Fashion Intel & Analysis

In this TDM:

TEXTILE DEVELOPMENT MEMO
(Prepared by Brenda A. Jacobs and Pete Kasperowicz, Sidley Austin LLP)

House Hearing On Currency Pushes Administration To Name China As a Manipulator, But Rejects Legislation As An Option, For Now

Four prominent economists told the House Ways and Means Committee today that they would not recommend passing legislation to deal with growing complaints about China’s undervalued currency, although three of the four said the Obama Administration should cite China as a country that manipulates its currency in the report Treasury is expected to issue on or around April 15. No witness or Committee member challenged the assertion that China is manipulating its currency.

The recommendations against legislation from Niall Ferguson of Harvard, Fred Bergsten of the Peterson Institute for International Economics, Clyde Prestowitz of the Economic Strategy Institute and Phil Levy of the American Enterprise Institute are a welcome development and one that likely fell on receptive ears. Committee Chairman Sandy Levin (D-MI) has indicated his support for multilateral pressure aimed at convincing China to revalue the renminbi, and in today's hearing Levin gave no indication at all that he might consider a bill. (It is in the Senate the talk of legislation is loudest, with Sens. Chuck Schumer (D-NY) and Lindsey Graham (R-SC) leading the charge.)

But now, after more than 15 years since Treasury last cited China as a currency manipulator, despite repeated congressional demands, the chances of a citation could be on the rise, in part because a new theory may be taking hold that says a U.S. citation is needed before multilateral pressure can be organized. Several members of the committee and the witnesses indicated support for multilateral efforts ("constructive diplomacy"), and Levin himself said the International Monetary Fund is the "most logical place" for this approach. Bergsten in particular argued that the U.S. has no credibility in leading a multilateral charge on China’s currency policy until it first officially proclaims that China is a manipulator.

Bergsten said that after a citation, the U.S. would have an easier time working to get the IMF to consult with China on currency, and said if little progress happens there the U.S. should go further by filing a WTO case against China. Ferguson of Harvard broadly agreed with this tactic, but said if the U.S. had to choose between the IMF and the WTO, it should choose the latter because the WTO is better suited to forcing larger countries to comply with decisions. Levy, however, warned that a WTO challenge could be counter-productive, because it is not a clear-cut case. If the U.S. were to lose, Levy noted, China would raise that repeatedly with the U.S.

CPSC Commissioners Cite Problems with Draft CPSIA Amendment Bill

The two Republican members of the Consumer Product Safety Commission have released copies of their letters to the Chairman of the House Committee on Energy and Commerce, Henry Waxman (D-CA), responding to his request for comments on draft legislation to amend the Consumer Product Safety Improvement Act (CPSIA). In the letters, which each posted on their blogs, the two commissioners praised the Chairman for seeking out their views, but argued that his bill does not give the CPSC nearly enough flexibility to exempt products from lead testing, and failed to include other ideas that would ease safety standards for companies and pose no additional risks for consumers.

Both commissioners expressed particular concern about the "functional purpose" exemption proposed by the draft bill, which would only allow the CPSC to exempt products from lead testing requirements if a) it is not practicable or feasible to remove lead in a product, b) it is not likely to be placed in the mouth, and c) an exemption would pose no adverse risk to public health or safety. The two commissioners said Waxman should strike the first two conditions, since meeting the third condition means the product poses no safety risk. "If there is no impact on safety, then the CPSC should not be regulating the product," Nord wrote.

Northup also took issue with related language that would allow the CPSC to regulate a product even after it has been granted an exemption from lead testing, by allowing CPSC to require a label saying the product contains lead, that an exemption was granted, and/or outlining instructions for safe use. Northup said it makes "absolutely no sense" to require safety warning labels on exempted products, since exemptions can only be granted to products for which no safety issues can be found.

Similarly, Nord said the committee should strike language that would allow the CPSC to require manufactures to reduce lead content or grant only a short-term exemption to lead testing standards. (This temporary exemption idea actually appears to track the view expressed by another commissioner, Robert Adler, a Democrat.) Nord said this language "makes no sense" since again, exemptions would only be given to products that do not pose a safety hazards.

