Fashion Intel & Analysis

The House Ways and Means Trade Subcommittee today held a hearing to discuss the status of security and trade operations at U.S. Customs and Border Protection, and heard how CBP Commissioner Alan Bersin plans to revamp CBP.  Bersin told the subcommittee that he wants to help legitimate trade by focusing enforcement efforts more on high-risk trade rather than low-risk trade.

According to Bersin, while this will help facilitate trade, it also means tougher efforts to combat illegitimate trade, and to that end he said he wants to stop the illegal transshipment of goods by working with U.S. trading partners, screening for high-risk shipments, and running post-release verification audits of goods. Bersin also said he supports exploring the possibility of making it easier for CBP to share information with U.S. right holders about imported goods that are suspected of violating U.S. IPR laws in an effort to boost enforcement efforts, and recommended a change the U.S. Trade Secrets Law to that end.  He also suggested that he would like to see changes in the system for collecting antidumping and countervailing duties.  A Treasury official testifying with Bersin, Deputy Assistant Secretary for Tax, Trade and Tariff Tim Skud, noted that the Departments of Commerce and Treasury will soon send a report to Congress on the pros and cons of a retrospective versus prospective collection system.

Cass Johnson of the National Council of Textile Organizations testified that there is “no more important” issue facing the U.S. industry than illegal transshipment.  Attacking both the importing community and foreign producers, he asserted that the textile industry sees evidence that companies producing yarns and fabrics overseas are illegally advertising themselves as U.S. companies in order to win NAFTA and CAFTA orders.  He called for disclosure to mills of information about the importer of record of garments made in preference and FTA countries, ostensibly to determine whether claims of U.S. inputs are supported.  He also pushed for an electronic verification system.

Rep. Bob Etheridge (D-NC) asked Johnson to explain “Operation Mirage,” which Johnson alleged uncovered that many new importers of goods from China are drastically undervaluing these imports.  Earlier, Etheridge asked Bersin how much specialized textile and apparel training CBP conducts for its staff; Bersin assured him there is such training.  Etheridge asked Bersin to provide that information in writing.

As expected, Johnson used his testimony to announce that tomorrow NCTO and several members of Congress from U.S. textile states will introduce the Textile Enforcement and Security Act of 2010, which he described as requiring the U.S. government to undertake more than a dozen new efforts aimed at stopping transshipment.

Today’s hearing was ostensibly aimed at informing subcommittee members as they try to put together a customs reauthorization bill. Subcommittee Chairman John Tanner (D-TN) said he was interested in testimony from all of the witnesses and that he wants their help as they consider a bill.

By Brenda A. Jacobs, Sidley Austin LLP

In a highly significant development, the Court of Appeals for the Federal Circuit on Friday struck down a Commerce Department (DOC) trade remedy regulation that calculates the labor rates in non-market economy (NME) countries based on wage rates and national income from 61 market economy countries.  The decision likely means that in future antidumping duty investigations involving products of NME countries, DOC will use either:

  • the wage rate prevailing in the country that is selected as the surrogate for purposes of calculating the other "factors of production" used to determine the "normal value" of a product, or
  • a smaller universe of market economy countries at similar levels of development that produce comparable goods. 

That means dumping margins for products of NME countries could go down.

Friday's decision was rendered in a case involving wooden bedroom furniture from the People's Republic of China, which has been subject to an antidumping order since late 2004.  As in all NME cases, DOC does not use actual costs of production to determine the "normal value" of goods sold in the exporting country.  The assumption is that sales in NME countries do not operate on the basis of market principles of cost or pricing. Instead, DOC uses surrogate values. In NME investigations, for factors such as raw materials, energy, selling, general and administrative expenses, factory overhead and profit, DOC typically uses values from a single market economy country that is both economically comparable to the NME country and a significant producer of the merchandise under investigation.  However, for wage rates, DOC has applied a different basis for calculating the surrogate rate: DOC uses "regression-based wages reflective of the observed relationship between wages and national income in market economy countries."  The 61 market economy countries included in that calculation had annual per capita gross national incomes ranging from $420 (Pakistan) to $39,470 (Luxembourg). China's annual per capita GNI was $960.

