TTP, Nicaragua TPL and What’s in StoreMiamiMay 5, 2014Copyright © 2014 Jon Fee All Rights Reserved

ALSTON&BIRD LLP

Items of interest

• Trans-Pacific Partnership (TPP)

• Trade Promotion Authority (TPA)

• Textile and apparel features

• Timing of TPA and TPP

• Nicaragua TPL extension

• The trade and political context

TPP generally

• Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam

• “Comprehensive,” “ambitious,” “high-standard,” “21st-century” FTA

• US “pivot,” “rebalancing” toward Asia

• 40 percent of US goods trade

Selected TPP rules issues• Intellectual property rights• Rules of origin (e.g., yarn-forward)• Technical barriers to trade• Transparency in health care

technology and pharmaceuticals• Foreign investment• Competition• Trade remedies (ADD, CVD,

safeguards)• Labor (association, collective

bargaining, forced labor, child labor, discrimination)

• Environment (e.g., logging, fisheries, endangered species, multilateral environmental agreements, green technology)

• State-owned enterprises (SOEs) in Vietnam, Malaysia and Singapore

Selected TPP market access issues

• Bilateral vs. multilateral negotiations

• Tariff elimination and staging• Services (insurance, banking,

legal, telecommunications, express delivery, e-commerce)

• Government procurement (Buy American, state procurement)

• Agriculture (dairy, sugar, cotton, tobacco, geographical indications and sanitary and phytosanitary standards)

• Textiles, apparel and footwear

Vietnamese apparel and TPP

TPP and Central America

TPP textile and apparel issues

• “Yarn-forward” vs. “change in tariff heading” (CTH) or “regional value content” (RVC)

• “Short supply” (permanent and temporary) and SSL proposals

• Immediate or “staged” tariff elimination

• Safeguard and enforcement provisions

• Cumulation (among members or with other FTAs)

• Alternative to other pre-existing FTAs with members

Yarn forward

• The TPP apparel origin rule will almost certainly be “yarn forward” for most apparel

• Preferential treatment will be allowed if the component determining classification is knitted or woven in TPP countries from yarn spun or extruded in TPP countries and the apparel is cut or knit to shape and assembled in TPP countries

What form of preferential treatment?

• Central America, Colombia, Peru, Panama and Korea got duty free treatment right away

• But remember Mexico, under NAFTA?

• For some NAFTA garments, duties were phased out in stages over 5 or more years

• Expect the same for TPP

X basket

• United States has proposed an “X basket” of sensitive apparel classifications from Vietnam

• Duty rates on X basket would be cut by some percentage (35 to 50 percent?) for an initial period of several years before they would be reduced to Free

X basket

• X basket will likely cover shirts, sweaters and trousers of cotton and synthetic fiber

• Importers from TPP countries that already have FTAs with the United States (Australia, Canada, Mexico and Peru) could continue to use Free rates available under those FTAs rather than the X basket rates

TPP short supply

• Not like CAFTA – more like the original NAFTA (but without NAFTA’s cumbersome, little-used short supply feature that theoretically allows new designations)

• Remember how some single transformation features were written into NAFTA for selected garments of hard-to-find fabrics? That’s how TPP will work

TPP short supply

• Interested persons were invited to suggest (or oppose) short supply fabrics and yarns on a website operated by USTR and OTEXA

• Some non-sensitive apparel articles will be temporarily (three years) or permanently duty-free (or eligible for reduced duty rates) even though they incorporate foreign, non TPP fabrics or yarns

TPP short supply

• The list of short supply apparel will be fixed by the terms of the TPP

• Interested persons won’t be allowed to request new designations after the TPP effective date as they are able to do under CAFTA

• Mexico (a TPP member), seeks to shorten the list to protect its access to the U.S. market

TPP short supply

• U.S. policy perpetuates two myths

• First (remember the quota system?) temporary short supply features will give U.S. and TPP industries breathing room to catch up and start producing inputs and apparel they don’t make now

• Second, CAFTA short supply is unsuccessful, so they won’t allow it again in TPP

TPP short supply

• Will TPP short supply be an advantage for Central American apparel manufacturers?

• Consider: a new designation under CAFTA will never get short supply treatment under TPP

• And, a short supply fabric or yarn will be available for any apparel article and not limited to certain apparel like TPP

TPA• TPA is “fast track” trade

negotiation authority under which Congress gives the President authority to negotiate FTAs that Congress can approve or disapprove, under expedited procedures, but can’t amend or filibuster

• Last TPA expired in 2007• President Obama has

negotiated TPP as though TPA were still in effect, gambling that Congress will pass TPA legislation while TPP negotiations are ongoing

TPA

• Bipartisan TPA proposed in early 2014

• Democrats complained it didn’t allow sufficient Congressional oversight of the final TPP terms

• Slowed when key cosigner Sen. Baucus (D-MT) left the Senate to become ambassador to China

• Slowed further when House Minority Leader Pelosi said Democrats couldn’t support TPA as written

Other issues in Congress

• Senate Finance Committee Chairman Widen (D-OR) wants to do TPA quickly; but doesn’t want to just “throw something together”

• Ranking Republican Hatch (UT) said last week the “political clock is ticking” and there isn’t much time left this year

• Sixty senators and 230 House members want currency manipulation addressed in TPP

And then there’s Congress

• TPA will likely not move until after the 2014 elections, maybe in a lame duck session, when Democrats learn whether Republicans gain control of the Senate and have their last chance to control the content of the bill

• After that, the Presidential election comes into play – TPP could be delayed until the next administration

Nicaragua TPL

• Nicaragua TPL is a CAFTA feature allowing duty-free treatment of limited quantities of cotton, man-made fiber and certain wool apparel made from foreign, non-CAFTA fabric and yarn

• The TPL is limited to 100 million SMEs per year (with a sublimit of 1.5 million SMEs for certain men’s wool sport coats)

Nicaragua TPL

• For woven trousers, Nicaragua must export an equal quantity of originating trousers to the United States, up to a cap of 50 million SMEs

• Any shortfall is subtracted from the TPL for the succeeding year

• The TPL expires at the end of 2014

Nicaragua TPL

• Last summer, Sen. Feinstein (D-CA) introduced legislation to extend the TPL through 2024

• Extension is opposed by producers in other CAFTA countries and their U.S. customers, who enjoy no similar advantage, and by U.S. textile interests who say Nicaragua has sufficiently developed its apparel exports so that it no longer needs this benefit

Nicaragua TPL

• Sen. Hagan (D-NC) introduced a more modest bill in December that would extend the TPL for ten years only as to woven trousers and shorts, subject to an earned import allowance program

• Participating producers or entities controlling production would establish accounts with U.S. Commerce and would get credit for exports of fabric wholly formed in the United States of yarns wholly formed in the United States

Nicaragua TPL

• The SMEs of eligible apparel the producer or entity could receive each year could not exceed the credits in his account

• The program would be limited to 50 million SMEs per year; but it could generally be increased in 10 percent increments per year if 90 percent utilized in the previous year

Nicaragua TPL

• The Hagan or Feinstein bill would not be passed as stand-alone legislation

• Would need another legislative vehicle, like TPA legislation, or legislation extending the already-expired GSP or MTBs

• Prospects for such a vehicle are uncertain and the TPL will likely expire without renewal

Jon Fee

Alston & Bird LLP950 F Street, N.W.Washington, D.C. 20004202 239 3387jon.fee@alston.com