Northup's letter to Waxman also argued that companies seeking exemptions will petition the CPSC, but that the bill does not provide any additional resources that would allow CPSC to handle these requests. She said the agency is "not likely to prioritize those overwhelming requests when real dangers require its attention."

Under current law, the CPSC has the authority to impose a 100 parts-per-million lead standard in children’s products in 2011, and this change would be retroactive. All five commissioners recommended on January 15, in a letter to the appropriators, that the 100 ppm limit be made prospective. Waxman’s draft bill conforms to that consensus recommendation, and both commissioners noted this approvingly in their letters. But both argued that the bill should eliminate the 100 ppm limit altogether. Northup said removing lead further will make some products less durable, and Nord said the CPSC should be given the authority to set its own higher standard for lead content as it sees fit.

Separately, there are reports that CPSC Chairman Tenenbaum and Commissioner Adler sent their own recommendations for legislative fixes to Chairman Waxman -- but on plain white paper, not letterhead. That document, which has been posted on another blog, provides largely technical suggestions, leading to speculation that these two Democratic commissioners are generally pleased with the Waxman discussion draft because it largely reflects recommendations they privately provided to the chairman earlier. One blogger has filed a Freedom of Information Act request to obtain copies of any correspondence between the CPSC commissioners and the House committee.

USA-ITA Joins Letter Urging Continuation of First Sale Valuation Rules

While there is no sign that U.S. Customs and Border Protection will again try to reverse the long-standing rule that allows valuation of imported merchandise to be based upon the price between the manufacturer and a middleman, the business community has sent a letter to the leaders of the House Ways and Means Committee and the Senate Finance Committee reminding them that maintenance of the first sale valuation rule is important. The letter thanks the committee chairmen and ranking members for their position on this issue previously and urges them to continue to support the business community on this issue. USA-ITA is among the more than 100 companies and trade associations that signed the letter. A copy of the letter is on the USA-ITA website.

© Copyright 2010 USA-ITA, All rights reserved.

TEXTILE DEVELOPMENT MEMO
(Prepared by Brenda A. Jacobs and Pete Kasperowicz, Sidley Austin LLP)

CPSC To Consider Regulations Defining "Children's Products"

The Consumer Product Safety Improvement Act establishes a host of special rules for "children's products," including the lead content limits, third party testing requirements to establish conformity with the standards, and tracking labels on each children's product and its packaging, to the extent practicable. Under the CPSIA, a children's product is a consumer product designed or intended primarily for children 12 years old and younger. Now the Consumer Product Safety Commission (CPSC) is considering a draft interpretative rule to provide some guidance on how the agency will interpret what a "children's product" is under the CPSIA. The proposed rule is a long-awaited step that the CPSC has said it must take this year in order to give companies a better sense of the factors it will weigh when determining which products are intended for children and therefore subject to the more stringent rules.

The CPSIA already sets out four general factors for determining whether a consumer product is primarily intended for a child 12 years of age or younger. These are:

  • a statement by a manufacturer about the intended use of such product, including a label on such product if such statement is reasonable;
  • whether the product is represented in its packaging, display, promotion or advertising as appropriate for use by children 12 years of age or younger;
  • whether the product is commonly recognized by consumers as being intended for use by a child 12 years of age or younger; and
  • the Age Determination Guidelines issued by the CPSC in September 2002, and any successor to such guidelines.

The proposed rule would expand upon these four factors. It would define "designed or intended primarily" as applying "to products designed and commonly recognized as intended for use by a population of consumers constituted by a significant proportion of children 12 years old or younger" who "will physically interact with [the product] based on reasonably foreseeable use and misuse of such products."

It also would distinguish a product designed or intended primarily for children from a "general use product." A general use product, the proposed rule says, is a consumer product that is not marketed to or advertised as being primarily intended for use by children 12 years old or younger and that is "used by a significant proportion of the population older than 12 years of age."

