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INTERNATIONAL TRADE UPDATEA Monthly AAFA Newsletter on Trade February 2004
CORPORATE SOCIAL RESPONSIBILITY CUSTOMS NEWS CUSTOMS RULINGS CITA NEWS/ANNOUNCEMENTS NEW REPORTS ON TRADE UPCOMING EVENTS MARKET RESEARCH
U.S. GOVERNMENT RELEASES REPORT ON APPAREL SOURCING POST 2005 In a report completed last fall, but only released February 9, the U.S. International Trade Commission (ITC) found that China will likely benefit the most of any country once textile and apparel quotas are removed worldwide on January 1, 2005. The ITC report did note, however, that a number of other countries, including India, Pakistan and Bangladesh, will also likely benefit from the elimination of quotas. Further, many supplier countries will likely maintain market share in niche apparel and textile categories. The report also projects that the growth in imports from China will likely slow over the long term as China's continued economic growth will lead to increased domestic consumer demand and increased labor costs. The ITC report depicts the profiles and prospects of 35 major apparel and textile foreign suppliers, which together represented 80 percent of the total value of U.S. textile and apparel imports in 2002. The report did not consider the effects of passage of the U.S./Central America Free Trade Agreement, which AAFA believes will have a significant positive effect on future supply flows from Central America and the Dominican Republic.
The U.S. government formally notified the World Trade Organization (WTO) on February 11 that it will eliminate all of its textile/apparel quotas on all WTO members on January 1, 2005 as part of its obligations under the 1994 WTO Agreement on Textiles and Clothing (ATC). The formal U.S. notification ended speculation that the United States might attempt to keep some form of quotas in place after January 1, 2005. All major countries, except the European Union, have also notified the WTO that they will eliminate all quotas on January 1, 2005. Please note that because China agreed to a special textile safeguard when it joined the WTO, safeguard quotas can be placed on U.S. imports of certain Chinese textiles and apparel through 2008. Please also note that since Vietnam is not currently a WTO member, quotas on U.S. imports of Vietnamese textiles and apparel can remain in place until Vietnam accedes to the WTO.
AAFA President & Chief Executive Officer Kevin M. Burke hailed the February 20 announcement that President George W. Bush notified the U.S. Congress that he intends to sign the U.S./Central America Free Trade Agreement ( Notification Letter, AAFA Press Release). The U.S. government had already taken the first step towards Congressional notification by publicly releasing the full text of the U.S./Central America Free Trade Agreement (FTA) on January 28. Since negotiations to add the Dominican Republic to the U.S./Central America FTA will likely conclude in March, Bush will likely sign the U.S./Central America FTA (including the Dominican Republic) in June and will then submit it to Congress for its consideration sometime this summer. The agreement includes many benefits for the U.S. apparel and footwear industries. AAFA has created a summary outlining the U.S./Central America FTA's apparel and footwear provisions for AAFA members. In a related note, AAFA and numerous AAFA members joined over 100 organizations in sending a January 23 letter to every member of Congress strongly urging Congress to consider and approve the U.S./Central America FTA as soon as possible.
The European Union (EU) continues to state that it will begin to impose sanctions March 1 on over $4 billion worth of U.S. exports, including punitive tariffs on hundreds of millions of dollars worth of EU imports of U.S.-made apparel, footwear and travel goods, if the U.S. Congress fails to pass legislation to comply with numerous World Trade Organization (WTO) rulings striking down the United States' Foreign Sales Corporation (FSC) program as an illegal export subsidy. According to the final EU retaliation list, the EU will impose a five percent punitive tariff on March 1, 2004. An additional punitive tariff of one percent would be added each month until the punitive tariffs reach 17 percent. AAFA has worked to remove footwear, apparel and travel goods from the EU retaliation list and has continually urged Congress to resolve this issue as quickly as possible. AAFA strongly supports current legislation in Congress that would repeal the FSC program and replace it with a tax cut for U.S. manufacturers, particularly small manufacturers. However, the legislation has stalled over significant differences between the House and Senate versions of the bill as well as several unrelated issues. The Congressional leadership has vowed swift action on the bill, but it is unlikely that the legislation will pass Congress before March 1.
