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Update from Washington: BAT, NAFTA and What’s Dead or Alive

To die or not to die seems to be the question looming around the border adjustment tax, as those on the Hill bump heads and battle over what to do with tax reform.

So far, the much maligned BAT tax isn’t quite off the table yet.

That was the message delivered Wednesday at the American Apparel & Footwear Association’s Supply Chain Innovation sourcing conference in New York City.

“I will tell you very clearly, it’s on life support right now,” AAFA president and CEO Rick Helfenbein said, adding, “…but it’s far from dead.”

(Read more about why the BAT tax is reeling: Border Tax May be Meeting its Death)

Right now, Republicans are trying to push tax reform, and House Speaker Paul Ryan, the champion of that tax reform, really wants to get it passed, and according to Helfenbein, Ryan thinks the BAT tax could be the way to do it.

Talk about the BAT tax has been bad news for retailers, because if taken in its proposed form, it could raise the tax on a $10 garment from $0.35 to $1.40 since cost of goods would no longer be deducted—this despite the reduction in the corporate tax rate from 35 percent to 20 percent.

It sounds like a lot of money for retailers to fork over, and it is. In fact, as AAFA executive vice president Steve Lamar added in a session later in the day, the BAT tax could help the government generate as much as $1.2 trillion in revenue, which would ensure their tax reform could remain in place permanently—and retailers could end up footing quite a lot of that bill.

For retail to survive a tax like that, as Helfenbein explained to a room full of anxious retailers, “You would have to raise your selling prices so high that you’d either lose customers or go broke…We cannot support something that has the ability to put us out of business.”

What’s causing alarm for Lamar at this stage is the fact that despite all the rhetoric and speeches and hearings surrounding BAT, there’s still so few details about it.

“It could mean that we don’t have enough time to do it, or that when we do do it, it’s going to happen very quickly,” Lamar said, explaining that trying to put such a steep tax in place suddenly could mean ramifications for the sector beyond just trying to cope with the tax.

Talk of BAT being dead isn’t fully founded, as Ryan continues to tout it and others in the leadership still want to see something come of it. However, the tax is still facing a tough road ahead.

“It’s effectively dead on the Senate side. They will not tolerate it,” Helfenbein said, adding that in White House hearings, some have sided with the BAT and others against it. Put simply, celebrating BAT’s demise should be put on hold for now. “It’s not dead until it’s really dead.”

What about NAFTA?

The question on deck for NAFTA these days is still whether to nix it or negotiate it.

Trump and his administration have looked upon NAFTA as the plague that emptied American factories, but that really wasn’t it at all.

It was the “ations,” according to Helfenbein.

“Automation, innovation, globalization, over-regulation. That’s what emptied those factories. It wasn’t NAFTA. It wasn’t NAFTA at all,” he said.

Between TPP and NAFTA, President Trump has referred to one as the worst trade deal ever negotiated and the other as the worst trade deal ever signed. But more than likely, elements of the now dead Trans-Pacific Partnership may find their way into a “newfangled” NAFTA.

“We’re going to take elements from the worst trade deal ever negotiated and put them into the worst trade deal ever signed and call it a victory,” Helfenbein quipped.

Either way, as Lamar added, the one thing that is clear about Trump and his plans for trade is that he wants to dial back ballooning deficits and focus on enforcement. Beyond that, one big topic on the table for NAFTA is whether the rules of origin should be changed.

The point is, as Nicole Bivens Collinson, president of trade and legislative affairs for trade law firm Sandler, Travis & Rosenberg, stressed, a lot of what remains up in the air about trade could affect the apparel sector, though there’s no telling whether changes will happen suddenly or slowly.

“You really need to stay alert,” she said.

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