A monthly “insider’s” perspective on what’s really happening in DC, often well before they reach the cable news shows and the press.

Readers are invited to comment, by email, to OurManInDC@FederalRelations.com

Today Federal Reserve Chairman Bernanke warned Congress to avoid pushing the economy off a “financial cliff.” He is worried that Congress might increase taxes, while imposing draconian cuts in Federal programs. He says our recovery couldn’t withstand such a combination. I had to chuckle; at least until Nov. 6, I don’t think he has to worry- no one on either end of Pennsylvania Avenue is going to increase taxes before an election.

The current hottest issue on Capitol Hill is the Transportation Bill, as Congress races to avoid Highway Trust Fund bankruptcy, jeopardizing current highway and transit construction programs.

Both the House and the Senate have passed transportation bills, but neither “pencil out,” because neither House nor Senate, nor the White House, are willing or able to come up with a way to actually pay for our transportation programs in long term. Cars are getting better mileage, ethanol is exempt, so less federal gas tax is collected, and less revenue is coming into the highway trust fund. What are the solutions? At a freight mobility conference here in DC this week, we heard some suggestions: a national sales tax to pay for highways, bridges, etc.; an additional diesel fuel tax; a tax on trucking way bills; a container fee; an increase in the excise tax on transportation equipment (trucks, etc.);

What I proposed at the conference was a completely new “freight mobility infrastructure program,”  building dedicated roadways and highway lanes, bridges, river locks, port access, etc.  Infrastructure dedicated to freight, paid for by the freight movement users. There is some appetitive for this — the American Trucking Association would accept an increase in the diesel fuel tax if the revenue was exclusively for additional road capacity dedicated to trucks.

Without improved freight mobility, our entire economy is undermined. Congestion and delays are costly for companies distributing consumer products here in the US, and make our exports more expensive, as they attempt to get to ports and compete in the global marketplace. Addressing this should be our longer term goal. But for the next six weeks, Congress will be simply working on a stop-gap measure to keep our current transportation programs functioning. Really fixing our freight transportation challenges will be left to the next Congress, and either the second Obama term or the first Romney term.

To complicate matters, and to remind us that we are indeed in a  political season,  two very contentious issues have been inserted into the Transportation Bill — approval of the Keystone pipeline bringing Canadian tar sand oil to the Gulf Coast refineries, and a repeal of EPA’s regulation of coal ash. These pit environmentalists versus industry,  Democrats versus Republicans, and have found their way into the Presidential campaigns. Yet they will have to be resolved before any transportation bill is enacted.

Things are heating up in DC.

A monthly “insider’s” perspective on what’s really happening in DC, often well before they reach the cable news shows and the press.

Readers are invited to comment, by email, to OurManInDC@FederalRelations.com

Here in DC, try as we might, we just can’t seem to get past the issue of REVENUE. The lack of funding, and the debate over how to generate revenue, is sucking the oxygen out of this city. Next week Congress returns from its Easter Recess, and the Presidential campaign gets underway in earnest. I leave the debate over increasing revenue versus reducing spending, to President Obama and Mitt Romney and their surrogates. But behind the rhetoric, all parties recognize that we have to solve the revenue problem, and soon. In fact, they have already begun. Here are some examples.

To maintain our international trade infrastructure, we need to maintain our seaport navigation channels. The US Army Corps of Engineers is given about $750 million per year, even though the dredging needs are far greater, and even though the Harbor Maintenance Tax (created in 1987 to pay for dredging), generates $1.5 billion per year. Congress is now considering, for the first time since 1987, spending the entire $1.5 million each year. In this case, we already have the revenue, now Congress and the President have to decide to actually spend it. It’s the right thing to do, but not so easy – spending all that money will put a bigger dent in the budget deficit, creating the need to find additional revenue to fund the government.

Renewal of the Transportation Authorization Act, (which funds highways and transit), languishes due to insufficient revenue from the highway gas tax. The cost of maintaining existing transportation infrastructure keeps going up, as does the increasingly urgent need to modernize and build new transportation infrastructure. But neither Congress nor the White house has had the courage to increase the gas tax since 1991. Stay tuned for the Lame Duck Session after the election when they will increase the gas tax or impose a new freight diesel tax, or something else. They know the stakes are high, as our transportation infrastructure continues to deteriorate.

