Retailers and brands form coalition to fight US border tax

By

Susan Spies

Published
Feb 2, 2017

First there was talk of financing a wall between Mexico and the U.S. with a 20% tax on Mexican imports. But this week, the U.S. Congress is actively debating the so-called border adjustment tax (BAT) and the apparel industry has decided to act.

Some 130 brands, chains and trade associations have formed the American for Affordable Products Coalition. The membership roster already boasts some of the biggest names in the industry, including, LVMH, Gap Inc., Levi Strauss & Co., Nike Inc., QVC and Ikea North America, to name a few.

Powerhouse U.S and Canadian retailers are also backing the initiative, including Target Corp, Wal-Mart Stores Inc, Neiman Marcus Group Inc., Kohl’s Department Stores Inc., Dillard’s, Macy’s Inc., Ross Stores, Sears Holding Co. The Bon Ton Stores Inc. and Hudson Bay’s Company.

The BAT especially has retailers and apparel manufacturers nervous because of how it could impact the elaborate system of imports, exports and outsourcing they rely on to control their costs and price points. Currently U.S. companies that import products can write a tax income deduction for the cost of the product, including materials and labor costs. Under the new tax proposal, companies would no longer be allowed to deduct any of those costs on imported products. They would, however, be able to continue to deduct the cost of products made in the U.S. and would only be taxed on the profit of these.

On the coalition’s website launched today, keepamericaaffordable.com, the group started its push back, saying the proposed tax will end up costing consumers. National Retail Federation (NRF) President and CEO Matthew Shay said in a statement: “There are plenty of taxes already on hard working Americans and the retailers that serve them, and higher prices just add to that burden. We support creating a less complicated, more straightforward and equitable tax code, and will work with both the Administration and Congress to achieve that goal, but the Border Adjustment Tax is not the answer.”

The NRF has concluded that a BAT would add $1,700 in expenses to a consumer household.

Businesses in the apparel and retail industry are increasingly nervous about the Trump administration’s spate of executive orders and proposed legislation.  The U.S. and Mexican apparel and textile industries are largely intertwined, and many U.S. manufacturers outsource some of their production steps to Mexico. A 20% import tax on Mexican imports, floated by a Trump spokesman earlier this month, would jeopardize that model.

And all these concerns are coming to the forefront just after the Trump administration killed the the TPP free trade treaty during its first week in office. The tabling of the treaty was viewed as a defeat for many apparel trade organizations, including the American Association of Footwear and Apparel (AAFA), which had heavily lobbied for the agreement.