us apparel trade policy issues - forum apparel sourcing show 2012

7/31/2019 US Apparel Trade Policy Issues - Forum Apparel Sourcing Show 2012

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US Apparel Trade Policy Issues

Guatemala City May 23, 2012 Copyright 2012 Jonathan M. Fee All Rights Reserved

ALSTON &BIRD LLP


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New FTAs finally passed

President Obama signedthe Korea, Colombia andPanama FTAs into law onOctober 21, 2011

Congress also passed, and

the president signed,legislation extending Trade Adjustment Assistance, theGeneralized System of Preferences and the

Andean Trade Preference Act, all of whichlanguished from inactionsince the last Congress


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Implementation Korea

South Koreas ruling Grand NationalParty, which recently changed its nameto the New Saenuri (New Frontier)Party (NSP), weakened after losing theSeoul mayoral election, passed the FTAand 14 bills necessary forimplementation in a surprise plenary session on November 22, 2011

The minority Democratic Party (DP), which recently merged with anotherminority party to form the DemocraticUnited Party (DUP) didnt offer any

votes, although one member votedhis opposition by releasing tear gas inthe main chamber of the National

Assembly


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Implementation Korea

President Lee Myung-bak, also of the NSP, quickly signed thelegislation in early December

The NSP wanted to implementthe FTA as quickly as it could, aslong before the April 11parliamentary elections aspossible, to thwart efforts by theopposition to exploit public FTA

opposition for political gain It worked the United States andKorea implemented the FTA onMarch 15


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Implementation Colombia

Everyone hoped forimplementation in time forthe Summit of the Americas,held in Cartagena in April

President Santos made itclear that he wanted the twocountries to announce animplementation date during

his meeting with PresidentObama on April 15 May 15 was the hoped-for

implementation date


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The deal got done

On April 15, PresidentsObama and Santosannounced implementationof the FTA effective May 15

Santos: There will bethousands millions of jobs created for the U.S. andColombia

Obama: Its a win forColombia by giving you evengreater access to the largestmarket for your exports


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Implementation Panama

Panama must also passlegislation to ratify a numberof IP treaties

Panama must also passlegislation to revise the mannerin which it administers tariff rate quotas to conform to therequirements of the FTA

AmCham in Panama predicted12 to 18 months before thenecessary processes could be

completed But recent reports say Panama

is accelerating legislative actionand the FTA could be effectivein August


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The 3 FTAs and their context

The Colombia FTA will let Colombiacatch up to Peru and will replace

ATPDEA for apparel from Colombia The Panama FTA will let Panama

compete more directly with CAFTA,NAFTA, Peru and Colombia and willreplace CBTPA for apparel fromPanama

The Korea FTA has no predecessor;

Korea has enjoyed no preferentialstatus with the United States since itlost GSP status during the Reaganadministration


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Trans-Pacific Partnership

Negotiations are pending with Australia, Brunei, Chile, Malaysia,New Zealand, Peru, Singapore and

Vietnam

Textile provisions are not fleshedout yet

The most interesting aspect is theinclusion of Vietnam, the first

substantial apparel producer in theFar East and the first non-marketeconomy to be considered for anFTA with the United States


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Vietnam

Vietnam is already a very successfulcompetitor for access to the U.S.apparel market, accounting for 8percent of all U.S. apparel imports,second only after China, at 41percent

It uses a lot of Chinese fabric andcompetes with Chinese apparelproducers

Vietnam has inflation and laborissues it will be a challenge for a

workers state to deal with laborunrest and collective bargaining


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Vietnam really such a threat?

Poverty on the rise Social insurance who is

covered? Exports are strong and growing;

but productivity is declining

Growth and inflation haveoutpaced policy, regulation and wages

Result? Labor unrest GVN is hamstrung by implicit

political challenge in potentially stronger unions

Will Vietnam be a viable sourcegoing forward?


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Jumping on the bandwagon

Canada, Colombia, Costa Rica, Japan, and Mexico are allinterested in joining TPP talks,and Taiwan suggests joining inten years

Each has held meetings with the TPP countries about joining

The TPP countries will probably wait until a deal is concluded

before considering new partners Canada and Mexico have already

made formal applications forparticipation


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Mexico and Canada

Bringing Canada and Mexico into TPP might give the United Statesthe opportunity to makeadjustments to NAFTA

Two welcome changes would beto improve the NAFTA shortsupply process for apparel,maybe making it operate morelike CAFTAs (although CAFTA

short supply has its ownproblems) and to remove theburdensome duty deferral featurefrom NAFTA


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Recent and upcoming talks

The TPP countries justconcluded talks in Dallas last

week; the next round will beheld in San Diego on July 2-10

In addition to strict yarnforward rules, U.S. textileinterests want tough customsenforcement rules and easily

triggered safeguards All the parties would likenegotiations to conclude thisyear, as difficult as that may be


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TPP idea to replace yarn forward

The TPP Apparel Coalition,comprising AAFA, RILA, USA-ITA, NRF and the OutdoorIndustry Association, have

advanced new ideas for rules of origin, and joined Perus apparelindustry in a letter to the U.S. andPeru outlining their proposals

Labor and components are only 25 percent of a garments value,they say, and yarn forward isoutmoded and too restrictive


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Ideas

CTH allow a garment tobe originating if processing causes it to undergo achange in tariff heading in

a TPP country; mere cutting and assembly or knitting toshape would satisfy such arule

RVC a garment would beoriginating if it met a 35percent regional valuecontent; similar to GSP


