When a U.S. product, such as an automobile, arrives at another country's port, the foreign government slaps on a VAT import tax that is a percentage of the price of the U.S. product, the transportation cost to get it to the foreign country, and the tariff that the foreign country charges.
For 40 years, the United States has been signing trade agreements that were supposed to reduce or eliminate tariffs and thereby promote free trade. European countries sanctimoniously proclaim that they are reducing their tariffs, but in fact they replaced their tariffs with a steadily increasing VAT.
In 1968, the average tariff rate collected by European Union countries was 10.4 percent, and the average VAT rate was 13.44 percent, making a trade barrier against U.S. goods of 23.84 percent. By 2006, the average tariff rate declined to 4.4 percent, but the average VAT rate climbed to 19.36 percent, making the trade barrier against U.S. products 23.76 percent.
Foreign countries substituted high VAT rates for high tariff rates, thereby maintaining their border barriers against competition from U.S. goods. The result is that most foreign countries still have de facto tariffs against U.S. goods that are as high or higher than their tariffs of 40 years ago.
Of course, this is flagrantly contrary to the announced goal of free-trade agreements. But don't look for any relief from the World Trade Organization because the WTO consistently rules against the United States.
Foreign governmental use of the VAT has inflicted U.S. industry with monumental costs, increasing every year, and reaching $327 billion in 2006. That's the sum of the VAT rebates paid to companies that ship foreign-made products to the United States, plus the VAT paid by U.S. companies for the privilege of selling their products in foreign countries.
The current system is not the result of the free market or free trade, but the failure of our government to expose and counter the dishonest practices of U.S. trading partners. After 40 years of tolerating this rip-off, it is time for national leaders to demand a new strategy and a level playing field.
Phyllis Schlafly is a national leader of the pro-family movement, a nationally syndicated columnist and author of Feminist Fantasies.
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