At the end of this year, many provisions of a current primary revenue stream – the Internal Revenue Code – will expire. While lambasting the so-called “Bush tax cuts” was popular on the campaign trail in 2010, eventually Congress and the White House agreed to extend them until December of this year. Will tax rates increase, in order to generate more revenue?

Why has the revenue shortfall remained unresolved? Generally speaking, and there certainly are exceptions, Democrats have been seeking revenue (tax) increases, while Republicans have opposed them. We may be close to a breakthrough: Senator Grassley, senior Republican on the tax-writing committee, the Finance Committee, says he would support closing the loopholes in the current tax code that cost the federal government billions in revenue (even though anti-tax purists would call that a tax increase). But his quid pro quo is to reduce the marginal tax rate.

Grassley wants the Congressional Budget Office to update the way that it determines the impact of changes to the tax code. Currently, CBO calculates the “cost” of a tax-rate reduction by subtracting revenue from current amounts collected. Senator Grassley believes that lower tax rates stimulate economic growth. He argues that as more people are working, incomes increase and businesses make profits, then total tax collections would increase. Grassley wants this increased revenue incorporated into the calculation of the “cost” of a tax cut. If he gets CBO to agree to this “dynamic” scoring, he will agree to eliminate current loopholes, and the logjam might be broken.

The need for revenue and the reluctance to make substantial cuts in federal spending, means that we may be going back to the Simpson-Bowles Deficit Commission recommendations presented to Congress and the White House two years ago. Neither Congress nor the President had the political courage to adopt the recommended spending cuts and tax increases proposed then. They may now.

A monthly “insider’s” perspective on what’s really happening in DC, often well before they reach the cable news shows and the press.

Readers are invited to comment, by email, to OurManInDC@FederalRelations.com

Who will be your Congressperson this fall?

Most who read my Monthly “View from Washington DC” are not only aware of who represents them on Capitol Hill, but have actually met them and their staff. Time has been invested in hosting the local Member of Congress, or visiting them in the Capitol Hill offices, so that they can be familiar with you and your agenda – what you need from the federal government. The staff working in your Member’s office have become knowledgeable as to the legislation that will impact you, and the Federal agencies which distribute funds and administer programs which benefit (or harm) you.

But nothing remains the same for long in DC, and particularly on Capitol Hill. Come November 7, many citizens, businesses, ports, cities will find that they have a new Representative on Capitol Hill. Some of the changes are predictable – we know who the new Congressperson will be. In other cases, the identity of the new Representative is uncertain, at least for now.

Why all the changes this year? Every 10 years, the US Census conducts extensive population counts which provide a detailed description of the ever-growing, ever-shifting US population. Some regions and states gain population, some lose people. Yet there remain only 435 seats in the House of Representatives. This year, for example, Washington State will gain a seat, reflecting its population growth, while New York, Ohio and Michigan will each lose two seats, as the population continues to move South and West. The state legislatures, once informed how many Congressional seats their states will have, then go about the task of creating Congressional Districts, each to have about the same number of people.

This is where politics asserts itself. Typically, the Majority party in the State legislature will carefully draw new District lines in a way that will maximize the number of Districts that candidates of its own party can win. To accomplish this, the party registration of voters in every block of a city are scrutinized, and rural communities are linked in ways that only make sense to a political pollster. This has been called “Gerrymandering”. Partisanship reigns; the stakes are high, as they can impact which party will control the House of Representatives. In most cases, the new Congressional Districts are drawn in such a way that the incumbent Members of Congress retain much or most of their prior District. But sometimes, the lines might be simply adjusted slightly. In other cases, Congressmen find themselves in largely new territory. Often we see legal challenges by the disadvantaged party (seemingly regular in Texas).

So, you may find that this November 6, the Congressperson for whom you voted just two years ago is not on your ballot, there’s a new name. Generally, the incumbents run again, and you may see the Congressperson who previously represented a nearby area, now on the ballot for your town.

But some Members of Congress may not think they can win in the new District. Too many voters registered in the other party. Or just too much effort, to introduce himself to a million people who don’t know him. Over time, demographics change. Areas that might have had, for example, few Hispanics (or Asians or African Americans) 20 years ago, might now be predominantly Hispanic (or Asian or African American) and they may prefer a new Representative.