With respect to whether a statement or label that a product is not intended for children 12 and under is reasonable, the proposed interpretation would consider whether the intended use is "reasonably consistent with the expected use patterns for a product.

The proposed interpretative rule also would take into consideration the product's physical location near other children's products, but cautions that this may not be determinative, because a product sold in a toy store also may be sold in a department store and marketed for general use. It also would consider whether the product is commonly recognized by consumers as being intended for use by children 12 years old and younger – and market analyses, focus group testing and other marketing studies could be considered. Among the factors that could be considered are the following:

  • Product size
  • Exaggerated features
  • Safety features
  • Colors commonly associated with childhood (bright)
  • Decorative motifs commonly associated with childhood
  • Features that do not enhance a product's utility but contribute to the product's attractiveness to children 12 and under
  • Play value or features that promote interactive exploration and imagination for fanciful purposes
  • Principal uses of the product
  • Cost (higher cost products are less likely intended for children)
  • Children's interactions if any with the product

The proposed guidance says that the more of these characteristics a product has, "the higher the likelihood that a product would fall within the scope of a children's product."

The rule then offers a number of specific examples, but even here cites them as "examples of challenging age determinations" and in many cases indicates that decisions will be made on a case-by-case basis. For example, the rule says home furnishings "could be" considered general use products, and says they would be more likely to be seen as children's products if they have children's themes. It then offers several examples that show this is a difficult category to judge.

As examples, it says a humidifier it not a children's product just because it is used in a child's room, since it is not generally meant for children to operate. However, a child-themed lamp that has play value and is meant to be operated and played with by children is "more likely" to be seen as a children's product. But, a nursery-themed lamp is a "special case" because it is unlikely that this product would be operated on by an infant, even though it is child-themed.

The proposed rule indicates that the categorization of some products may depend on an examination of marketing techniques,. For example, science equipment would not be considered a children's product "unless the primary marketing strategy for the item emphasized simplicity or suitability for children." Decisions on art supplies and musical instruments will also rely on marketing techniques, although the rule says the size of musical instruments is also a key factor.

Decorative items are another potentially difficult category to judge. If the decorative item also has play value, it may be considered a children's product. Similarly, accessories of electronic equipment "could fall" within the scope of a children's product based on size or the presence of a children's theme.

For "combination products," such as a container with several items or toys inside, it states that each individual component must meet an appropriate regulatory standard even though the products are bundled together. As an example, the proposed interpretation says that in the case of a stuffed animal packaged with razor blades, the stuffed animal would have to be treated as a children's product, even though the razor blades would not. In another example, it said that for a pacifier packaged in a party favor bag with a whistle and a game of checkers, the pacifier would have to meet regulations for pacifiers even though infants would not use the other items.

The proposed rule would strictly define children's jewelry as jewelry that is "sized, themed and marketed to children," and has several defining features. These include jewelry that is inexpensive, sold with children's clothes, toys or food, designed with childish themes, or is sold in a way that targets children, such as at a school fair, in a toy store or through a vending machine.

The rule states that regulation-sized sporting equipment will be considered general use items even though younger children might use them, but these goods become children's products once they are sized smaller. The CPSC is scheduled to meet next Wednesday to decide whether to approve the proposed rule for publication in the Federal Register. A draft notice indicates that a 30 day comment period would be established even though the agency does not believe that an interpretative rule is subject to the normal notice and comment process. Once those comments are considered, a final rule would be effective upon publication.

In this TDM:

Congress Focuses on China Currency Issue

Yesterday in separate interviews, several members of Congress spoke out about the impact of Chinese currency manipulation, and recent reports from China that encourage U.S. companies to oppose these congressional proposals. The House and Senate appear to be on opposite sides of the issue, with one side pushing for fast unilateral action, and the other side pushing for a multilateral approach.