The Chinese furniture manufacturers argued in court that the DOC regulation which treats the labor factor of production differently from all other factors of production and which relies upon data from countries with widely varying national incomes, rather than just those countries that are economically comparable with the PRC and significant producers of the product under investigation, is inconsistent with the requirements of the U.S. antidumping statute. The application of the DOC regulation, 19 C.F.R. Section 351.408(c)(3), resulted in a wage rate that was 300 percent higher than the wage rates in the Indian furniture industry, which was the surrogate for all other factors. 

The Federal Circuit, in an opinion written by Chief Judge Paul Michel, who is about to retire, held that the regulation violates two key requirements of the statute.  The statute requires the use of data from economically comparable market economy countries "to the extent possible."  It also requires the use of data "to the extent possible" from economically comparable market economy countries that are "significant producers of comparable merchandise."  DOC's regulation, however, improperly requires the use of labor value data 1) from countries that are both economically comparable and economically dissimilar to the NME at issue and 2) from countries that produce comparable merchandise and countries that do not, without any finding by DOC that relevant data was unavailable or otherwise unusable.

The Federal Circuit's ruling reversed a decision by the lower court, the U.S. Court of International Trade, which had upheld DOC's regulation. The appeals court has remanded the case back to DOC with instructions to determine the surrogate labor value using a method that complies with the requirements of the U.S. statute.  But the implications of this case are clearly far broader than just the furniture case.  With its existing regulation invalidated, DOC must now determine how it will value wage rates in NME industries in all antidumping cases going forward, including pending investigations and administrative reviews. 

The full decision in the case, Dorbest Limited et al. v. United States, Docket No. 09-1257, can be viewed at http://www.cafc.uscourts.gov/opinions/09-1257.pdf.

In this TDM:


Customs Commissioner Faces Tough Finance Committee
By Pete Kasperowicz, Sidley Austin LLP

The Senate Finance Committee held a confirmation hearing this morning for U.S. Customs and Border Protection Commissioner Alan Bersin, who was recess appointed in March, while the Finance Committee was still considering his nomination.  It now looks like that recess appointment has angered Finance Chairman Max Baucus (D-MT).  Baucus stated that he looks forward to working with Bersin on a range of issues "between now and the end of next year," signaling that he may allow Bersin's appointment to expire at the end of 2011 without action by the Senate.

At issue for Baucus is Bersin's failure to file or maintain proper forms related to the employment eligibility of various domestic workers he had hired over the last 10 years.  Baucus told Bersin that it is "unacceptable" that Bersin did not file the right form given his various public positions that involved law enforcement. Ranking Committee Member Charles Grassley (R-IA) pressed on the same issue. Grassley also asked about a property Bersin owns near the U.S.-Mexico border.

Baucus also asserted that he is "quite concerned" about Bersin's lack of experience in issues related to trade facilitation. Bersin replied that he has 20 years of experience as a commercial lawyer involved in trade and commerce, that he played a role in easing travel rules for trusted travelers, and that he has been working on trade facilitation issues within the government and with the trade community in his current position.

Baucus asked how Bersin would measure success in the area of trade enforcement and facilitation. Bersin replied that duty collections and seizures of illegal goods are ways to measure enforcement, and that faster processing times, providing notice about rule changes, devoting resources to handling petitions, and speeding up the process for handling duty drawback requests are examples of how to measure improved trade facilitation.

Baucus asked Bersin to submit to the Committee by the end of this week the six most important trade facilitation metrics, advising him that he wants to review those with Bersin in the next six months.

Baucus also admonished Bersin for not knowing what percentage of the world's software is pirated, although Bersin assured Baucus that he can help address the problem. Baucus also asked Bersin how to help more trade flow between the U.S. and Canada, and what other authorities Bersin would like to help CBP do its job. Bersin declined to identify additional authorities, saying he wants to see how a new IPR enforcement center works, and how a new Commercial Targeting and Analysis Center works in targeting suspect goods.

Asked about product safety, Bersin cited the recent MOU between CBP and the Consumer Product Safety Commission that will give CPSC a chance to review trade data and target possible shipments of unsafe goods. He also said he spoke with CPSC Chairwoman Inez Tenenbaum this week about convening a group of agencies to take a more unified approach to product safety.

Baucus and Bersin agreed on the need to create trade benefits for companies that help CBP enforce trade and security rules, such as by expediting trade through U.S. ports when possible.  Baucus said the customs reauthorization bill introduced by the committee last year would call for these benefits. But this was one of the few times in the hearing that any reference was made to the bill, S. 1631. Grassley mentioned the bill in his opening statement, but did not ask Bersin his opinion about the bill at any time.

