As noted in an earlier post, I don't know if this issue is building up momentum, but I seem to be coming across it quite a bit. This is from an op-ed in the Boston Globe:
The second core problem is hidden foreign tariffs called value-added taxes, or VATs. Most US import tariffs have dropped tremendously in the last 40 years, but virtually all our trading partners have replaced their tariffs with VATs, reflecting taxes they place on their own goods, on our exports to them.
A VAT tax system taxes goods - including imports - as value is added. When the World Trade Organization was established, VAT tariffs were exempted to placate France, which lowered its tariffs but raised its VAT tariffs on imports.
Today, more than 140 of our trading partners have implemented VAT systems. The average is 18 percent. The United States is the only major trading nation without a VAT, and cannot legally impose its income tax on imported goods. The playing field is not level. The overall trade impact is astounding.
For example, when the United States ships a $20,000 car to Germany, a 19 percent VAT is imposed at the border, or about $3,800. The delivered price rises to $23,800. The effect is the same as a tariff, which is why we call these VAT tariffs.
The House of Representatives just approved the Peru Free Trade Agreement. Peru has a 19 percent VAT. The United States will drop its already low tariffs further, and Peru will drop tariffs on a slower schedule. But Peru will always be able to impose a 19 percent VAT on US goods that it imports.
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Correcting the VAT tariff problem is more difficult. Because the VAT tariffs are legal under the WTO, America cannot neutralize them without risking trade sanctions. America should consider lowering taxes on jobs, replacing them with a US version of a VAT.