Interview with Ways and Means Chairman Levin

Acting House Ways and Means Committee Chairman Sander Levin (D-MI) met with a small group of reporters yesterday to discuss his priorities for the coming year. He named U.S. job creation as the number one priority, which he hopes to accomplish through increasing U.S. exports and enforcement. He spoke of avoiding the polarization that stagnated U.S. trade policy during the Bush Administration, and of the Obama Administration's strong support for trade as vital to the U.S. economy.

Despite that strong support, Levin declined to say if or when the Administration would ask Congress to vote on the three pending FTAs – with Colombia, Panama, and South Korea. Domestic issues like health care, energy, and taxes will dominate the Congress for the time being. Levin said the Ways and Means Committee will definitely address the extension of the Generalized System of Preferences and Andean trade preferences, which will expire on December 31st. [While he did not mention that CBTPA expires on September 30th, we assume that it also will easily be extended this year.]

Levin said he also continues to work with committee Republicans and the Senate Finance Committee on legislation to expand current trade preferences to Haiti. There is a "special urgency" about helping Haiti recover from January's devastating earthquake, but Levin said he wants to make sure the legislation does not hurt the U.S. industry.

While the Ways and Means Committee will hold a hearing next week on China's manipulation of its exchange rate regime, Levin indicated he is not contemplating legislation and instead believes the U.S. needs to join with other countries to press Beijing to adopt a flexible exchange rate regime.

In a World Trade Online article issued today, Levin told reporters that he was angered by press accounts of a Chinese official this week arguing that U.S. attempts to affect Chinese currency values amounted to "protectionist" measures.

"That kept me awake an extra hour," he said. "My adrenaline very much flowed, because to say that the one who rigs currency is not [protectionist], and the one who tries to open it up is the protectionist is, I think, the opposite of reality." Source

Senators Introduce New Bill on Currency Manipulation, Chinese Officials Ask U.S. Companies to Oppose Restrictions

In contrast, the Senate seems enthusiastic about a legislative approach to the relationship with China. Senators Chuck Schumer (D-NY), Debbie Stabenow (D-MI) and Lindsey Graham (R-SC) have sponsored a bill that would take China to task over its continued currency manipulation, the Schumer-Stabenow-Graham Currency Exchange Rate Oversight Act of 2010. Yesterday, a bipartisan group of senators predicted this bill will pass the Senate with overwhelming support, as supporters intend to attach it to the first available piece of "must-pass" legislation that arrives on the floor. The senators said that Congress must act because Beijing continues to deny it is doing anything wrong.

The legislation would:

  1. Require Treasury to base its determination strictly on objective measures related to currency exchange rates. Under current law, Treasury also has to determine that the misalignment is a willful attempt to gain a trade advantage before it can cite any country for manipulation. The new legislation would eliminate the need to show intent;
  2. Establish important consequences immediately upon designation, moderately severe consequences if consultations have not resulted in appropriate policies and identifiable actions to eliminate misalignment after 90 days. More severe consequences would occur if consultations have not resulted in appropriate policies and identifiable actions to eliminate misalignment after 360 days;
  3. Establish two tracks by which the Commerce Department can take action should a foreign country refuse to float its currency. One path would be to utilize antidumping laws to enable Commerce to counter the effect of misaligned currency. The other would allow Commerce to apply countervailing duties to goods coming into the United States from nations that misalign their currency;
  4. Limit the President's ability to waive the consequences to the first 90 days.

On the other side, the Financial Times reports that Chinese officials are asking U.S. multinationals to lobby the Obama Administration against taking protectionist measures over the Chinese currency. Yao Jian, a spokesman at the Chinese commerce ministry, said that some companies had already been lobbying against recent restrictions on Chinese imports to the US and he hoped this would increase. "We hope that US companies in China will express their demands and point of views in the US, in order to promote the development of global trade and jointly oppose trade protectionism," he said. Source

Discuss this issue with your USA-ITA peers on LinkedIn.

