Fashion Intel & Analysis

The Office of the U.S. Trade Representative (USTR) released the objectives for the U.S.-European Union trade negotiations. “The United States seeks to support higher-paying jobs in the United States and to grow the U.S. economy by improving U.S. opportunities for trade and investment with the EU,” says the document, which was released while EU Trade Commissioner Cecilia Malmström was visiting Washington, DC. “U.S. exporters in key sectors have been challenged by multiple tariff and non-tariff barriers for decades, leading to chronic U.S. trade imbalances with the EU. For example, the trade deficit in goods with the EU was $151.4 billion in 2017,” the document continues.

Regarding apparel, the objective is to “secure duty-free access for U.S. textile and apparel products and seek to improve competitive opportunities for exports of U.S. textile and apparel products while taking into account U.S. import sensitivities.” The objectives also specifically note textiles in the rules of origin objectives: “Establish origin procedures that streamline the certification and verification of rules of origin and that promote strong enforcement, including with respect to textiles” (emphasis added).

The full document is available here.

As a reminder, USTR has run out of funds and all but “excepted personnel” are furloughed; the agency continues to conduct trade negotiations and enforcement operations.

As of January 1, 2019, according to a new California law, any customer of a port drayage carrier will be liable for unpaid wages, unreimbursed expenses, damages, and penalties due to the carrier’s commercial truck drivers if the carrier is found on a new list published by the State of California Department of Industrial Relations. A “customer” is identified as “a business entity, regardless of its form, that engages or uses a port drayage motor carrier to perform port drayage services on the customer’s behalf, whether the customer directly engages or uses a port drayage motor carrier or indirectly engages or uses a port drayage motor carrier through the use of an agent, including, but not limited to, a freight forwarder, motor transportation broker, ocean carrier, or other motor carrier.” The list is available here. USFIA Customs Counsel McGuireWoods has more information on the new law and how to protect yourself from liability.

Happy New Year! We hope you had a restful holiday with your families and friends. We begin the year with many parts of the U.S. government still shut down, a new Congress with Democrats taking control of the House, and uncertainty about what’s next for trade policy and the stock market. Over the coming days and weeks, we will continue to provide members with as much information as possible, as soon as we have it, so you can stay up-to-date on the developments in Washington DC.

Below, a few notes about some of the key issues we’re watching as we start the year.  

CHINA. The possibility of new tariffs on all imports from China remains a top concern, as this could mean all apparel, home textiles, and footwear could get caught in the trade war. Meanwhile, if talks between the United States and China fail, tariffs on the third retaliation list will jump to 25 percent, which will be damaging to many fashion brands and retailers. But tariffs are not the only things that could disrupt the U.S.-China relationship. Don’t underestimate the impact of foreign policy standoffs or military tensions. In recent weeks, the Chinese have mentioned reunification with Taiwan, while the White House’s new Africa strategy is seen as an attack on China’s role on the continent. Needless to say, the U.S.-China relationship is rocky.

Another development that could impact U.S.-China relations and Pacific supply chains is the news that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) went into effect for six of its eleven members (Australia, Canada, Japan, Mexico, Singapore, and New Zealand); it will go into effect for Vietnam on January 14, as well.  Of course, the agreement no longer includes the United States, after President Trump withdrew from the agreement in January 2017. But China is among the countries that have expressed interest in joining the agreement. We’ll keep watching to see how CPTPP affects supply chains and relationships in the region.

TARIFFS. Tariffs will remain in the headlines. The Section 301 tariffs on Chinese products remain a constant battle. The Administration is committed to keeping the Section 232 tariffs on steel and aluminum, as well. Not only does the Administration say the tariffs led to new manufacturing jobs, but the President is also pleased and continues to tweet about the tariff revenue collected on imports. As of mid-December, U.S. Customs & Border Protection has collected more than $13 billion in penalty tariffs. Most of this money comes from products covered by the 301 duties on Chinese imports but watch for the President to make the decision whether to impose 232 tariffs on automobile imports.

Right before the holidays, the Office of the U.S. Trade Representative (USTR) quietly announced that it granted the first product exclusions for products covered by “List 1” of the Section 301 tariffs. The exclusions are retroactive to July 6, 2018. USFIA Associate Member Akin Gump has a full analysis of the exclusions.

U.S.-MEXICO-CANADA TRADE. We are relieved the United States, Canada, and Mexico reached an agreement and signed a new deal in November. So far, President Trump has not followed through on the threat to terminate NAFTA but watch for tough battles as Congress debates the approval of the U.S.-Mexico-Canada Agreement (USMCA). The government shutdown affects the International Trade Commission, and their economic report on the new agreement is a requirement for Congress to act. But if Congress does delay on approving the USMCA, expect renewed threats to terminate NAFTA. And the wild card is whether the debate over the border wall leads the President to really shut down the entire southern border.

NEW TRADE NEGOTIATIONS. While so much of the activity has been defensive against Administration action to impose more tariffs or restrict trade, there are a number of positive developments on new trade negotiations. Watch for talks with Japan and the European Union to begin this year, and, depending on the outcome of Brexit, possibly the United Kingdom.

