Exporting Round-Up

February 28, 2012

In this latest Exporting Roundup, NSBA and its international trade arm, the Small Business Exporters Association (SBEA) discuss President Barack Obama’s FY2013 budget proposal which seeks millions for a new trade enforcement center and more U.S. inspectors in China as the administration takes aim at unfair trade practices abroad. The administration also continues to push for “insourcing” through tax breaks to encourage greater domestic investment, included as part of last week’s corporate tax reform proposal from Treasury. 

On the other end of Pennsylvania Ave., House Small Business Committee Ranking Member Nydia Velazquez (D-N.Y.) introduced legislation, H.R. 3976, which will give small businesses added tools and resources to market and sell their products overseas. New data from the Department of Commerce shows that exports rose during the month of December 2012. Unfortunately, so, too, did imports, leading to an increase in the overall U.S. trade deficit.

Finally, the Free Trade Agreement (FTA) between the U.S. and South Korea will be operational on March 15. The news of the deal’s implementation comes after trade officials tied up legal loose ends in recent days.

Trade Enforcement
As part of President Barack Obama’s FY2013 budget blueprint, $26 million will be delegated to a new Interagency Trade Enforcement Center tasked with aggressively challenging other countries’ unfair trade practices.

The center, which Obama first announced in his State of the Union address last month, will seek to use international rules and U.S. law to challenge unfavorable trade policies, including intellectual property violations and subsidies other countries—specifically China—give to favored industries.

The funding would be channeled through the Commerce Department‘s International Trade Administration (ITA) and the U.S. Trade Representative’s Office (USTR). Under the budget proposal, the ITA would get an overall $129 million increase in outlays for the fiscal year beginning Oct. 1, to $497 million. Most of that additional funding would go to the U.S. and Foreign Commercial Services, which promote investment and exports, as well as the Import Administration’s activities focused on enforcement. The ITA would be required to direct more than $11 million of that to monitor China’s compliance with trade laws. The USTR’s Office also would get a small bump up in funding–$4 million–with a proposed budget outlay of $53 million.

Although trade often enjoys bipartisan support by Congress there is no guarantee Republicans will go along with the new spending in a tight budget year.

In January, President Barack Obama made an announcement calling on U.S. companies to “insource” by bringing investment and jobs to the U.S. During a meeting with various business leaders at the White House, Obama highlighted the various companies that have been insourcing and encouraged others to follow their lead.

In conjunction with the forum, the White House released a report detailing insourcing which shows that real business fixed investment has grown by about 18 percent since the end of 2009 and that in the past two years, 334,000 manufacturing jobs have been created.

Underscoring his push for insourcing, Obama’s administration recently unveiled a corporate tax reform plan which includes two key measures to encourage domestic investment: reducing the effective rate on manufacturing to no more than 25 percent; and establishing a new minimum tax on foreign earnings. Please click here to see NSBA’s commentary on the overall proposal.

Obama continues to push for tax breaks for companies that relocate plants from overseas back to the U.S., however many experts have cited customer proximity and cost—not necessarily taxes—as the primary financial driver for U.S. companies establishing offices overseas.

Velazquez Exporting Assistance Bill
House Small Business Committee Ranking Member Nydia Velazquez (D-N.Y.) recently introduced legislation aimed at facilitating the participation of small firms in international trade. The measure, Enhancing Exports through Entrepreneurship Act of 2012 (H.R. 3976) creates new opportunities for entrepreneurs looking to market their products abroad.

Many small businesses interested in exporting find it difficult to take the first steps—hurdles such as shipping expenses, market research and compliance costs often dissuade small companies from competing globally. H.R. 3976 assists companies with overcoming these hurdles by offering resources to start selling and marking their products internationally.

The measure offers tax credits to offset the costs of exporting to foreign countries. Specifically, under the bill, small businesses can qualify for tax credits worth up to 25 percent of such expenditures. It also provides new financing options through the Export-Import Bank and the Overseas Private Investment Corporation by expanding and building on their investment and lending to smaller firms.

In addition to assistance with revenue and capital needs, small businesses also would benefit from technical assistance provisions in the bill which would make export-related information available through local resource centers: Women’s Business Centers, SCORE Chapters and Veteran Business Outreach Centers.

U.S. Trade Deficit
The U.S. Department of Commerce’s Census Bureau and the Bureau of Economic Analysis (BEA) recently announced that December 2011’s exports increased slightly from November’s $177.5 billion to a total of 178.8 billion. While the $1.2 billion increase is positive news, imports, unfortunately, increased at a greater pace of $3.0 billion. This imbalance led to an increase in the total U.S. trade deficit from $47.1 billion in November to $48.8 billion on December.

In December, the goods deficit increased $1.8 billion. On a positive note, the export of services has remained a bright spot with an ongoing surplus—in December the services surplus was $15.5 billion—essentially unchanged from previous months.

For the three months ending in December, the average trade deficit was $46.3 billion. Bumped back one month to exclude December, that three-month average was $44.6 billion.

Please click here for more details from BEA.

U.S. – South Korea FTA
After five years of negotiations, the U.S. and South Korea Free-Trade Agreement (FTA), has completed the last step in its approval and will be fully implemented on March 15.

Congress approved the trade pact last October, which followed approval by the South Korean parliament on Nov. 22, 2011. However, some industry and agricultural interests in both countries, but especially South Korea, continued to have issues with the FTA causing its implementation delay.

Final steps in the process included Assistant U.S. Trade Representative Wendy Cutler leading a delegation to meet with her counterpart, Korean Deputy Minister for Trade Choi Seok-young, on Jan. 27-28th to “take stock of the U.S.-Korea trade agreement implementation discussions conducted to date and consult on outstanding issues.”

According to U.S. Trade Representative Ron Kirk, this FTA should support tens of thousands of U.S. jobs and the deal will eliminate South Korea’s duties on almost 80 percent of U.S. industrial products and almost 67 percent of U.S. farm goods on its first day of implementation. For U.S. pork, complete implementation will take a little longer.

Now that the trade pact with South Korea is ready to go into effect in mid-March, the USTR is working diligently with our partners in Panama and Colombia—FTAs that also received Congress’ approval in Oct. 2011—to bring those agreements to fruition by the end of the summer.

Kirk also has urged Congress to lift trade restrictions with Russia “as soon as possible,” so that U.S. companies aren’t put at a disadvantage when the country joins the World Trade Organization (WTO). Russia was formally invited to join the WTO in Dec., and has until July 22 to accept a several-hundred-page report of rules it must follow.

The United States will not enjoy full trade benefits with Russia unless Congress moves forward to provide permanent normal trade relations (PNTR) to Russia by waiving the Jackson-Vanik Amendment—a 37-year-old provision crafted to put pressure on communist nations for human-rights abuses and immigration policies. President Obama has said he wants to work with Congress to repeal Jackson-Vanik later this spring.