Taxes and Export Competition

OMAHA (DTN) -- A border adjustment tax would help make American farmers and exporters more competitive globally, the top executive for Archer Daniels Midland told lawmakers Tuesday.

Juan Luciano, president and CEO for agribusiness giant ADM, told members of the House Ways and Means Committee that current tax policies favor foreign competitors, which is one reason U.S. export market share for crops such as corn, soybeans and wheat has declined over time.

Congress is debating the idea of a border adjustment tax on imported goods as an offset for lowering corporate tax rates. Proposals have suggested implementing a tax on imported goods as high as 20%. Industries have different takes on the possibilities of a BAT, depending on whether the companies rely more on exports or imports.

Congress is trying to decide if a border adjustment tax would reduce the trade deficit and increase U.S. jobs and exports.

Brian Cornell, CEO for the retailer Target, told lawmakers that an import tax could increase the costs of everyday items for all consumers. Target opposes the border adjustment tax, as Cornell said families would pay more so multinational corporations could pay less.

Luciano said ADM competes with a group of well-capitalized competitors globally that gain an advantage by being reimbursed on domestic consumption taxes when those companies export crops such as corn or wheat. Companies exporting out of Ukraine get those consumption taxes -- known as value-added taxes -- reimbursed when they export.

"A competitive tax code will help us continue providing American-made food and feed to our customers in the United States and abroad in the face of robust, and from a tax perspective, ever-strengthening competition from abroad," Luciano said.

He added, "We must have a globally competitive U.S. tax code" and encourage capital to come back to the U.S.

Luciano pointed out that the U.S. used to be the dominate grain exporter globally, but now Russia is the top wheat exporter, and Brazil is the leading exporter of soybeans. At least part of that is due to taxes. Tax reform would give American farmers and ranchers a chance to compete, he said.

"America's antiquated tax system may not be the only reason for this decline, but it clearly contributes," Luciano said.

The U.S. remains competitive because it has better infrastructure, Luciano said. He added, "We have lost in wheat to Russia, we have lost it in soybeans to Brazil."

ADM just this week announced it had completed a major upgrade to its export terminals in Brazil, expanding the facility's storage facilities and unloading docks.

William Simon, former president and CEO of Walmart, told House members he has concerns about a border adjustment tax, but if the tax were phased in over a long adjustment, it could stimulate more manufacturing in the U.S. "With the change, American sourcing will become increasingly viable," Simon said.

Simon also suggested the tax could be set up so a rawer product could be exported from the U.S., then reimported at a lower border tax, because it was produced with a U.S. raw material. Simon specifically pointed to American cotton on the international market as a possible example.

The hearing also included dueling economists, one of whom had worked on a border adjustment tax for decades. Lawrence Lindsey, who served as an economic adviser under former President George W. Bush, praised the tax, indicating it would bring back more manufacturing and further increase wages for people because of the tight labor market in the country.

Competing economist Kimberly Clausing of Reed College, said most trade-law lawyers think the U.S. would lose a World Trade Organization case over a border adjustment tax on imports. "This has given a lot of exporting firms pause in thinking about this proposal," Clausing said.

Lindsey countered that European countries are built around value-added taxes and the WTO would be hard-pressed to rule against such a similar tax plan. "Not even the WTO would be so boldfaced to say a border-adjustment tax is OK for Europeans, but not the U.S.," he said.

Luciano noted crop production is concentrated between the U.S., South America and Eastern Europe. More jobs could come back to rural towns if the U.S. became more competitive. He later said he worries about losing market share and competitiveness for U.S. products.

"The issue is a race between South America, eastern Europe and the U.S.," Luciano said.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

(AG/BAS)

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