AAFA Senior Vice President Steve Lamar testified on February 10, 2004 before the U.S. International Trade Commission on the beneficial impact that the proposed U.S./Andean and U.S./Panamanian Free Trade Agreements (FTA) could have on the U.S. economy. In his comments, Lamar noted that there already exists a preferential relationship that permits duty-free imports from these countries. He noted that a properly negotiated and implemented FTA would expand on that partnership, and thus promote two-way trade, by making it more flexible, reciprocal, broader and permanent. In a related note, the Office of the U.S. Trade Representative (USTR) also requests testimony and comments on the proposed U.S./Andean Free Trade Agreement. Requests to appear at the March 17 USTR hearing are due March 10. Written comments are due March 30. In 2003, U.S. footwear, textile and apparel companies imported more than $1 billion worth of product from the Andean region. During that same time period, the U.S. exported more than $165 million of the same products to the four Andean nations. Colombia, as the 30th largest supplier of apparel and the 25th largest supplier of footwear to the U.S. market, is one of the fastest growing U.S. suppliers of apparel and footwear. Colombia is also the 17th largest and one of the fastest growing export markets for U.S.-made textiles and apparel.
The United States and Australia announced February 8 that they have finished negotiations on a free trade agreement. President George W. Bush notified Congress of his intent to sign the agreement on February 13, which will likely bring the U.S./Australia Free Trade Agreement (FTA) to Congress for a vote sometime this summer. If approved, the FTA will likely go into effect January 1, 2005. According to preliminary reports, the FTA fully incorporates the U.S. industry's footwear agreement, which allows all but 17 specific rubber/fabric and plastic/protective footwear items to go duty-free immediately under a flexible rule of origin that allows the use of imported uppers. Apparel, on the other hand, faces a lengthy 15-year duty phase-out under an extremely restrictive yarn-forward rule of origin, effectively rendering the FTA useless for U.S. apparel firms.
On February 13, AAFA President and Chief Executive Officer Kevin M. Burke submitted comments to the Office of the U.S. Trade Representative in connection with the U.S. government's annual review of foreign countries practices in enforcing and protecting intellectual property rights, such as brands and trademarks. Based on information from AAFA members, Burke commented on continuing problems in China and Mauritius. Previous years' comments have focused on other countries in Asia and Latin America.
In response to a World Trade Organization (WTO) complaint filed by the United States, Egypt announced January 21 that it will dramatically lower its duties on imports of apparel and textiles. According to the announcement, Egypt will now charge a 40% duty on imports of apparel, 12% on yarns, 22% on all kinds of fabrics and 35% on imports of home textiles. The announcement responds to a December 23, 2003 filing of a formal WTO complaint by the United States alleging that Egypt's tariffs on imported apparel and textiles are WTO illegal. Instead of import duties at the WTO-bound levels of 41- 46 percent agreed to by Egypt in 1994, the U.S. complaint alleged that Egypt's practice of charging a per garment duty had effectively created tariff rates ranging from 141 percent to 51,296 percent on imported textiles and apparel.
The Office of the U.S. Trade Representative (USTR) announced January 28 that Benin is now eligible for apparel benefits under the African Growth and Opportunity Act (AGOA). Under AGOA, apparel from Benin and 22 other sub-Saharan African countries now has duty and quota-free access to the U.S. market under certain restrictions.
The U.S. government announced January 28 that the United States and Israel have agreed to expand the Qualified Industrial Zones (QIZ) provisions of the U.S.-Israel Free Trade Agreement to two new industrial parks and to the new addition to a current industrial park in Jordan. Under the QIZ program, apparel and footwear from approved industrial parks in Jordan can enter the United States duty and quota-free under a flexible "substantial/single transformation" rule of origin.
U.S. apparel imports for 2003 grew 9.3 percent over 2002 to 18.9 billion square meter equivalents (SMEs) while U.S. total footwear imports in 2003 climbed 3.7 percent versus 2002 to 2.0 billion pairs, according to new figures released February 13 by the U.S. Department of Commerce. For more information, please see AAFA's February 13 press release on the latest trade statistics.
Effective January 9, India lowered its peak tariff rate on all non-agricultural goods, including apparel, textiles and footwear, from 25 percent to 20 percent. In addition, India has eliminated its 4 percent Special Additional Duty (SAD) of Customs for all imports.
In an effort to restart stalled global trade talks, the European Union (EU) on February 12 proposed a new solution to the cotton issue. The EU proposal, dubbed the EU Action Plan, provides a five-pronged approach to the issue, including: 1) allowing duty-free access for cotton in developed countries; 2) eliminating all export subsidies; 3) reducing trade-distorting subsidies; 4) providing technical assistance to developing countries; and 5) provide mechanisms to assist developing countries in dealing with price fluctuations, possibly including compensation. Some experts believe the EU intends to use its proposal to create a wedge between developing countries and the United States, which has proposed dealing with cotton as part of a wholesale reform of agriculture in global trade talks.
