EU to tax US goods going overseas.

[Lionfish]

Dont yuh just love how we all get along .

According to an article at
ZDNET , the EU (European Union) is set to begin levying a 15% VAT (Value Added Tax) on all US goods sold in EU nations, despite the fact that the US itself does not charge such a duty.

The tax money would, apparently, be distributed to other EU countries dependent on where the sale is made. So, if a German bought a CPU from an American company, for example, the 15% VAT tax would go to Germany.

This is one of those areas where free trade gets really screwed up. One the one hand, America is upset because a duty is being imposed on goods we sell and yet the income from that tax (supposedly levied by us) is going to a foreign country. Thus, America claims free trade isn't being supported.

On the other hand, the EU takes the position that all EU member nations pay a VAT tax that the US (as an importer) is NOT paying. This encourages consumption of US goods over EU goods, and thus the EU levying of a VAT tax only levels the playing field (and supports free trade).

All depends on which way you see the issue, though I'm honestly suprised that the EU would levy such a tax now with the economy only beginning to climb again and Europe still stuck in a mild recession.

[Random Nonsense]

I think this is kinda tit for tat. there has been a lot of things going on recently, not sure of the details, but aparantly your steel industry was is trouble due to cheap imports, so something was done about the european imports of steel... so in return we are taxing your good being exported to us. its all very childish i think really!

[Kaitain]

As Random said, this move is actually part of a "trade war" on the part of the EU and the US:

It goes something like this...
The US objected to Britain's favouritism of Windward Isles (a commonwealth country) bananas, taking Britain to the EU courts. The EU ruled in Britain's favour, since it was doing its duty by the Commonwealth agreement... the US thus embargoes a whole bunch of EU goods. The EU gets irritable and does the same to the US... in the end, the WTO has to get in there and clean up the mess (in the US's favour)

The US then objected to the EU's refusal to import beef - injection of cattle with Bovine Growth Hormone (BGH) is not outlawed in the US, and a certain percentage of cattle stocks are artificially "beefed up" in this way. Such beef is illegal in the EU, following a study that BGH levels (similar to Human GH) remained too high in the meat following cooking, and posed a risk to human development (refuted by a US study, but following the BSE thing, people here weren't about to take the risk). Anyway, part of the ban on BGH beef included a blanket ban on US meat since there was no visible way of telling whether it was from an steroid enhanced herd or not. The US insisted that it be taken on trust, and embargoed a whole load of EU consumer products. In the end, the WTO got involved and cleaned things up (in the US's favour, although US exporters must now document the herd's purity... although EU importers are still wary)

Now, the US has given some of its firms massive tax breaks on goods they export (companies like GE, Boeing, Microsoft, Harley Davidson, etc) which the EU argues amounted to an illegal export subsidy. The WTO ruled for the fourth time in 5 years that this was indeed the case, demanding the US change its tax policy, which they have pointedly refused to do. So to level the playing field over here, the EU is taxing such goods to an equivalent price. The US decided that, rather than obey the WTO ruling, they'd make it hard for the EU to export steel to the US, hoping to force Europe to back down. Which they haven't. Instead, the EU has matched that tax, and then some by making imported goods taxable by VAT (previously, such things escaped VAT as it was assumed it was already taxed the once... which in the US's case, it wasn't). Anyway, the final WTO ruling came and went, and neither side has adhered to a fifth ruling against the US, so this'll boil over into the WTO talks in autumn.

Fun

[dimmreaper]

You tax our goods we'll tax yours, wait and see . . .

I don't care much for international politics anyway, I just hope it all works out best for the consumer . . .

[Kaitain]

You tax our goods we'll tax yours, wait and see . . .

Playground politics applied to the real world. Seems to be the way our respective governments always deal with their problems... just as it never worked in the playground, so it's clearly counterproductive in politics. Just a shame politicians are too blinded by short-term gains

I don't care much for international politics anyway, I just hope it all works out best for the consumer . . .

It works out best for the consumer when governments keep out of it and let the free markets play.

It works out best for both consumers and producers when the free markets play by the rules.