House Committee Staff Circulating Draft Bill to Amend CPSIA
(Prepared by Brenda A. Jacobs and Pete Kasperowicz, Sidley Austin LLP)

House Energy and Commerce Committee staff is circulating a discussion draft of a bill that would amend the Consumer Product Safety Improvement Act of 2008, and is in the process of circulating the bill to industry representatives. These proposals are being considered in light of recommendations that the Consumer Product Safety Commission (CPSC) itself made to members of Congress back in January, which were aimed at giving the CPSC more flexibility in how it implements the law.

One key element of the bill is language that would allow the CPSC to provide relief from lead testing requirements for products such as ATVs, books, bicycles, ball point pens and others that do not pose a risk to children. The bill also has language that would exclude parts containing phthalates that are not accessible, as well as testing exemptions from low-volume manufacturers and exemptions for the donated goods industry.

However, the draft bill as written includes language that is expected to cause significant problems for children’s apparel makers, since it would only give the CPSC the authority to exempt functional components from lead testing, even if scientific evidence shows there is no risk of lead absorption. As a result, decorative elements on clothing could not be excluded from lead testing under the bill. USA-ITA has already made arguments against this limitation and will continue to do so as the bill moves through Congress.

It remains unclear if and when Congress might take up the legislation, and as of now there were no hearings or markups scheduled.

Senate and House Trade Staff Consider Haiti Proposals

While healthcare may get all the headlines about the battles in Washington, the details of Congressional help for Haiti also attract a fight. According to press reports, the Haitian government has asked for an increase of the current Haiti HOPE Tariff Preference Levels (TPLs). The Obama Administration immediately said it is reluctant to increase these levels significantly. Congress is expected to consider legislation on this issue after the healthcare reform vote is complete. The apparel industry is anticipated to lead the recovery push in Haiti after the January earthquake, but the U.S. textile industry is blocking action, and pushing back over concerns that increasing the TPLs could lead to new problems with transshipment from China.

The Senate Finance Committee and House Ways and Means Committee report they may change the Haiti Earned Import Allowance program to require the purchase of one (rather than three) SME of U.S. fabric for each qualifying SME of apparel produced in Haiti. In addition, the two committees may move to extend HOPE—currently scheduled to expire in 2018—through 2022.

First TPP Talks Include Textiles and Apparel

Today was the final day of the week-long Trans-Pacific Partnership (TPP) talks in Melbourne, Australia. The Office of the U.S. Trade Representative (USTR) will circulate papers addressing the issues that arose, and look for input from Congress and U.S. stakeholders on how best to proceed on key issues. Yesterday’s talks saw some discussion on textile and apparel, which are always a controversial issue in trade negotiations. The inclusion of Vietnam is already under attack by the U.S. textile industry.

CBP Searches for COAC Applicants

Customs and Border Protection is looking for applicants to join its Advisory Committee on Commercial Operations (COAC). COAC provides advice and makes recommendations to the Commissioner of CBP, Secretary of Homeland Security, and Secretary of the Treasury on all matters involving the commercial operations of CBP and related DHS functions. During this two-year term, is expected that the Committee will consider issues relating to enhanced border and cargo supply chain security, CBP modernization and automation, informed compliance and compliance assessment, account-based processing, commercial enforcement and uniformity, international efforts to harmonize customs practices and procedures, strategic planning, northern border and southern border issues, CBP agricultural inspection and import safety. This is an opportunity to have your concerns and suggestions heard by top Customs Officials, so we encourage anyone interested to apply. You can learn more online here.

USTR Begins TPP talks in Australia

A United States negotiating team has begun the first round of talks on the Trans-Pacific Partnership (TPP) Agreement in Melbourne, Australia today. The 22-member team, led by Assistant U.S. Trade Representative for Southeast Asia and the Pacific Barbara Weisel, will engage counterparts from Australia, Brunei Darussalam, Chile, New Zealand, Peru, Singapore, and Vietnam on creating a regional Asia-Pacific trade agreement. Also joining Weisel at the talks is Gail Strickler, Assistant US Trade Representative for Textiles.