Periodically, a senior Member of Congress decides he or she has simply had enough. Perhaps tiring of the partisanship in Capitol Hill, such as claimed by Maine Senator Olympia Snowe. Democratic Rep. Barney Frank of Massachusetts chaired the House Financial Services Committee at a time that the banks were collapsing; he authored the Dodd-Frank law that now regulates all commercial banking activity in the US. But now, the Republicans are in the Majority, and the once powerful Rep. Barney Frank has been regulated to the sidelines. So, he announced his retirement last month.

So, many of us are now beginning the process of educating the Member of Congress who we believe will represent our interests after November. In coming months, Members of Congress will be introducing themselves to new constituents, some very close to their old Districts, and some 100 miles away, or more. For many businesses and communities this is an opportunity to develop new relationships and new advocates on Capitol Hill. Between now and November, as many Members seek to show new constituents what they can do for them, we have a once-a-decade opportunity to take advantage of the enthusiasm of our would-be Representatives.

A monthly “insider’s” perspective on what’s really happening in DC, often well before they reach the cable news shows and the press.

Readers are invited to comment, by email, to OurManInDC@FederalRelations.com

The beginning of an Election Year is always an interesting time here in Washington DC, particularly when it is a Presidential election year. There are a number of competing forces at work, which make the coming eleven months promising, frustrating, unpredictable, all at the same time. The Common Wisdom is that “nothing gets done during an election year” because those running for reelection want to avoid as many controversial issues and votes, as possible. But this year, in particular, the common wisdom will be wrong.

Certainly, the standard practice of avoiding controversy in the months leading up to an election will be very much in play. It is, after all, the Independents who play the critical role in a Presidential election, so candidates for the White House, including the incumbent, are ever mindful that positions which might be enthusiastically embraced by the political base of their party, can alienate the Independent voter. The same applies to most Senate races, particularly this year when the independent voters in swing states, such as Missouri, Ohio, Wisconsin, neither clearly “blue” nor “red,” will determine which party will control the Senate next year.

On the other hand, Members of Congress and the President do want to show that they can “get things done”. Especially this year, with Congress seen as incapable of taking any bold action on the economy or anything else, Senators and Congressmen would like to have a record to run on, something other than just being successful in opposing what the other side of the political aisle has proposed. Under pressure to perform, they will be looking for less controversial, substantive bills, without significant budget impact, that they can pass. There are many in this category, such as the Customs Authorization bill which makes Customs and Border Protection more efficient, gives it new tools, and direction, impacts the flow of imports and exports. It’s just not very interesting to the public, or to Congress, so has languished for four years. It does not have much budget impact, so it will not generate controversy over spending. It might well pass this year.

But most promising is what will happen at the end of the year, when Congress and the President are “liberated”, after the November 6 elections, as Congress reconvenes for a Lame Duck Session. This is a time when a great deal can get done, and I believe this year will be one such time.

During these final months of the year, Members of Congress know that they have either two or six years before they have to run again, and feel less encumbered by the need to cow-tow to special interests that fund their reelection campaigns. Of course those who either lost or retired, will continue to sit and vote during the Lame Duck session, so they can vote any way they darn well please! And the President is either reelected or not; either way, he won’t ever run again, so he is also liberated. The result is one of the rare opportunities in which the majority of Congress can actually vote their conscience.

What could happen this year during a Lame Duck?

First, Congress could actually pass a Budget, and it could have some real, and for some, painful cuts. This could be a very dangerous time for the Department of Defense, and for some programs, including some grossly over-budget weapons projects, which Congress is tired of supporting.

Second, a Transportation bill could be passed. The public, Congress and President are united – we need infrastructure.  That part is not the partisan issue; what is difficult and controversial is identifying and passing a revenue source to pay for all of those projects.  In an effort to skirt the obvious, but politically most dangerous source  of revenue (increasing the gasoline tax)  the Republicans want to fund a robust transportation bill with new revenues from royalties on new oil and gas production on Federal lands, while the Democrats who oppose such new drilling, have come up with  a stew of other revenue sources. But the gas tax is the one that politicians have been afraid to embrace since 1991, when Congress did increase the gasoline tax – during a lame duck session!

