Fashion Intel & Analysis

In this TDM:

Antidumping, Countervailing Duties To Be Imposed on Plastic Retail Bags From Indonesia, Taiwan and Vietnam
(Prepared by Brenda A. Jacobs, Sidley Austin LLP)

The U. S. International Trade Commission (USITC) yesterday ruled that the U.S. industry producing polyethylene retail carrier bags (PRCB) -- commonly referred to as t-shirt sacks, merchandise bags, grocery bags, or checkout bags -- is threatened with material injury by reason of PRCB imports from Vietnam that the U.S. Department of Commerce (Commerce) determined are subsidized and from Indonesia, Taiwan, and Vietnam that Commerce determined are sold in the United States at less than fair value (dumped). Five of the commissioners found threat of material injury (but not current material injury); one commissioner voted that there was no threat of material injury or current material injury.

As a result of the USITC's affirmative determinations, Commerce will issue a countervailing duty (CVD) order on imports of these products from Vietnam and antidumping (AD) duty orders on imports of these products from Indonesia, Taiwan, and Vietnam.

This is the first time that products of Vietnam, which the United States considers to be a non-market economy, are subject to a countervailing duty order. The CVD on Vietnamese origin products will vary from 5.28 percent for most suppliers to 52.56 percent; one investigated Vietnamese supplier will not be subject to a CVD because Commerce found only a de minimis level of subsidization.

The AD duties range considerably as well. For Indonesia, the rates range from 69.64 percent (for most suppliers) to 85.17 percent; for Taiwan, the rates go from 36.54 percent to 95.81 percent; for Vietnam, the rates range from 52.30 percent to 76.11 percent. There is already an antidumping order in place against PRCBs made in China and Thailand.

Commerce Undersecretary Says No Decision on Monitoring of Apparel Imports

Despite repeated calls by U.S. textile industry groups, the Obama Administration has made no moves to date to reinstate the Bush Administration program to monitor Vietnam apparel imports, or to create new monitoring of Chinese apparel imports. In a recent press conference, Commerce Department Under Secretary for International Trade Frank Sanchez is quoted as saying, "I’m looking at that and how we can best establish the overall goal of having a level playing field."

In this TDM:

COAC Scheduled for May 11 in Philadelphia

CBP has announced the next meeting of the Advisory Committee on Commercial Operations of Customs and Border Protection (COAC). Scheduled for Tuesday, May 11th in Philadelphia, this is the fifth meeting during the 11th term of the COAC. A tentative agenda includes the Importer Security Filing requirements (10+2), air cargo security, and import safety. All attendees must register by May 6th. Please contact USA-ITA for more information.

Sánchez Addresses NCTO on Fair Trade

Yesterday, House Ways and Means Trade Subcommittee member Linda Sánchez spoke to the National Council of Textile Organizations (NCTO) at their annual meeting in Washington, DC. Sánchez advocated more trade enforcement. She wants to see the addition of environmental standards and a strengthening of labor standards in trade agreements; as well as increased flexibility and authority for the USTR to suspend benefits for individual industries or producers that violate standards, rather than entire countries. In addition, Sánchez called on Treasury Secretary Geithner to take action on the Chinese currency problem.

No Garment Factories Remain on Northern Mariana Islands

On April 8, the U.S. Government Accountability Office (GAO) released a report entitled American Samoa and Commonwealth of the Northern Mariana Islands: Wages, Employment, Employer Actions, Earnings, and Worker Views Since Minimum Wage Increases Began. In the report, the GAO described the decline of the apparel industry in the Northern Mariana Islands.

GAO says there are no longer any garment factories on the islands. The report details that the apparel industry began a rapid decline when the Agreement on Textiles and Clothing (ATC) expired in January 2005. Combined with the WTO’s quota phase-out agreement, the increased competition from other countries contributed to the industry’s demise.

Interpretation of Chinese Regulations Is Top Concern for U.S. Firms in China

On April 2, the U.S. Chamber of Commerce in China (AmCham China) released the report, 2010 China Business Climate Survey. The report states that "most American companies report continued profitability in 2009." However, revenue declined for 31 percent of U.S. businesses compared to 2008. AmCham China reports that the number one business challenge in 2009 was the interpretation of regulations in China, followed by constraints on management-level human resources. The third-ranked issue is securing licenses, while protectionism ranks fourth. Click here to review the report.

Sidley Austin Report: Hundreds of Temporary Import Duty Suspensions Are On Hold Indefinitely

A partisan Congressional battle over the use of earmarks means that many U.S. companies are currently paying duties on products that had been duty-free before this year – and many other companies are missing out on getting temporary relief from duties that they had hoped would start this year. Earmarks are usually provisions in legislation that direct that funds be used for a particular project (usually in the home district or state of the Member of Congress who proposes it), but a decision by Republicans in the House of Representatives to adopt “a unilateral moratorium on all earmarks, including tax and tariff related earmarks” has stopped action on duty suspension bills that would have been included in a Miscellaneous Tariff Bill. Sidley Austin has prepared a report on this subject: Click here to view the report.

(Prepared by John Pellegrini, McGuireWoods LLP)

The International Trade Commission ("ITC") has announced that it will conduct an investigation under 19 U.S.C. § 3005 concerning the administration of Note 4(b), Chapter 64, Harmonized Tariff Schedule of the United States ("HTS"). The investigation was requested by the Treasury Department which requested that the ITC recommend to the President the addition of a new US Note covering footwear with outer soles of rubber and/or plastic which a layer of textile material has been added. 19 U.S.C. § 3006 allows the President to proclaim changes in the HTS in limited circumstances. Legislation is not required.