Bersin did draw support from Sen. Ron Wyden (D-OR), who asked Bersin what CBP can do to better enforce AD/CVD laws. Bersin said he is considering this question as CBP works on "revamping the CBP mission on trade," and said he supports ideas such as collecting cash deposits from importers suspected of trying to evade duties, having the Commerce Department report annually on allegations of trade violations, and increasing staff to promote trade facilitation. Wyden said those are the sorts of ideas Senate Finance Committee members agree with and said he was encouraged by Bersin's comments.  The U.S. import community, however, may not be so pleased with some of those ideas, especially if all importers of goods subject to antidumping or countervailing duties are considered suspect.        

USA-ITA Signs Coalition Letter Aimed at Ending Forced Child Labor in Uzbekistan

On May 11, a coalition of 18 associations, retailers, apparel brands, and NGOs sent letters to Assistant Secretary of State for Southeast Asia Robert Blake and to Deputy Undersecretary for the Bureau of International Labor Affairs Sandra Polaski.  The letters ask the Obama Administration officials  to put pressure on the government of Uzbekistan to stop using child labor in the cotton fields.

Reports from within Uzbekistan continue to suggest that the country employed state-sponsored child labor to bring in the 2009 cotton harvest. With the approach of the International Labor Conference, the coalition asks the US government to intercede and urge Uzbekistan to fully participate. Click here for a copy of the letters.

House Subcommittee Hears Testimony On Proposed Fur Labeling Bill
by Pete Kasperowicz, Sidley Austin LLP

The House Energy and Commerce Subcommittee on Commerce, Trade and Consumer Protection held a hearing today to discuss H.R. 2480, the Truth in Fur Labeling Act of 2009. That bill, which has 166 co-sponsors, would require all fur to bear labels indicating the type of fur, country of origin and other information. Current law exempts fur valued at $150 or less from labeling requirements.

Subcommittee Chairman John Barrow (D-GA) gave no indication about whether or when the bill might move through Congress, although there was scant opposition to the bill in the hearing. James Kohm of the Federal Trade Commission said the FTC supports the bill as a way to give consumers more information about the garments they buy. He said many consumers want to avoid buying fur and accurate labeling even on garments with fur trim would help them make that choice.

Michael Markarian of the Humane Society of the United States said his group supports the bill because the presence of synthetic fur makes it harder for consumers to detect when they are buying fake or real fur. Keith Kaplan of the Fur Information Council of America also said his group supports removing the $150 exemption, although he said his group is seeking the elimination of a section of the bill that would limit federal preemption. That section says nothing in the bill precludes state or local governments from enforcing their own, more restrictive fur labeling guidelines. Kaplan said this language could lead to confusion among consumers and would give fur activists a chance to require very stringent labeling requirements at a local level, which would only add costs for retailers and manufacturers. However, Rep. Jim Moran (D-VA) said that language is a restatement of current law.

Markarian said that today, roughly 87% of all fur-containing garments are covered by the current labeling law and that H.R. 2480 would cover the remaining 13% of garments that now face no labeling requirement.

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US Chamber of Commerce Releases Study on Trade and Jobs

U.S. Chamber of Commerce President Tom Donohue spoke today on the “State of World Trade,” releasing data from a new study showing that almost 18 million U.S. jobs depend on trade--5.4 million of which were created by the increase in trade unleashed by the free trade agreements.

While Donohue applauded the Obama Administration’s National Export Initiative, he said that the U.S. is falling behind by not passing the FTAs already negotiated. The report highlights the consequences of Washington’s continued inaction on FTAs – loss of jobs and increased competitiveness for U.S. companies abroad. Donohue’s complete remarks and a copy of the study are available at www.uschamber.com/trade.

The Chamber also sponsored an ad in today’s Politico, lobbying for Congressional action on the Columbia, Panama and Korea FTAs. Click here to view the ad: http://www.uskoreafta.org/sites/default/files/Ad3.pdf

Washington Celebrates 10th Anniversary of AGOA

On Wednesday, the U.S. Trade Representative Ron Kirk sponsored a celebration of the 10th Anniversary of the African Growth and Opportunity Act (AGOA). Since being signed into law on May 18, 2000, AGOA has more than doubled U.S. imports from Sub-Saharan Africa, including substantial increases in apparel, leather and other consumer products.