It works out best for the governments when those rules are bent so that they can take a bigger cut. This trade war is a sign that those rules have been bent, broken and ignored countless times... the only people that's good for are our delightful politicians.

Oh for a liberal anarchy...

[dimmreaper]

Personally, I think free trade is a lot better for producers than it is for consumers. A modest tax on all foreignly produced goods is probably not a bad thing for any country in the long run, but the tax needs to always be a equal percentage with no bias towards particular kinds of goods or towards particular nations . . .

[mookydooky]

In an average year, I typically pay out about $200,000 to the US Treasury in the form of duty. I would love free trade, it would benefit guys like me the most.

The thing is though, you can't have it. The ramifications of free markets are actually pretty bad and probably not to the benefit of the average consumer. Free markets will almost inevitably lead to either oligopoly or monopoly with it's inherent inefficienies and wealth transfers. Any industry that has economies of scale will completely take advantage of it to dominate an industry. In the early 20th century, this was John Rockefeller's Standard Oil, Andrew Carnegie's Carnegie Steel Company, J. P. Morgan's J. P. Morgan & Co., and a host of others.

J. P. Morgan was so powerful at one point that his bank pretty much acted as the US federal reserve, floated bond issues and such. He branched out into railroads, ended up controlling about a sixth of the US rails. He organized U.S Steel, the first billion dollar company in the world.

Any large industry will inevitably end up either an oligopoly or a monopoly in a free market. Even worse then this is the fact that there would be no labor laws. Workers would be pretty much powerless unless unionized (which is another form of monopoly). I've been in countries with weak labor laws and I have to say, it's not a pretty sight. Workers have no rights in those countries and are punished and released on a whim. Child labor is rampant. I'm not a Marxist by any means, but his prediction of worker abuse is not far from reality.

Free markets would also render the idea of intellectual property pretty much useless. With no laws to protect patents, copyrights, and trademarks there would be very little incentive to create anything new. Where would be nothing to prevent anyone from copying WinXP and distributing it for a dollar or two like they do in China.

Only the connected or super wealthy would be able to make any money on the stock market. Insider trading would rule without regulation. In Hong Kong, it wasn't until the 70's they started instituting regulation of the stock market and your average investor got fleeced at every turn by the insiders.

These are just a couple of examples where free markets would just not work. Another bad idea would be medical care. Free market medicine without regulation would be a terrible idea. There are a couple of areas where free markets would be the most efficient and best, but these are very few and most likely limited industries. An example would be farming. Perhaps it works too well there because farming in the US has to be subsidized or the farmers can't make any money.

The point of all this is that regulation is not bad by itself. Duties, quotas, and other import restrictions have to be excercised in order to protect domestic industry. In the late 70's and early 80's Chrysler went broke because of Japanese imports. With the help of some import quotas and government assistance, Chrysler was able to make it back. The free marketers would have said something like, "It would have been better to let Chrysler go broke and let survival of the fittest reign." If that had happened, most likely the US auto industry would have collapsed in the wake of cheap high quality Japanese imports or better luxury cars from Europe. Perhaps this would have been better for the average consumer (lower prices, better quality), but it probably would not have been the best for the US.

[mookydooky]

Originally posted by dimmreaper
...the tax needs to always be a equal percentage with no bias towards particular kinds of goods or towards particular nations . . .

This is great in theory, but it breaks down in practice. The main purpose of import restrictions is the protect domestic industry from cheap import substitutes. There are certain industries that don't need protection. If something is naturally produced cheaper domestically than overseas then there is no point in imposing restrictions. There is no point in placing restrictions on industries that don't really exist either. Nike sneakers are an example. Duty on sneakers, is really low, this is due to the fact there there are hardly any sneaker manufacturers in the US.

You have to discriminate among nations for your import restrictions. This is because prices between various countries can vary greatly for the same commodity and you want to give equal access to your market to your trading partners. It used to be the case that China faced really tough restrictions because their stuff was so cheap. Anything made of cotton that was made in China required a visa to enter the US. The required visa, which typically had to be purchased, raised the price of cotton goods substantially. This is in contrast to Korea where although the goods were more expensive, the visa was free.

