How to Become a Top Banana

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In Summerville, S.C., Rick Reinert has built a small business called Reha Enterprises that sells bath oil, soap and other supplies. But now he is selling many of his products, imported from Germany, at no profit or at a loss. This is the result of an order by the U.S. government.

In New York City, Arthur Kaplan, owner of Galaxy of Graphics Ltd., a retailer of decorative prints, has stopped selling the popular English lithographs produced for him by a venerable London art dealer for two decades. This is the result of an order by the U.S. government.

In Somerset, Wis., Timothy Dove, who heads a 17-year-old family business called Action Battery, which sells and installs industrial batteries, has lost a quarter-million-dollar account and faces the prospect of more losses to come. This is the result of an order by the U.S. government.

What's going on here?

Nearly a year ago, the Clinton Administration imposed a 100% tariff on the products these three businesses and hundreds of others like them import and sell. That's sort of like charging you $40,000 for a $20,000 Ford Taurus.

What did these folks do to encourage the wrath of the White House? Absolutely nothing. It was what they didn't do that matters. They neglected to make huge campaign contributions or hire high-powered Washington lobbyists to plead their case.

Reinert, Kaplan and Dove are what the military refers to as collateral damage--unwitting victims of what will go down in economic history as the Great Banana War. Except that for these victims, collateral is up close and very personal.

This is partly the story of Carl H. Lindner Jr. of Cincinnati, a certified member since 1982 of the Forbes list of the 400 richest Americans, who has a personal fortune estimated at $800 million and has been a very large contributor to political candidates, both Democratic and Republican.

But mostly this is a story about people who get hurt by contributions, who are paying a steep personal price because of the influence exercised by unlimited money in elections and lobbying. These human casualties are mostly unchronicled, but you can count them in the millions. They are your friends and neighbors.

In simplest terms, Lindner, whose company has dominated the global trade in bananas for a century, was in 1993 frustrated because European countries limited imports of his bananas. He complained to the U.S. government, which complained to the World Trade Organization (WTO), which authorized the U.S. government to retaliate by imposing a stiff tariff--in effect, a tax--on select European goods shipped to this country.

So which goods to attack? President Clinton could have slapped the 100% tariff on, say, Mercedes-Benz autos imported from Germany, fine wines from France, or elegant women's shoes from Italy. But that might have provoked retaliation by the Europeans against major American exports. So instead the President chose to punish smaller and less important European companies--companies that furnished bath products to Reinert, prints to Kaplan and batteries to Dove. In short, the Administration came down with a heavy foot on relatively powerless citizens. People who, like 99% of the population, contribute little or no money directly to politicians.

How heavy was that foot? In Reinert's case, the U.S. government raised the tariff on his most popular product, an herbal foam bath, from just under 5% to 100%. His U.S. Customs bill for the last six months of 1999 spiraled to $37,783 from just $1,851--a 1,941% tax increase.

For a small business, that's strong poison. Indeed, when Reinert called the office of U.S. Trade Representative Charlene Barshefsky to describe his plight, an official there expressed amazement. "[They] were very surprised I was still importing," recalls Reinert. "They thought the tariff would cut off the industry--shut it down. That was their intention. They wanted to kill that industry, whatever industry it is." That, naturally, would have meant killing Reinert's business as well.

Reinert did have an option. He could have found a way around paying the tax. Except it would have been illegal. Sort of like people working off the books to avoid paying income tax on their earnings. That's what many small-business people in Reinert's position are doing--fudging their import records. It's polite language for falsifying government documents. Each distinct type of product imported into the U.S. is assigned an individual code number. The tariff is collected on the basis of the code numbers. Thus changing a single numeral in the code will convert a taxable product into one that is not subject to tax.

Are the people doing this comfortable with their deception, which an ambitious federal prosecutor could turn into a conviction accompanied by a large fine and prison sentence? Absolutely not. But it's a matter of survival. Further, they figure, if the U.S. government decides to take care of a multinational business whose owner, his family and his fellow executives contribute millions of dollars to political candidates and their parties--and to punish small businesses whose owners do not contribute--then why not cheat?

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