TPP Tariff Cuts May Spur Congressional Debate Over Revenue Replacement, Say Stakeholders

The Trans-Pacific Partnership is poised to require vast payment mechanisms to account for billions of dollars in slashed U.S. import duties, and Congress, alongside the administration, will soon have to explore their options for finding replacing those funds, said a number of lobbyists close to the debate over recent days. Those lobbyists offered conflicting views on whether funding poses a real challenge to passage of implementation legislation, with some saying customs user fees, which have been used to offset some trade deals in the past, may be difficult to increase further.

Staffers with the Office of the U.S. Trade Representative declined to comment on total U.S. duty reductions in TPP, nor did it discuss how much of that sum will likely have to be restored with additional revenue. USTR and the Obama administration are now focused on selling the deal to lawmakers and the American public (see 1511130012). President Barack Obama now has roughly 80 days of statutorily-mandated waiting time before he can formally sign the pact, at which point the administration will then need to send an implementation bill to Capitol Hill.

A staffer with the Finance ranking member Ron Wyden, D-Ore., said the administration would first need to float legislation, and the Congressional Budget Office will have to score it, before Congress will develop the payment mechanisms. A spokeswoman for Finance Chairman Orrin Hatch, R-Utah, said it’s far “too early to have details on” funding at this early stage in the TPP legislative fight. Hatch has aggressively criticized the pact’s outcome of biologic, and the long-time trade supporter has suggested USTR may need to return to the negotiating table (see 1511060028).

The lobbyists confirmed Finance and Ways and Means officials haven’t yet reached out to industry on TPP payment. “Payment will be a difficult task. It’s going to be a real hurdle before passage, although it’s not seen as a hurdle now,” said David Spooner, a lawyer and lobbyist with Barnes & Thornburg. “In the past, payment for [free trade agreements] has been customs user fees. But it’s sort of the conventional wisdom now that customs fees have been used up and we’ve increased them as much as they can.” Spooner said further raises in the fees are, however, possible.

Lawmakers used a mix of Internal Revenue Service modifications and extended customs fees in implementation legislation (here) for the U.S.-Korea free trade agreement. In another example, lawmakers cut NAFTA user fee exemptions while extending other user fees and boosting a corporate tax in order to implement (here) the U.S. FTA with Colombia. Members of Congress have recently battled over the use of fees in long-term highway funding (see 1510150029).

Another lobbyist said lawmakers have always resolved the FTA payments issue in the past and they’re likely to do so again with TPP. “This has always been one of those issues that have been taken care of,” said the lobbyist. “An international agreement of this importance … I can't imagine the pay-for is going to be an obstacle. That’s not to diminish the value of the aims of Republicans that want to pay for it.” Lawmakers may opt to go ahead with a dynamic scoring framework that incorporates expectations for increased revenue based on TPP export growth for U.S. companies, that lobbyist said.

Sufficient TPP payment provisions may prove politically critical toward the end of the legislative fight, but industry supporters of TPP are now focusing on discussing the merits of the pact and pushing passage on Capitol Hill, said Matt Priest, president of the Footwear Distributors and Retailers of America, on a recent conference call. “Needless to say, there will be a ton of opportunities for that to be debated and I think they’ll come up with the right kind of pay-for,” said Priest. “It may be politically necessary but that’s for us to kind of figure as people start analyzing it and thinking through their legislative strategy.”