The WTO makes things a lot more interesting in that its members grant most favored nation status to other members. Basically it levels the playing field for all involved. Things are very interesting with the WTO now because China is now a member. China is notorious for not respecting intellectual property. They're trying to crack down on IP theft now. In return, they're granted the MFN status which lets them export much more than before. We'll see how this plays out in the next year or so.

[dimmreaper]

Originally posted by mookydooky
China is notorious for not respecting intellectual property.

You can say that again, we import knock-offs of Edelbrock intake manifolds from a family owned Chinese aluminum foundry all the time. Equal craftsmanship, slightly lower quality material, stainless-steel hardware included at no cost, half the price(that is including over-night air shipping from China). Literaly the only difference that I can tell is that the castings don't read "Edelbrock".

[dimmreaper]

Dig the surprisingly high quality of this $60 part . . .

[mookydooky]

Originally posted by dimmreaper
Dig the surprisingly high quality of this $60 part . . .

Dimm, have you ever been overseas in Asia?

[dimmreaper]

Originally posted by mookydooky
Dimm, have you ever been overseas in Asia?

No, but I call our Chinese suppliers at least a few times a month. Usually I have to ask if there is anyone available that speaks better English

We save probably 20% by importing parts ourselves, compared to what we'd shell out to an importer. Asian suppliers are so desperate for business that they don't mind selling on a per unit business to small companies like ours. Most of our non-critical parts are imported(by us) from China or Taiwan or Korea. A non-critical part is a part that if broken while in service can not potentially damage other parts. So things like manifolds, distributor housings, spark plugs, and the like come from over-seas. Things like crankshafts, rods, pistons, and what not come from domestic suppliers. This is the only safe way we have found to cut costs while still being able to back our finished products with any type of warrantee.

[mookydooky]

Originally posted by dimmreaper
No, but I call our Chinese suppliers at least a few times a month. Usually I have to ask if there is anyone available that speaks better English

We save probably 20% by importing parts ourselves, compared to what we'd shell out to an importer. Asian suppliers are so desperate for business that they don't mind selling on a per unit business to small companies like ours. Most of our non-critical parts are imported(by us) from China or Taiwan or Korea. A non-critical part is a part that if broken while in service can not potentially damage other parts. So things like manifolds, distributor housings, spark plugs, and the like come from over-seas. Things like crankshafts, rods, pistons, and what not come from domestic suppliers. This is the only safe way we have found to cut costs while still being able to back our finished products with any type of warrantee.

I completely understand the thing about English. I can't speak Chinese and it is a serious barrier to business over there. I've been trying to learn, but it's not as easy as other languages. The toughest thing about it is that it doesn't use a set alphabet and that complicates matters in my head.

Lately with China in the WTO, factories over there have been running full capacity and it's been a little tough getting stuff made on time. I'm looking into Vietnam as an alternative. I figure there had to be a reason Nike went over there. I also figure, Vietnamese should be able to speak better English, or at least French.

[dimmreaper]

Vietnam is supposed to be a great place to vacation, from what I hear . . .

A friend of mine went over there a few years ago and came home with a wife I was a bit of a skeptic about her true feelings for him at first, but they've been together so long now that I don't even think about it anymore . . .

Funny thing is that my friend is a mason by trade, he makes over a hundred grand a year easy. This girl's brother is a mason too; he makes 2 dollars a week and that's great pay . . .

What do you do to put bread on the table anyway mook?

[mookydooky]

Came home with a wife...that's funny. The difference in the price of labor relative to raw materials is what makes it worthwhile to import stuff from overseas.

As to what I do to put food on the table, I would think it'd be obvious by now. I'm a trader. I import stuff and I sell it. I have a couple guys who work for me who pack stuff and ship to our customers. The best thing about it is that I'm my own boss and I don't have deal with nonsense from anybody. I also own pieces of a couple of other small businesses. Used to own a couple of other businesses, but I sold them.

Right now is downtime and I loaf around at the warehouse all day. One of my guys is getting a little annoyed at how many times I send him out for coffee lately. Next month things start getting busy so I won't have as much time to hang around the forum as much. Actually, I have to go to China at the end of this month. I'm kind of looking forward to it for the first time in years. Finally found a hotel I like with stuff to do.