Peru announced January 14 that it will immediately impose safeguard tariffs on 12 categories of Peruvian imports of Chinese textile and apparel. The tariffs range from $5.56/kilogram for sheets and bed linen to $35.22/kilogram for dresses and skirts. The safeguard tariffs will remain in place for 200 days.
The U.S. Department of Agriculture's Agricultural Marketing Service (AMS) announced February 9 that, based on a comprehensive review, AMS will make NO changes to the U.S. Cotton Research and Promotion Order. The program assesses a fee on all U.S. cotton production and all U.S. imports of cotton and cotton apparel in order to increase cotton research and promote the use of cotton. In its announcement, AMS claims that it has received no complaints about the program despite the growing number of lawsuits challenging the constitutionality of the cotton fee.
The U.S. State Department has issued new travel advisories/warnings for Afghanistan, Bangladesh, Cote d'Ivoire, Democratic Republic of Congo, Djibouti, Haiti, Liberia, Pakistan, the Philippines, Tajikistan, Venezuela and Zimbabwe. Access all advisories on State's Web site at www.travel.state.gov.
AAFA EXPRESSES OUTRAGE OVER MURDER OF CAMBODIAN LABOR LEADER American Apparel & Footwear Association President & CEO Kevin M. Burke recently condemned the brutal murder of Chea Vichea, a labor leader in the Cambodian apparel industry. "We were shocked to learn of the tragic murder of Cambodian labor leader Chea Vichea. He was a highly respected voice for workers in Cambodia's apparel industry. The State Department of the United States has condemned this brutal crime on behalf of all Americans, and we add our voice to those calling upon the Cambodian Government to aggressively investigate this crime and prosecute those found responsible. This act of murder casts a dark cloud over all of the work that has occurred in the last five years to present Cambodia's apparel industry to the world as one that respects the rights of its workers and assures that internationally-respected labor standards are met." Under a special arrangement with the United States, Cambodia has received higher than average increases in its apparel quota because the International Labor Organization (ILO) has found marked improvements in the labor-rights situation in the Cambodian apparel industry.
The U.S. Department of Labor’s National Administrative Office (NAO) announced February 5 that it will review allegations that Mexico failed to enforce laws protecting the rights of workers at two garment factories located in Mexico, Matamoros Garment S.A. d C.V. and Tarrant Mexico. According to the North American Free Trade Agreement's (NAFTA) North American Agreement on Labor Cooperation, Canada, Mexico and the United States must effectively enforce their labor laws. In its submission to the U.S. government, United Students Against Sweat Shops and Centro de Apoyo al Trabajador allege that the Mexican government failed to enforce its labor laws concerning freedom of association and protection of the right to organize and bargain collectively. The NAO has up to 180 days to review the allegations and issue a public report.
India, in cooperation with the U.S. Department of Labor and the International Labor Organization (ILO), launched a $40 million program on February 16 aimed at eliminating child labor in ten hazardous industries, including the footwear and silk industries. The project will focus on the identification and withdrawal of children from hazardous work and provision of education and social support to children and their families to prevent relapse.
On February 4, the U.S. Department of Labor released its 13th annual report on the state of child labor around the world. The report found that most of 73 countries compared in the report dedicated a larger share of their central government expenditures to basic education for children than to the military. In contrast, the report indicates that the multilateral development banks invested a relatively small portion of their resources in these countries to basic education and child labor.
On February 3, the International Labor Organization (ILO), the international organization that establishes internationally accepted minimum labor standards, issued a new report that found that the benefits of eliminating child labor worldwide would be nearly seven times greater than the costs to developing countries. The report found that the elimination of child labor, which the ILO estimates involves one in every six children worldwide, and the implementation of universal education by 2020 would cost developing countries around $760 billion. However, the benefits to developing countries would equal $5.1 trillion, or approximately $60 billion a year by 2020, due to higher incomes generated by educated adults and improved healthcare.
Many major U.S. retailers now accept a WRAP factory certification for branded apparel and footwear. To date, WRAP has over 1,411 participating factories in 83 Countries. Of those participating, 622 factories have been certified with numerous others in the pipeline waiting to receive certification. WRAP continues to expand its presence through an extensive program of training seminars throughout all regions of the world. WRAP is an independent factory-based certification program founded on 12 core principles addressing worker’s rights and workplace conditions.