Speaking at the Capitol Hill program were the House Ways and Means Committee leadership, including Charles Rangel (D-NY) and Sander Levin (D-MI).  Reflecting the strong support for AGOA, this was a very bipartisan event, featuring Republicans and Democrats.  Former Ways and Means Committee chairman Bill Thomas also joined the group and shared his views about AGOA, including a challenge to the Democrats in Congress and the Administration to update the agreement.  Other speakers included the Ambassador of Lesotho, and one private sector representative, Martin Trust, Chairman of Brandot International. Trust spoke about the historic passage of AGOA and his personal commitment to the region, saying that, “The companies that I was invested in purchased or shipped over one half billion dollars in apparel exports from AGOA factories.”

Trust also was the only speaker who made very specific recommendations for how to improve AGOA for the future.  “Africans desperately want new American investment in their countries,” said Trust, adding that “American business needs new sources of income to grow.  But the US Tax Code provides no incentives to invest in the poorest African countries relative to other countries.” Creating these tax incentives, said Trust, will allow for growth both in the U.S. and Africa.

While the event ended on a positive note with a cake to celebrate the anniversary, there also was some recognition that the AGOA agreement is not as effective as the legislators had hoped.  Despite the substantial growth in U.S. apparel imports from AGOA during the early years of the agreement, today’s U.S. import statistics show that the value of those imports have returned to the levels during 2000.  

In this TDM:


Totes-Isotoner Petitions for Supreme Court Review of HTS Discrimination Claim

Totes-Isotoner Corp. has filed a petition for certiorari with the U.S. Supreme Court, asking the high court to review the decision by the U.S. Court of Appeals for the Federal Circuit (CAFC) that dismissed the glovemaker's claim that the Harmonized Tariff Schedule discriminates on the basis of gender, in violation of the equal protection clause of the Constitution.  

The CAFC found that the government's right to tax includes the right to differentiate among groups, so there is no "facial discrimination" even if the different tariff rates means there is a disparate impact.  In the absence of a finding that the tariff schedule is discriminatory on its face, the CAFC said, Isotoner had to allege in its complaint an intent by the government to discriminate, which Isotoner did not do. 

The petition, filed last week, presents three issues on which the Supreme Court could grant review:

  • whether HTS provisions that set different duty rates based on gender, such as 14 percent for men's leather gloves and 12.6 percent for women and children are discrminatory. 
  • whether, if the HTS, simply by virtue of its different rates based on gender, is not discriminatory, the CAFC  was correct in requiring Isotoner to plead facts sufficient to establish a governmental purpose to discriminate between men and women users of gloves. 
  • whether a corporate taxpayer has standing to assert an equal protection violation based on gender or age of those for whom it imports merchandise.  (This last issue was actually decided in favor of Isotoner by the CAFC, but the Government had argued that Isotoner did not have standing because every importer of men's gloves, regardless of the gender of the importer, paid the same rate.)  

It is entirely up to the Supreme Court whether to accept the case. The Government – the U.S. Department of Justice – now has an opportunity to file a response to the petition and to present its views on whether the certiorari should be granted.

CPSC Posts Proposed 15-Month Rules, Public Database Plan

The Consumer Product Safety Commission has posted to its website two proposed rules and its proposed plan for the public database, each of which it recently approved for publication in the Federal Register and public comment.  The proposed rules on Testing and Labeling Pertaining to Product Certification and on Conditions and Requirements for Testing Component Parts of Consumer Products, often referred to as the 15-month rules, were the topic of discussion at last week's CPSC meeting while the data base was discussed several weeks ago.  Once the proposed 15-month rules are published, each will be subject to a 75 day public comment period.  The proposed rulemaking notice on the Publicly Available Consumer Product Safety Information Database will be subject to 60 day public comment period.

It's Official: Cotton Producers Get Three Separate State Representatives

In a Federal Register notice published last week, the Cotton Research and Promotion Order, which sets the rules for the Cotton Research and Promotion Program, has been amended to identify as separate entities three small cotton-producing states that had each previously been grouped with another state and therefore shared representation and a seat on the Cotton Board.  The states, Virginia, Florida and Kansas, are now each entitled to a separate representative on the Cotton Board, increasing the ratio of producers to importers on the Board.  The change in the Order is the result of a provision in the 2008 Farm Bill and a referendum conducted by the U.S. Department of Agriculture late last year.


By Brenda A. Jacobs