Third, many Agencies require guidance or direction from Capitol Hill on matters which are too technical for the general public to understand or appreciate, but which are never the less important in serving the public interest.  An example is a Water Resources Development Act, in which the US Army Corps of Engineers is given authorization to build new navigation projects. But these can be controversial with everybody ranging from budget-cutters at the Office of Management and Budget, to environmental groups. So it is no surprise that Congress has been unable to pass a WRDA bill for many years, even though some projects are desperately needed to keep the US competitive internationally, and to keep commerce flowing domestically. Finally this year, a WRDA bill could pass during a Lame Duck.

Fourth, the President is less constrained by Congress during that time, which can be either good or bad, depending on your views. During this period, the President will try to implement (or kill) regulations that are very controversial. Lightning rods of controversy such as the Keystone Oil Pipeline, which requires “a stroke of the pen” by the President, could either receive environmental approval or be denied. Roll of the dice.

Congress just might give US trademark owners some new tools to combat internet piracy, in which stolen merchandise such as counterfeited shoes, clothing, watches, etc are sold via bogus websites.

Banking regulation is ripe for some tinkering. Lax lending standards got the country into the current economic mess, so tighter scrutiny and standards were imposed. So far, Congress and the White House have been hesitant to loosen the restrictions, but the restrictions, such as those on community banks, could be relaxed during a Lame Duck.

The list goes on, which is what makes the Lame Duck, and this Election Year both promising and intimidating.  We do know that a bill can move very fast during the Lame Duck, without all the scrutiny, hearings, debate and procedural hurdles facing legislation during the regular Session. One has to be ready. Some of us are gearing up already.

Common Wisdom may be right, nothing gets done. Or, this could end up being a highly productive year.  We and many others are pushing hard for the latter.

A monthly “insider’s” perspective on what’s really happening in DC, often well before they reach the cable news shows and the press.

Readers are invited to comment, by email, to OurManInDC@FederalRelations.com

The common wisdom is that nothing gets done in Washington DC in an election year. But this year, the common wisdom could be very wrong. There will be a surprising amount of legislation (and regulation) pushed through to the President’s desk this year. But most of it might not happen until after the elections.

Truly partisan issues might be put on the shelf during these 10 months before the polls open on November 6, to determine which party will control the Senate, the House and the White House. But there are many many issues that Congress tackles every day that are completely non-partisan. Those might very well be addressed, constructively, before Congress adjourns in October for the final campaigning before Election Day.

But it does not stop there. The most “fertile” period for legislation can be the “Lame Duck Session” if Congress reconvenes after the elections, in late November and December, but before the newly elected Senators and Representatives are sworn in, in January. During a Lame Duck, Members of Congress who have retired or were defeated, are still in the position to cast their votes, and they can (finally) vote their conscience or their whim, without fear of voter retaliation.

What issues might be addressed during a “Lame Duck”?  Politically sensitive issues. For example, we all know that transportation infrastructure is crumbling, and that the Highway Trust Fund is out of money. We also know that the only way to restore solvency to the Highway Trust Fund, is to increase the federal gas tax, which has been unchanged since the early 1990’s. Since then, politicians in Congress and the White House have lacked the courage to advocate increasing the gas tax.

But if there is a chance to pass the gas tax increase, it is during the Lame Duck. Outgoing elected officials will finally vote for what they know is the solution, and those who are planning to remain in office can hope that the voters will forget about their “Lame Duck” vote when they stand for reelection two, or four, or six years hence.

In the meantime, here is just a sampling of issues that will be before Congress this year:

• Developing the next Transportation infrastructure bill, covering Highways, Rail and Transit
• Coming up with a way to pay for the Transportation infrastructure bill
• Customs Reauthorization Bill – ACE, CTPAT for exports, Customs Broker responsibilities, tweaking 10 + 2/ISF
• China Currency Legislation – imposing retaliatory duties on imports from China
• Federal Maritime Commission (FMC) monitoring of ocean freight capacity
• FMC investigation of cargo diversion to Canada due to the Harbor Maintenance Fee
• A battle over Defense spending – how much and what focus?
• Making the budget cuts that were kicked down the road by the not-so –super “Super Committee”
• Another Round of TIGER grants for infrastructure
• Watching what the Supreme Court will decide on the Constitutionality of  the Health Care Bill
• Census and CBP working on new Option 4 , export documentation Rulemaking
• Challenges to the new trucking Hours of Service regulations
• Legislation to increase Weight Limits on the Interstate Highway System
• Building the Keystone Pipeline carrying oil from Canada to the US Gulf states
• TransPacific Partnership – negotiating to end import duties between 9 Pacific Rim countries, including Vietnam, Australia, Chile, Peru, New Zealand, Malaysia, US, etc
• Miscellaneous Tariff Bill – exempting many specific imports from duty
• Implementation of the Korea, Panama and Columbia  Free Trade Agreements
• Legislation allowing ports to ban independent owner-operator container drivers
• A new Commissioner of Customs takes the reigns

They certainly will not all be passed or signed into law, but it will definitely NOT be a quiet election year in DC!

A monthly “insider’s” perspective on what’s really happening in DC, often well before they reach the cable news shows and the press.

Readers are invited to comment, by email, to OurManInDC@FederalRelations.com

What is on the agenda for Congress in these final days of the Session? All bills introduced this year, the 1^st Session of the 112^th Congress, will remain “alive” for consideration next year, which will be the 2^nd Session. So there is no pressure to pass bill before the end of the year.  However, some things must get done by Dec 31, and they are, no surprise, primarily about the budget – extending the payroll tax holiday. But Alternative Minimum Tax relief, and the formula for Medicare payments to doctors, must also be addressed before Congress adjourns. And there will be another fight over how much money the government can spend, in a Continuing Resolution.

Meanwhile, as we head into the New Year, let’s consider the environment in which all decisions will be made.

The Threat: So far, we have avoided the disaster threatened by the European debt crisis, the possible collapse of the European banks, and even the Euro itself. But the EU financial system remains precarious, and both the White House and Congress are taking it seriously. What they can do is unclear, it is not at all certain that the US has the financial muscle to bail out the EU banks (as we did the US banks and investment firms) even if we wanted to.

The Ugly: The elections, now only 11 months away.  Republicans aiming at taking the Senate majority, while D’s trying to retain their control. The reverse in the House.  The President spending a billion dollars to win re-election.  Often they avoid votes on difficult challenges, in order to avoid offending any special interest group. Election years are not, typically, a time when Congress and the WH do their best work for the American people.

The Very Good: exports are continuing to surge, and growing domestic oil and gas production (by fracking and shale extraction) seems to be without limit. Both are very, very good for the economy. When exports do well and when domestic oil replaces imported oil, our balance of trade improves, and stimulates economic growth here in the US.

Back to the spending. Since the “Super Committee” could not reach a compromise, predictably, the six Republicans and the six Democrats on the Committee are blaming the other side for the inability to reach an agreement to cut $1.5 trillion from the deficit over the next ten years. Republicans are saying the Democrats would not agree to cut entitlements, and the Democrats are saying the Republicans would not agree to increase taxes. Exactly where the truth lies is hard to tell.

Now, what about those draconian automatic budget cuts that were promised in the Debt Limit agreement, if the Super Committee and Congress were unable to reach a compromise?  Will the Coast Guard budget take a hit? Will Federal transportation funding be on the chopping block? Will CBP trade facilitation programs be cut? Will Defense spending be hit hard?

Well, no. Not right away, and maybe never. It turns out that IF there are going to be any cuts, they won’t take place until Fiscal Year 2013, which doesn’t begin until October, 2012.  So, Congress has until then to agree on cuts. Or, they could once again kick the deficit cutting can down the road. Or they could hope that the economy will pick up (thanks to exports and energy production), which would generate more tax revenue and thus reduce the deficit. Or they could hope the American people simply forget about the need to cut federal spending.

Amidst all this uncertainty, two things we know for sure: first, this inability to reach some sort of an agreement will not elevate Congress above its current 9% approval rating. Second, the draconian cuts that were promised are unlikely to happen, certainly for the next 12 months, maybe longer.

A monthly “insider’s” perspective on what’s really happening in DC, often well before they reach the cable news shows and the press.

