Fashion Intel & Analysis

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

Commerce Department To Hold Hearing On U.S. “Retrospective” Trade Remedy System

It is difficult to say that the Obama Administration, or Congress, is seriously considering it, but the Department of Commerce is proceeding with an investigation into the advantages and disadvantages of the U.S. system for collecting antidumping and countervailing duties, as instructed by a Congressional appropriations committee late last year. Today, the U.S. Department of Commerce issued a notice that will be published in the Federal Register this week, announcing a public hearing and opportunity to submit comments on "the relative advantages and disadvantages of prospective and retrospective anti-dumping and countervailing duty systems."

As many USA-ITA members already well know, the U.S. retrospective system means that when imported goods are subject to AD or CV duties, the actual duty liability is not known until long after goods have been imported and sold, because the duty collected at the time of importation is considered only an estimate. Final duty liability is determined following an administrative review, which may take place years after importation and may be subject to litigation after that. That uncertainty makes pricing merchandise accurately virtually impossible.

The hearing and comment process is in part a response to a directive by U.S. Congressional appropriators, who, in December directed the Secretary of Commerce to conduct an investigation with the Secretaries of Homeland Security, and the Treasury on:

the extent to which each type of AD and CV duty system would likely achieve the goals of remedying injurious dumping or subsidized exports, minimizing uncollected duties, reducing incentives and opportunities for importers to evade AD and CV duties, effectively targeting high-risk importers, addressing the impact of retrospective rate increases on U.S. importers and their employees, and creating a minimal administrative burden.

According to the notice, the DOC report is scheduled to be transmitted to Congress on June 14, 2010. Commerce notes that as part of its analysis, the conferees requested that the Department address the extent to which each type of system would likely achieve the goals of: 1) remedying injurious dumping or subsidized exports to the United States; 2) minimizing uncollected duties; 3) reducing incentives and opportunities for importers to evade antidumping and countervailing duties; 4) effectively targeting high-risk importers; 5) addressing the impact of retrospective rate increases on U.S. importers and their employees; and 6) creating minimal administrative burden.

Comments are due on April 20, and the hearing will be held on April 27. USA-ITA members interested in participating in the process are urged to contact USA-ITA promptly.

© Copyright 2010 USA-ITA, All rights reserved.

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

Obama Makes Recess Appointments for Trade and Customs Agency Nominees

The President on Saturday evening announced recess appointments for a number of key trade officials whose nominations have been stalled for months. It is hard to say that this means that trade is moving up the priority list for the Administration, especially since these nominees were described as part of the Administration’s “economic” team, but at least there will be a number of officials who are now in the position to speak for the United States on trade matters.

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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:

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.

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.