The proposed note would provide: "For purposes of determining the constituent material of the outer sole pursuant to Note 4(b) to this chapter, no account shall be taken of textile materials which do not possess the characteristics usually required for normal use of an outer sole, including durability and strength." If adopted, this note would eliminate the use of the fabric outsoles for purposes of qualifying for classification in heading 6405. However, Treasury also requests that there be a number of new provisions in heading 6402 and 6404 that would generally provide for the current heading 6405 duty rates (12.5% and 7.5%) for footwear that includes a layer described by the proposed. The following provisions would be subdivided to include a provision with this requirement and which would carry the lower duty rate. These are 6402.99.60, 6402.99.70, 6404.11.40, 6404.11.50, 6401.11.60, 6401.11.70, 6401.11.80, 6404.19.35, 6404.19.40, 6404.19.50, 6404.19.60, 6404.19.70 and 6404.19.80. With one exception, this schedule of subheading seems to include all those of interest. We would add subheading 6402.99.40.

There are no provisions for protective footwear and higher-priced athletic footwear. It is unlikely that a change covering these provisions could be adopted because of opposition by the domestic industry.

Comments on the proposal must be submitted by May 14, 2010. The ITC will post a proposed recommendation on May 28, 2010 and will accept comments on until June 25, 2010. The ITC expects to submit a recommendation to the President by July 12, 2010.

The Senate Banking Economic Policy Subcommittee Chair Sherrod Brown will be holding a hearing on currency issues next Wednesday, April 21. The hearing is expected to focus on the concerns about China's currency.

The announcement follows on the remarks by Senator Lindsey Graham at today's National Council of Textile Organizations (NCTO) meeting. Graham said that he is committed to moving the Schumer-Graham bill on China currency — no matter what actions China may take in the next few months.

Inside the Washington Beltway, the hype is that companies are “souring” on China – that the challenges of doing business in China have finally reached proportions that companies are willing to either forgo doing business in the market if things do not improve or stop publicly supporting the relationship if negative legislation were to emerge from Congress. A similar refrain is also mentioned, that this is the “worst business climate ever” in China.

It is an intriguing bit of hype, and much of it began with Google’s public announcement in January that it was considering leaving China’s market. But the reality is somewhat less dramatic: companies face significant challenges in China that they want addressed, but the market remains important to their bottom lines, so they want to see those challenges addressed in ways that are constructive and productive.

Overview of issues

There are primary issues that are at the heart of these significant challenges. The first is a mouthful: indigenous innovation. What it means is less tongue tying: China, like all other countries, wants to have an economy that is based on innovation, rather than simply being the manufacturer for the world. The problem comes in how China is pursuing that goal. It has implemented a series of policies since 2006 that encourage domestic Chinese companies to innovate – instead of, and frequently at the expense of, foreign companies. These policies promote innovation in ways that no other government in the world does – including using domestic ownership of intellectual property rights as the basis for benefits – and a return to import substitution – that is, favoring domestic products that will displace imported goods. It remains to be seen how effective these policies will be in promoting innovation.

The other major challenge in the relationship is China’s currency policies. This is an issue that attracts the concern of the U.S. Congress, even though most U.S. companies do not identify it as a major concern for them, either because they source globally and compete against Chinese products in China or because they provide services, so their transactions are conducted in whatever the local currency may be. But China’s currency policies do affect some US companies – primarily those that are competing against Chinese goods in the domestic US market. No matter what your view is of the impact, however, currency is the top risk in the commercial relationship today -- there is a real risk of action by the Obama Administration or by the U.S. Congress if no progress is seen in the coming weeks.

It is in China’s interest to allow greater currency flexibility for its own domestic reasons. A stronger currency would give Chinese consumers more spending power as prices rise due to inflation. In addition, China has repeatedly stated its interest in creating more domestic consumption. Making the currency value better reflect the market will help with that goal as well, and it will address concerns about China’s trade balance.

Importance of the China Market

With these significant challenges, one might wonder why this market is so important to US companies and the US economy. To begin with, China remains our fastest growing export market – or, in the case of 2009’s data, it was the lowest losing market during the recession. We exported $70 billion to China in 2009, which was flat vs. 2008 – but that flat growth outperformed US exports to the rest of the world, which declined by 19 percent last year.

In 2009, China was one of few bright spots for many companies. China is America’s third largest export market, behind only Canada and Mexico – two countries whose products we have virtually no tariffs on. China is particularly important if we are to achieve President Obama’s goal of doubling exports in the next five years. U.S. exporting companies report that they believe there are continued opportunities for growth once the recession has ended. That ties back to jobs in America thanks to the growth of companies’ global operations.

Significant Challenges, But Solutions Possible

Henry James once wrote that, “courtship is poetry, but marriage is hard prose.” We are in the hard prose of our commercial marriage with China. But like any relationship, it can endure and flourish only when both sides make the effort to acknowledge and reinforce its value.

We must continue to encourage China to address other problems in the relationship such as its discriminatory innovation policies. But when we identify a problem, we need to provide them with acceptable ways for it to be addressed, not just taunts of what is wrong. In therapy speak, we need to refrain from name calling and hollow threats and instead focus on finding solutions.

To be clear: we should not avoid talking about problems when we speak to China, but by the same token we should not talk only about problems. Talking only about problems provides ammunition to those who are skeptical of the trading relationship in the first place – and it emboldens them to act on the many creative ideas they have to punish China without seeking any solutions at all. That benefits no one.

There is a way forward in the US-China commercial relationship that does not involve a trade war, or to continue the marriage metaphor, a divorce. It is not easy, since the issues are complex. But moving forward together is the best way to ensure the prosperity of both of our countries for many years to come.