Readers are invited to comment, by email, to OurManInDC@FederalRelations.com

As Congress enters the final six weeks of this First Session, and the President ramps up his reelection campaign, we find ourselves at a “tipping point”. Typically, these last few weeks in the year before Presidential elections can be a fertile time for substantive work by both Congress and the Executive Branch to address and resolve major issues. Both Congress and the President often run away from politically sensitive issues during an election year. We only have six weeks until we are in an election year. So it may be “now or never”.

On the positive side, we have seen some real accomplishments in the recent weeks. Free Trade Agreements with Korea, Panama and Colombia, which have been simmering on the back burner for four years, were finally passed. More technical, but still important trade legislation, also passed after long delays. Even the proposed Keystone Pipeline, which would carry oil from tar sands in Alberta down to the US Gulf Coast States, might eventually find the White House and Republican Congressional on the same page, and be approved (despite vehement environmental opposition). A comprehensive transportation infrastructure bill, already two years overdue, is finally inching forward. (What we need now is an injection of courage on the Hill to increase the gas tax – unchanged since the early 1990’s – to pay for highway and transit needs). Congress seems to agree that infrastructure spending is acceptable, and the Dept of Transportation has figured out some very good transport projects to fund under the TIGER program. There is reason to believe that more could get done before the New Year.

As you read this, global financial markets are watching Greece and now Italy, with great concern. The prospect of the break-up of the EU common currency, is putting extraordinary pressure on the Congressional “Super Committee” to find a way to reduce the US deficit by at least $1.3 trillion over the next ten years. It’s still a battle between those on the Super Committee who would protect entitlements from cuts, and those that will oppose tax increases. If they don’t get this done by November 23, it will be a major political failure, discouraging to both Wall Street and “Main Street”; worse, by prior agreement, failure to agree, and for Congress to approve a budget plan,  would automatically trigger significant cuts to both civilian and military programs. It’s not clear how the American public would accept the kind of cuts in Federal spending that would result.

A bright spot is that exports are growing, mostly to Asia, while behind the scenes, the US Government and Pacific Rim countries such as Vietnam, Malaysia, Chile, Korea, etc are working toward a TransPacific Partnership that will reduce tariffs (if the protectionists in Congress will allow it), and thus further stimulate the flow of commerce from US manufacturers and farmers to newly opened Asian markets. Another development is the emergence of massive domestic oil resources in North Dakota; regardless of one’s views of fossil fuels versus renewable energy, reducing US dependence on imported oil will lead to meaningful improvements in our balance of trade, and thousands of new jobs.

So, in these weeks that Congress and the President pursue their last major accomplishments before ramping up their reelection campaigns, the environment here in DC is unsettled. We hold our collective breath as we hope, against the odds, that the 12 Senators and Congressmen on the Super Committee do not miss this historic opportunity to make real and lasting changes to the way we generate tax revenue, and the way we spend it. One thing Congress does very well – wait until the last minute. The deadline for the Super Committee is November 23. Don’t expect to see anything before the wee hours of November 24^th – Thanksgiving!

A monthly “insider’s” perspective on what’s really happening in DC, often well before they reach the cable news shows and the press.

Readers are invited to comment, by email, to OurManInDC@FederalRelations.com

For 9 months it has seemed that Congress and the President were only interested in one issue – the federal budget. And contentious, partisan battles had become ‘the norm’. Battles between Democrats and Republicans, between the House and the White House, were a constant, and not much got done other than the budget and setting spending limits. While those are important, and the deficit remains the elephant in DC, other functions of the government require attention: transportation, infrastructure, trade, tax, etc.  Yet it seemed that all the oxygen was being consumed by the budget and spending battles. All of a sudden that has changed, or, at least we have seen a glimpse of what can be accomplished when the Congress and White House feel they must find a solution.

This past week Congress passed three major trade agreements, opening new markets for US manufacturers, service industry and agriculture, defeated a misguided threat to trade with China, restored an important trade facilitation mechanism, and passed a limited worker training program. These had been languishing for months, in some cases years.

These trade agreements with Korea, Panama and Colombia were vigorously opposed by organized labor and their supporters on Capitol Hill and in the White House, which had refused to send the Agreements to Congress for nearly three years. Finally, as Korea and Colombia were entering into Free Trade Agreements with the European Union, with Canada, with Mexico, leaving US without competitive access to their markets, the White House was pressured into releasing the Agreements to Congress, and majorities were cobbled together in the House and Senate to pass them. What is remarkable is that we have decided we need to remain competitive in the global economy, and we have finally demonstrated the will and capacity to pass the laws which will allow US business to compete.