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Ideas

No separate chapter or specialprovisions for textiles and apparel

No separate safeguard provisions orcustoms enforcement rules

Harmonize origin rules, including those with existing FTAs with theUnited States

Improved short supply process

Allow cumulation among members,and create a process for cumulation

with members of other FTAs


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U.S. House members weigh in

May 1 letter to USTR Ron Kirk signed by 76 House members

Without strong textile rules state-subsidized producers in

Vietnam could easily overwhelmU.S. and other producers in thisHemisphere

Urges yarn forward, extendedduty phase-down periods,

strong safeguards, prohibitionon goods of state-ownedenterprises and vigorous anti-China-transshipping rules


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So do some U.S. senators

May 1 letter to PresidentObama signed by 15 senators

Prefer a more flexibleapproach than yarn forward

We ask that you take a new approach which reflects thesignificant value created by

American retailers, apparel

brands, manufacturers, andimporters as well as domestictextile producers


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CECATEC Position on TPP

Vietnam proposals would putthe CAFTA regions textile andapparel production at enormousrisk and tilt the playing fieldintextiles in Vietnams favor by

giving new benefits to state runand subsidized textile andapparel producers and pitthousands of privately ownedand financed factories in theUnited States and Central

American against massive statefunded and state subsidized

Vietnamese and Chineseproducers


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What to look (out) for in TPP

Exceptions to yarn forward; e.g.,singletransformation; will there be very few exceptions (like the Colombia FTA) ormany (like NAFTA and CAFTA)?

Safeguard and enforcement provisions

Immediate duty free treatment of textiles or staging, like NAFTA Short supply: will the rules be like

CAFTAs, will TPP incorporate itemsfrom other FTAs, and will the list becapped and temporary like the list under

the Korea FTA? Maybe this willgenerate a more transparent discussionof just what is the purpose of shortsupply


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Whats the purpose of short supply?

Original view: Some yarnsand fabrics just arentavailable in the FTA regionand participants should be

allowed to use them to makeoriginating garments More protectionist view:

short supply is only temporary, just long enoughto allow U.S. companies tobring production back to theUnited States


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CAFTA fixes

What happened to them? All the CAFTA countries, except the

United States, have approved them The most difficult fix, as a matter of

timing, is the single yarn sewing threadchange, which will make such threadsubject to the sewing thread chapter rules

Extension of the third-country fabric rulefor AGOA is probably more urgent; it

would make sense to put both matters inthe same legislation; but there is still noindication even when the AGOA change

will be considered


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AGOA third-country fabric

The third-country fabric provisionexpires September 30 unless it isextended; prospects for extension intime are slim

While the long-term goal of AGOA isto wean the industry from third-country fabric, that goal has not beenmet and apparel producers still dependon third-country fabric for U.S.business

This is fairly non-controversial,because these exports are capped; so it

will likely get extended sometime afterthe deadline with retroactive effectallowing duty refunds


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Nicaragua TPL

Far more thorny than AGOA orCAFTA fixes

The USTR apparently wants noextension after the TPL expires at theend of 2014

Some people want it to be extended asis and some want it to be expanded tothe other CAFTA countries

Failure to extend will be a definitesetback for Nicaragua, and arguably asetback for U.S. mills that benefit fromthe 1-for-1 requirement for cotton andman-made fiber woven trousers


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Dont forget China competition

Infrastructure (roads and ports) Modern, high-end equipment Relatively low corruption Reasonably reliable electric power

Flexible, pro-apparel productiongovernment Open to imports of equipment, raw

materials and components Quality, price, delivery

Political stability and security None of the above is the result of an FTA

or a trade preference, and none of the above is cheating


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Mitt Romney on trade

Formed a Trade Policy Advisory Committee inOctober, chaired by formerCommerce Secretary Carlos

Gutierrez Free trade is essential to

restoring robust economicgrowth and creating jobs

Will reversethe stagnationbrought about by the Obamaadministrations neglect of ourtrading interests


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Mitt Romney on trade

Obama has been treated as adoormat by China

Supported the Korea, Panama andColombia FTAs and would supportFTAs with India and Brazil (Secretary

of State Hillary Clinton suggested afree trade agreement with Brazil in aspeech in Brazil last month)

If the Obama administration stallsthe TPP in the run-up to the 2012

election, a Romney administration willmove to complete negotiations at theearliest possible date Believe in

America,Romney Campaign


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Mitt Romney On China (WSJ Op-Ed)

Actually doing something aboutChinas cheating makes somepeople nervous. Not doing something makes me nervous. Weare warned that we mightprecipitate a trade war. Really?

China is selling us $273 billion peryear more than America is selling China why would it possibly

want a trade war? And what is the alternative to

confronting China? It is allowing the Chinese to take by tradesurrender what we fear to lose intrade war


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Barack Obama on trade

Opposed CAFTA as an Illinoissenator

Caused controversy in 2007 whenhe proposed that NAFTA shouldbe renegotiated to strengthen laborprovisions

Look, people dont want acheaper T- shirt if theyre losing ajob in the process They would

rather have the job and pay a littlebit more for a T- shirt And Ithink thats something that all

Americans could agree to


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Barack Obama on Latin America

Newsweekreported that, beforehe went to Cartagena, Obamaargued that the U.S. exportsthree times more to Latin

America than to China andnoted that 60 percent of Latin

Americas exports to theUnited States aremanufactured goods whereas87 percent of Latin Americasexports to China werecommodities

Webelieve that economicpartnerships cant just be aboutnations extracting anothersresources , he said


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Concluding thoughts

TPP isnt the end of the world for the CAFTAregion

China will remain the huge

competitor for quite a while Numbers for exports from

CAFTA countries, since therecession, are promising for

increasing exports to theUnited States


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Jon Fee

Alston & Bird LLP950 F Street, N.W.Washington, D.C. 20004202 239 [email protected]

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