Emanuel Chirico

WASHINGTON — Emanuel Chirico, chairman and chief executive officer of PVH Corp., who participated on a panel addressing tax reform issues in the nation’s capital on Thursday, said a Congressional proposal to impose a border tax on imports has created volatility and uncertainty and has real implications on future investment decisions.

Chirico also cautioned that putting up a “wall” to trade is not the answer to future growth and declared that the “ship has sailed” on apparel manufacturing in the U.S., which he does not believe will return on a large scale. He didn’t comment on textile production, which has seen a revival in areas such as yarns and knitwear.

President Trump has outlined a broad framework for revitalizing American manufacturing and bringing jobs and companies back to the U.S., proposing both incentives and penalties to carry out his plan. Trump supports a major overhaul and reform of the U.S. tax code, simplifying and lowering the corporate tax rate, as well as that for families and individuals.

At the same time, House Republicans are also crafting legislation based on a blueprint they released last year to lower corporate taxes to 20 percent from the current 35 percent and pay for it in part by a concept known as the border “adjustment” tax (BAT).

Chirico participated on a panel at the Tax Council Policy Institute’s annual symposium at a time when the BAT is a lightning rod on Capitol Hill. The symposium came on the heels of a meeting that a group of retail ceo’s, including those from Gap Inc, J.C. Penney Co. and Target Corp., had with Trump on Wednesday where they raised their concerns about a border tax.

Chirico outlined how a proposed border tax on imports could potentially impact PVH’s existing and future investments.

“We made a decision just 12 months ago to build a factory, a manufacturing base in Ethiopia — a textile mill, vertical integration — getting all of the support from Washington, really incentivizing us to do this with this idea of being duty-free [for the goods] we were bringing in,” Chirico told the audience. “We’ve invested tens of millions of dollars and now we are turning around and it’s going to be a 20 percent border tax after I was arm twisted all the way through to say it will be great if the second largest apparel company in the world based in the United States will take a leadership position on this?”

It would essentially tax the value of imports but not the value of exports. Currently, companies that import products can deduct the cost of the product, including materials and labor costs, when determining income taxes, according to industry officials. However, under the House GOP proposal, companies would not be allowed to deduct any of those costs on imported products. U.S. companies would be able to continue to deduct the cost of their products and would only be taxed on the profit.

“That kind of volatility, and I’m sure it [the Ethiopian factory] will still be a great investment, with all of that capital being invested really gives one pause when you start thinking about making capital investments which drives productivity and growth, and when you talk about acquisitions,” he said. “There are some real opportunities out there today given where the economy is, but I find myself [thinking] constantly that I’m not sure about what the tax situation is going to be and that is going to have an impact if I decide to finance this major $5 billion acquisition with $2.5 billion of debt. You want to be bold, you want to move but at the same time when you don’t know where the pieces are going to fall at the end of the day, it’s tough to be bold.”

Mark Weinberger, global chairman and ceo of EY, said there will need to be a transition time period for businesses facing major tax reform.

“The reality is companies can’t redo their supply chains overnight to deal with a lot of change so there is going to have to be some negotiation about how to implement any of these [tax] changes,” Weinberger said.

On U.S. manufacturing versus global manufacturing, Chirico said he doesn’t see companies moving back en masse to the U.S. He said half of PVH’s employee base is in the U.S., with those jobs focused on product development, sourcing, merchandising, marketing and design.

Weinberger noted that even if the U.S. increases its manufacturing base, there won’t necessarily be a corresponding increase in jobs, due to automation.

Chirico said global trade without barriers is “critical for us.”

“We ship goods in our supply chain around the world and the only place we have a problem bringing goods into is the country of China,” he added. “The inspections are ridiculous. It is all based on their trying to make the homegrown products have an advantage. So, yes, there are issues that need to be addressed, but putting up a wall is not the answer.”

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