WATCHDOG AGENCY CRITICIZES CUSTOMS' APPAREL TRANSSHIPMENT EFFORTS The General Accounting Office (GAO), Congress' watchdog agency, issued a new report on January 26 that criticized the U.S. Department of Homeland Security's Bureau of Customs & Border Protection (Customs) for failing to create an effective system to prevent the illegal transshipment of apparel into the United States. While acknowledging the difficulty of inspecting more than three million textile and apparel shipments each year for evidence of illegal transshipment, the GAO report found numerous delays in Customs issuing lists of foreign entities suspected of illegal transshipment. Furthermore, the GAO criticized Customs' handling and tracking of in-bond shipments, i.e. shipments imported into the United States but then re-exported to third countries. The GAO did express approval of Customs' program of in-country inspections of foreign factories, but felt that the results of those inspections must be made public more quickly. Customs has just received funds from Congress that will allow it to hire 48 new Customs inspectors specifically to deal with textile transshipment. In addition, the report fails to note that the elimination of quotas on most textile and apparel imports on December 31, 2004 will eliminate most of the incentives for illegal transshipment.
The U.S. Department of Homeland Security's Bureau of Customs & Border Protection (Customs) issued an updated textile transshipment list on February 9. The list includes the names of all foreign companies convicted, penalized and/or excluded from entry to the United States because of illegal textile and apparel transshipment. This update adds six Hong Kong and one El Salvador factory to the list and deletes 21 Hong Kong and three Taiwan factories from the list.
Advisory Note on Customs Rulings - Readers are cautioned against relying on a ruling issued to another importer. If Customs decides to change its position with regard to a ruling, only the party to whom the ruling was issued is insulated from financial loss. Also, a ruling may depend on very specific physical specifications of a product. Even the slightest deviation from those specifications may throw into question the applicability of the ruling. Rulings are useful tools, but must be handled with care. To see all Customs rulings for the past two months, please go to the U.S. Customs Service's Customs Rulings Online Search System (CROSS).
AAFA COMMENTS ON SHORT SUPPLY REQUEST On February 9, AAFA submitted comments in support of two January 20 industry petitions to designate: 1) certain ultra-fine Lycra crochet outer-fusible material with a fold line that is knitted into the fabric and a fine Lycra crochet inner-fusible material with an adhesive coating that is applied after going through a finishing process to remove all shrinkage from the product, classified under item 5903.90.2500 of the Harmonized Tariff Schedule of the United States (HTSUS), for use in apparel articles (waistbands); and 2) certain fusible composition material, of the specifications described in the petition, classified in HTSUS subheading 5903.90.2500, for use in waistbands of apparel articles, in short supply (unavailable in commercial quantities from U.S. manufacturers in a timely manner) in the United States under the Caribbean Basin Trade Partnership Act (CBTPA), the African Growth and Opportunity Act (AGOA) and the Andean Trade Promotion & Drug Eradication Act (ATPDEA). In its letter, AAFA supports the petitions because several short supply petitions on patented fusible interlining fabrics were already approved under CBTPA, because the linings addressed in the two new short supply requests are substantially similar and because of the facts surrounding their patented nature are equally in short supply in the United States for all three preference programs. If CITA approves the petition, apparel cut or sewn in the Caribbean Basin, sub-Saharan Africa or the Andean region that uses certain non-U.S. origin fusible composition or lycra crochet fusible materials for waistbands is eligible for duty and quota-free entry to the United States under CBTPA, AGOA or ATPDEA.
The Committee for the Implementation Textile Agreements (CITA) and the U.S. International Trade Commission (USITC) request comments on an industry petition alleging that 100 percent cotton woven flannel fabrics made from 21 through 36 NM single ring-spun yarns of different colors, classified in subheading 5208.43.00 of the Harmonized Tariff Schedule of the United States (HTSUS) of 2 X 1 twill weave construction, weighing not more than 200 grams per square meter, for use in apparel articles, excluding gloves, is in short supply in the United States (cannot be supplied by the domestic industry in commercial quantities in a timely manner). If CITA approves the petition, garments, except gloves, that are made with this fabric will be accorded duty free treatment under the terms of the Caribbean Basin Trade Partnership Act (CBTPA). Comments are due to CITA by March 5 and to the USITC by March 16.
