European Exporters to Benefit From Collapse of US Import Tax Proposal

Large American retailers succeeded in stopping plans for hundreds of millions of dollars in new taxes on olive oil imports into the United States.

Jul. 31, 2017
By Shawn Mitchell

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On Thursday, con­gres­sional Republicans in the United States dropped a pro­posal for a 20 per­cent tax on imported goods as part of a broader tax reform plan. The Border Adjustment Tax (BAT) would have put European olive oil pro­duc­ers at a com­pet­i­tive dis­ad­van­tage in rela­tion to their American counterparts.

European exporters, who account for the vast major­ity of the $2 bil­lion of olive oil sales in the United States, could have faced hun­dreds of mil­lions of dol­lars in new taxes under the pro­posed plan. The demise of the BAT sug­gests that European olive oil prod­ucts will prob­a­bly not face a sud­den cost increase in the American retail mar­ket as a result of fed­eral tax reform leg­is­la­tion any­time soon.

Olive oil exporters in Europe have already been grap­pling with increas­ing price pres­sures in the United States due to a lack­lus­ter har­vest in 2016, surg­ing global demand, and recent declines in the dollar/euro exchange rate. The pur­chas­ing power of American retail­ers who import olive oil from abroad would have been fur­ther dimin­ished by the intro­duc­tion of the BAT.

Retail estab­lish­ments of all sizes in the United States, includ­ing Walmart and Target, were vehe­mently opposed to the pro­posal. The tax would have placed pres­sure on retail­ers to pass on the new expense to con­sumers through increased prices, spark­ing fears of a pos­si­ble decline in con­sumer spend­ing. As a result, oppo­nents of the tax were able to suc­cess­fully dis­suade law­mak­ers by cit­ing prob­a­ble dam­age to retail com­pa­nies — an indus­try that is cur­rently endur­ing mas­sive dis­rup­tions brought about by new technology.

Proponents of the BAT plan had hoped to encour­age greater pro­duc­tion of olive oil and other goods inside the bor­ders of the United States by mak­ing imports more expen­sive. American exporters of olive oil would have been exempt from the tax but may have faced the impo­si­tion of retal­ia­tory tar­iffs by for­eign gov­ern­ments. While most American olive oil exports go to Canada and Mexico and would have been rel­a­tively immune to trade dis­putes with Europe, US exporters will face a new round of uncer­tainty as the Trump admin­is­tra­tion ini­ti­ates talks to rene­go­ti­ate the North American Free Trade Agreement (NAFTA) in August. 

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Tax reform has long been a cen­ter­piece of the Republican agenda in Washington. The import tax, which was pro­jected to have raised $1 tril­lion over the course of 10 years, was designed to off­set large pro­posed cuts to the American cor­po­rate income tax rate, which cur­rently stands at 35 per­cent. However, with­out an income source to off­set the pro­posed reduc­tion in the cor­po­rate tax rate to 15 or 20 per­cent, the fed­eral bud­get deficit would skyrocket.

The full impli­ca­tions for European olive oil exporters of the col­lapse of Washington’s pro­posed pro­tec­tion­ist mea­sures will prob­a­bly become more clear as Congress returns from its August hol­i­day recess and the 2017 har­vest begins in earnest. However, the mere threat of a 20 per­cent import tax invari­ably has many European pro­duc­ers eval­u­at­ing their strate­gies on how to secure afford­able access to the grow­ing American olive oil market.



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