Keep in mind that the big news is still deficit reduction. The “Super Committee”, comprised of 6 Senators and 6 Congressmen (half Democrat and half Republican) continues to meet, striving to find a way to reduce the deficit between $1.2 and $1.5 trillion over the next decade. They must reach an agreement, and present to the Senate and House, by November 23. Then Congress must vote to accept that agreement. Failure to do so would trigger automatic cuts totaling $1.2 trillion, divided equally between defense/homeland security (including Coast Guard) and civilian government programs. And then Congress will be back to battling over raising taxes or not, cutting entitlement (Medicare, Social Security, etc) or not, cutting or eliminating specific programs or even agencies.

The Super Committee is comprised of 12 Congress people with diverse viewpoints, some who have vowed they will not accept any tax increases, and others who have vowed not to accept any cuts in entitlement programs. Frankly, without one or the other, or better yet a combination of both, it will not be possible to reach real deficit reduction. So an agreement will require compromise. It’s a tall order. Optimists only give it a 50-50 chance.

And until this work is completed, Congress cannot move forward with a meaningful jobs bill, or a transportation infrastructure (highway and transit) bill, or assign budgets to all the federal agencies, including Customs and Border Protection, the Corps of Engineers, the Defense Department, etc. Thus all Federal programs and their funding are “on the chopping block” through the end of the year.

In the meantime, there will be skirmishes on Capitol Hill as the business community and Republicans, emboldened by success in passing the trade agreements, will seek to derail new regulations being issued by the Administration. For instance, cement dust regulations by EPA, or trucking hours of service Regs by the Federal Highway Safety Administration, both of which are seen as “anti-business”. Regulations will be a flashpoint between the House and the White House for the remainder of the year.

It is all very unsettled, and with the economy still in jeopardy, the stakes are high. But passing the trade agreements gives us some reason for hope that when push comes to shove, decisions, the right decisions, are possible.

Updated October 18, 2011

Congress recently passed legislation covering these important trade matters:

• Generalized System of Preferences (GSP)
• Andean Trade Preferences Act (ATPA)
• Free trade agreements with Colombia, Panama and South Korea
• Merchandise Processing Fee (MPF)

This paper serves to answer questions about the “mechanics” of these trade bills.

When will the FTAs go into effect?

Unfortunately, entry into force does not occur when President Obama signs the implementing legislation into law this Friday (October 21).  In fact, the earliest the agreements can enter into force is January 1, 2012.  But the actual date the agreements enter into force will depend on how quickly each country ratifies their respective agreement.  We’re hopeful this will happen for each agreement by springtime next year.  We will be watching the ratification processes in Colombia, Panama and South Korea closely, and we will keep you updated as events warrant.

How much does the Merchandise Processing Fee (MPF) increase and for what time period?

Despite the rather confusing way the trade bills address the MPF, we are able to provide you with the “bottom line”: The MPF will be increased from 0.21% to 0.3464% for the period of October 1, 2011 to June 30, 2021.  The $485 MPF cap for formal entries remains in place, and companies will still be able to take advantage of the Weekly Entry procedure allowed to Foreign-Trade Zone users (i.e. the MPF cap for FTZ users will remain at $485 per week).

Explanation (optional reading): You may have heard that the increase in the MPF was spread across different trade bills, and that there was some discrepancy between the GSP bill and the Korea bill as it relates to the MPF.  Here is how it breaks down.

• The legislation extending the Generalized System of Preferences (GSP) program increases the MPF from 0.21% to 0.3464% for the period of October 1, 2011 to November 30, 2015.

• The implementing legislation for the US-Korea FTA increases the MPF from 0.21% to 0.3464% for the period of December 1, 2015 to June 30, 2021.

• While the GSP legislation also includes a provision that reduces the MPF from 0.21% to 0.1740% for the period between October 1, 2016 and June 30, 2019, this rate will be superseded by the rate authorized in the Korea bill.  This is because the trade bills will be signed in a particular sequence, with GSP being signed first, and the FTAs being signed after that.  As a result, the MPF provisions in the Korea bill effectively wipe out the conflicting provision in the GSP bill because the Korea bill will have been the “most recent” bill signed into law.