NEW POLL FINDS MIXED SUPPORT FOR TRADE IN UNITED STATES The University of Maryland's Program on International Policy Attitudes (PIPA) released a new poll on January 22 that found that, while 73 percent of the U.S. supports the growth of international trade in principle, a majority of the American public expressed dissatisfaction with the "way the U.S. government is dealing with the effects of trade on American jobs, the poor in other countries and the environment." As per the public's perception of the Bush administration's performance on trade, only 21 percent said that Bush's handling of trade issues would increase the likelihood that they would vote for him while 37 percent said it decreased the likelihood. According to the poll, more than 90 percent of the American public want some level of labor and environmental standards in trade agreements. The poll, however, did not address specifics on the type of standards the public would want to see in those agreements. Finally, a majority of Americans oppose annual farm subsidies, a major obstacle in many trade agreements, particularly for larger farms.
On January 27, the U.S. International Trade Commission (ITC) released its 4th annual report on U.S. trade and investment in sub-Saharan Africa. The report found that total U.S. imports from sub-Saharan African countries eligible for African Growth and Opportunity Act (AGOA) benefits totaled almost $9 billion in 2002, an increase of 9.9 percent from $8.2 billion in 2001. Significant increases were recorded for U.S. imports of textiles and apparel (which receive duty and quota free access to the U.S. market under certain restrictions under AGOA), which accounted for 8.9 percent of total U.S. imports under AGOA in 2002, up from a 4.4 percent share in 2001.
In a new report, the U.S. International Trade Commission (ITC) found that non-tariff barriers (NTBs) against apparel and footwear imports translated into significant additional tariffs on U.S.-branded footwear and apparel entering various countries around the world. The December 2003 ITC paper found that non-tariff barriers (NTBs), such as export subsidies, burdensome labeling, customs and administrative procedures, reference pricing, technical regulations and various quantitative import restraints, create the equivalent of additional duties (above existing tariffs) for imported footwear equaling 38 percent in Mexico, Central America and the Caribbean and 95 percent in Argentina and Brazil. Likewise, NTBs create the equivalent of additional duties on imported apparel ranging from 34 percent in Europe and 24 percent in the United States to 43 percent in East Asia to 146 percent in Mexico, Central America and the Caribbean. Europe, the United States and China would realize the biggest net welfare gains from the elimination of all NTBs worldwide on apparel and footwear, including the elimination of apparel quotas.
MARCH 24, 2004 – SEMINAR: GLOBAL SOURCING AFTER 2005: CHINA, WTO AND THE REST OF THE WORLD On March 24, AAFA and Emanuel Weintraub Associates, Inc. will hold a half day seminar titled, Global Sourcing After 2005: China, WTO and the Rest of the World. The seminar will focus on the impact the January 1, 2005 elimination of quotas will have on apparel sourcing. To register or for more information, please go to AAFA's Web site.
The U.S. Department of Commerce has organized a fashion accessories trade mission to Montreal, Canada's fashion capital, on April 21-22, 2004 for U.S. manufacturers of fashion accessories, including hats, scarves, ties, handkerchiefs, handbags, gloves, belts, hosiery, shoes and boots, hair accessories and umbrellas. Market conditions favor new entrants to Canada's fashion accessories market. Canada's imports of fashion accessories have grown steadily for the past five years. Further growth is anticipated in part due to the strong Canadian dollar, which has increased in value 25 percent against the U.S. dollar since January 2003. This two-day event will offer U.S. fashion accessories manufacturers seeking representation in the Canadian market an exceptional opportunity to meet potential business partners and obtain an overview of Montreal's fashion industry. The program will include one-on-one appointments, information sessions focused on the apparel industry, a networking reception and a site tour of Montreal's fashion district. The cost is $1,200. In order to participate in the trade mission, products must be at least 50 percent U.S. content.
This two day conference, taking place in Charleston, SC, will focus on the future sourcing, customs and logistics challenges facing U.S. footwear and apparel companies. The conference includes a keynote speech by Grant Aldonas, Undersecretary for International Trade, U.S. Department of Commerce, a tour of the Port of Charleston and in-depth panels dealing with specific issues important to apparel and footwear firms. To register or for more information, please go to AAFA's Web site.
NEW U.S. GOVERNMENT MARKET RESEARCH REPORTS Please click on the date to obtain a copy of the market research report.
For questions or for additional information, please contact Nate Herman, AAFA's International Trade Advisor, at 703-797-9062 or nherman@apparelandfootwear.org. American Apparel & Footwear Association |
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