestic companies aren't hurt. Group representatives carefully sift through the database of proposed bills every two years, ready to object if a conflict arises, spokesman Lloyd Wood said.

The group doesn't oppose any of the bills Brown has proposed. However, Wood said that the complicated tariff suspension bill is a result of trade policies in recent decades that have led to a loss in manufacturing jobs.

The process wouldn't be as popular, he said, if so many U.S. jobs had not shifted overseas amid a globalizing economy.

"We've got a climate where people aren't encouraged to invest in manufacturing," he said.

The process also can leave small businesses out of the game.

Smaller companies might not be able to afford lobbyist manpower in Washington to make similar requests. And while government staffers check with major U.S. chemical producers to make sure that suspensions don't affect chemicals made at their own operations, smaller chemical operations might be harder to find.

That's what happened four years ago to Robert Kelly, who owns a chemical production company in Connecticut.

Brown wanted to waive the tariff for a chemical called Vulkanox ZMB, which Lanxess workers use to strengthen tire materials in Bushy Park.

Kelly told The Washington Post that he was lucky to have been tipped off by a colleague about the suspension request, which could have shut down his facility.

Lanxess officials asked to suspend the tariff on the chemical again this year but missed the deadline, a representative from Brown's office said.

Other options

Brown, who faces a primary challenge June 10, isn't the only member of South Carolina's congressional delegation who has sought suspensions. Fourth District Rep. Bob Inglis is seeking to suspend the duty on certain hot feed extruding equipment used to make tires.

The Republican's district includes a Michelin plant that imports manufacturing equipment not available for purchase in the United States, said Price Atkinson, Inglis' communications manager.

"This helps companies located in the U.S. to keep jobs in the U.S., rather than move offshore, where equipment and raw materials may be available duty-free," Atkinson said.

In general, Inglis applies the same criteria to judge tariff suspensions as earmarks: There must be a federal interest, an economic development component and local matching funds, Atkinson said.

U.S. House Majority Whip James Clyburn, D-S.C., has not sought a tariff suspension so far, but he's not necessarily opposed to the idea.

"Any request I would make for tariff relief would come as the result of a need presented to me by a constituent or business in my district," he said. "I do not recall ever receiving such a request. I am not opposed to requesting tariff relief if the circumstances had merit."

Brown said his seeking suspensions is akin to his intervening on behalf of other South Carolina companies involved in trade disputes.

"We want to be actually sure there's a fair trade practice on any corporate citizens we have," he said.

Brown said it would be different if U.S. companies made similar products.

"If there was a market in the U.S., then we wouldn't be asking for relief for a foreign company," he said. "We feel like we acted in the best interest of our constituents that worked there. We have no other agenda."

Told he was No. 7 among all congress members who have requested suspensions, Brown said he is not a member of the Ways and Means Committee, which oversees the suspension bills, and isn't familiar with the big picture.

"To be quite honest, until you called, I gave it no consideration," he said. "I just thought it was something that needed to be done and we did it."

A Better Way?

Before the federal government created the income tax in the early 20th century, most all of its operations were funded by tariffs on foreign goods.

Today, customs and duties make up less than 2 percent of the budget. But government watchdogs say the problem with tariff suspensions isn't the lost money as much as the process.

"When you look at it, it's probably not a huge dollar amount, but you can't measure cost just in dollars and cents, even though that might sound strange coming from a budget watchdog," Ellis said. "If there's concern about corruption and pay to play, then it does add up."

For instance, Brown has received a $500 donation from the American Chemistry Council, whose members include some companies that he has helped with tariffs. Brown said he wasn't aware of the donation, adding, "I don't know there's a connect."

Ellis said Congress' recent earmark reform included tariff suspensions, making them easier to track. He predicted this year's bill will get more scrutiny than ever, "and that begets more interest if you start finding things that are in a gray area or have a campaign contributor tied into it. I wouldn't say that's the case in Rep. Brown's requests, but I wouldn't be surprised if that's the case of some others in here. It begets calls for reform."

Not all the suspensions are controversial. Ellis said Rep. Earl Blumenauer, D-Ore., has bragged about saving his city money by getting tariffs waived on light rail cars imported from the Czech Republic, lessening the cost to the Portland, Ore., transit system.

"I don't think there was any nefarious business going on there," Ellis added.

But on the other hand, it can be difficult to sift through the requests — much like it's difficult to sift through the ever-expanding federal tax code.

"Anytime you have a very complex process in the shadows, you invite corruption and some of the seamier things that grow in the petri dish in the shadows," Ellis said.

"It's really good for the lawyers that work on this, the lobbyists that work on this and the politicians who want to get contributions from all of the above," he added, "but is the public really being served, as opposed to looking at it and saying 'Why don't we cut tariffs across the board?' "

Reach Robert Behre at rbehre@postandcourier.com or 937-5771. Reach Katy Stech at kstech@postandcourier.com or 937-5549.