• While the implementing legislation for the US-Colombia FTA extends the MPF for the period of August 3, 2021 to September 30, 2021, Congress will likely pass new legislation at some point over the next ten years extending the MPF past June 30, 2021 at a rate of 0.3464% or higher.

Must MPF be pre-paid for the period of October 1, 2012 and November 12, 2012?

Probably not. While the GSP bill requires the MPF to be pre-paid between October 1, 2012 and November 12, 2012, this was done for accounting purposes and Congress intends to repeal this pre-payment requirement.

Explanation (optional reading): The reason Congress requires the MPF to be pre-paid between October 1, 2012 and November 12, 2012 is because the preference programs were extended retroactively, and the only way to stay revenue neutral – for purposes of accounting – between October 1, 2012 and November 12, 2012 is to require pre-payment during this period.  Again, this is an accounting gimmick that was used to get the trade bills over the finish line, and one that Congress plans to repeal.

What is the process for importers to pay the increased MPF retroactive back to

October 1, 2011?

U.S. Customs and Border Protection (CBP) is still working on providing an answer to this question, which will be based in part on an opinion from the Chief Counsel as to how much administrative leeway the agency has in allowing a grace period.  CBP is hoping to provide guidance this week. We will advise.

How will refunds on duties paid on imports from GSP and ATPA countries be collected?

GSP and ATPA will now expire on July 31, 2013.  The preference programs were extended retroactively back to when they originally expired – December 31, 2010 for GSP and February 12, 2011 for ATPA.

In order to get refunds for duties paid for ATPA, importers will need to request the refund from CBP in writing, either via post-entry amendment, post-summary correction, protest, or other letter.

The refund process for GSP is automated if the importer claimed the SPI “A” on the entry summary and paid the duties; otherwise, the request process is the same as for ATPA, above.

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The deficit and the recession – the two top priorities. Is it possible to cut spending by $1.2 trillion in order to reduce the deficit and restore our nations’ credit rating, while spending billions on new programs to create jobs to pull us out of a recession? That will be the question for the remainder of the year.

For the past two years, even as the budget deficit debate raged on, there has been underlying agreement, among most Democrats and Republicans on Capitol Hill, that if the federal government were to do anything to stimulate the economy, it ought to revolve around construction and infrastructure. Some voted against the original Economic Stimulus legislation on the grounds that only a small percentage of the nearly $800 billion was actually going to be used to build infrastructure.

So, no surprise that the centerpiece of the President’s jobs bill announced just this week is a major infrastructure initiative. Congress may wish to broaden the focus, beyond $25 billion to renovate 35,000 schools, so that this cash infusion can be used for other infrastructure, such as port, transportation, sewer, water treatment, etc. But the underlying concept of stimulating construction is one that the majority in Congress can agree upon. After all, both the US Chamber of Commerce and the AFL-CIO support it.

But spending money is the “easy” part of the job – which is why the President and Congress really prefer to talk about that, rather than about the really tough decisions that are coming up in the next few weeks, that will determine if we pull this country back into the good graces of the credit rating agencies, and thus strengthen the dollar as the world’s safest currency. It has to do with getting our spending under control. Here’s what’s coming up, fast:

1. We don’t have a budget for the new fiscal year, beginning September 30. Will Congress, in the next few weeks, be able to pass the appropriations bills, or a Continuing Resolution; or do we risk a government shutdown, which we don’t need.
2. The Federal gas tax expires September 30. As mentioned, I believe Congress will renew it, and keep highway and transit construction projects working.
3. 12 Congresspersons and Senators on the “Super Committee” must agree on cuts of $1.2 trillion by November 23, which Congress must pass by December 23. If they cannot agree, then $1.2 trillion in cuts (divided equally between defense and domestic programs, but excluding Social Security and Medicaid) automatically becomes law.
4. Will Congress find funding by December 31, to prevent a 25% cut in Medicare payments to doctors?
5. Will Congress extend current adjustments to the Alternative Minimum Tax? If not, at least 2 million taxpayers will be paying significantly higher taxes.

So, here is the challenge: spend money to create jobs, but cut spending to maintain our credit rating – a tough balancing act!