EXPANDED ENFORCEMENT AND COMPLIANCE RISKS. One additional risk from all the uncertainty is companies could face enhanced enforcement and potential compliance risks as sourcing executives revise their supply chain and strategy. There are more risks and agencies with authority to enforce trade laws are looking at how they will step up enforcement. USFIA will continue to work with these agencies and provide information to members as we learn it.

CBP to Host Public Meeting in March

U.S. Customs & Border Protection (CBP) will host a Public Meeting on March 1, 2019, to obtain public input on the 21st Century Customs Framework (21CCF). CBP is seeking public comments on the themes; stakeholders may also request to provide comments in-person during the meeting. Everyone wishing to attend the meeting must register in advance by February 4, 2019. Click here for details and registration.

The 116th Congress convened last Thursday, January 3. New Senators and every Member of the House of Representatives were sworn into office, the parties approved Members for leadership positions, and the House and Senate passed customary measures to amend the rules of each body. Nearly every Member of Congress that had been up for reelection held swearing-in events and/or evening receptions, many of which Barnes & Thornburg lawyers and staff attended.

The 116th Congress brings several changes—notably, Democratic control of the House of Representatives and a larger Republican majority in the Senate, as well as changes to the leadership and membership of numerous congressional committees.

The Shutdown

As of this writing, the federal government is shut down for the 18th day with no immediate end in sight. The shutdown affects nine cabinet agencies and 800,000 federal workers, of which 350,000 continue to work without pay. The affected agencies are:

  • Department of Commerce
  • Department of the Interior
  • Department of State
  • Department of Agriculture
  • Department of Homeland Security
  • Department of Treasury
  • Department of Justice
  • Department of Transportation
  • Department of Housing and Urban Development

In addition to the cabinet agencies, the Internal Revenue Service (IRS), U.S. Customs & Border Protection (CBP), Consumer Product Safety Commission (CPSC), Environmental Protection Agency (EPA), and National Aeronautics and Space Administration (NASA) are affected. It’s important to note that while virtually the entire CPSC is furloughed, the “vital” CBP staff who inspect and clear cargo at the ports continue to work. Outside of the Washington DC area, agency workers affected by the shutdown are primarily concentrated in Alaska, Idaho, Montana, New Mexico, South Dakota, West Virginia, and Wyoming.

Status of Negotiations to Reopen Government

As of yesterday, January 8, President Trump and Congress have not agreed to any settlement, with the negotiations very much at an impasse. President Trump has asked Congress to appropriate $5.7 billion for the construction of the border wall. Democrats offered $1.3 billion for overall “border security” rather than the construction of a wall, but President Trump has so far refused to accept anything below $5.7 billion.

Shortly after being sworn in, the Democrat-controlled House passed two appropriations bills: one to fund the Department of Homeland Security (including CBP) through February 8, and another to fund the remaining unfunded agencies through the end of the fiscal year (September 30). The Republican-controlled Senate said they would not take up the bills, and President Trump indicated he would not sign them. This week, the House plans to vote on another series of funding bills designed to reopen the government, but the President is likely to refuse to sign those, as well. Senate Majority Leader Mitch McConnell said the Senate will not vote on any bills President Trump will not sign.

Currently, President Trump’s legal team is looking into the possibility of invoking emergency powers to use certain defense funds for the construction of the border wall. Rep. Mac Thornberry (R-TX), the Ranking Member of the House Armed Services Committee, opposes the use of defense dollars for this purpose. This is important because the relevant Republican House Committee Chair opposes the construction of the Republican President’s border wall through this kind of maneuver.

The Impact of the Shutdown on Relevant Agencies

U.S. Customs & Border Protection: Given the nature of CBP’s work, 91 percent of CBP employees are working without pay during the shutdown. Operations continue at the southern border and other ports of entry.

Environmental Protection Agency: The EPA had enough funding in reserve to remain open for the first week of the shutdown. Now, however, many of the EPA’s 14,000 employees are furloughed and “non-essential” activities have ceased.

Consumer Product Safety Commission: With the exception of the commissioners and a few senior staff, most of the agency’s 500 employees—including field agents, port inspectors, and hazard analysts—are furloughed.

Committee Changes

House party leadership met on the evening of January 8 to determine committee composition, though the rosters are not yet public. We know the new chairman of the important House Ways & Means Committee (which oversees trade, taxes, and healthcare) will be Rep. Richard Neal (D-MA) and the Ranking Member will be former chairman Rep. Kevin Brady (R-TX). House committee staff, meanwhile, are in turmoil. Traditionally, the majority party gets 2/3 of the committee budget as well as better office space. With the Democrats taking over, numerous Republican staffers have been laid off and staff are in the process of moving offices. 

The Senate has determined its committee rosters. Of note, the new members of the Senate Finance Committee are: Chairman Chuck Grassley (R-IA) Sen. James Lankford (R-OK), Sen. Steve Daines (R-MT), Sen. Todd Young (R-IN), Sen. Sheldon Whitehouse (D-RI), Sen. Maggie Hassan (D-NH), and Sen. Catherine Cortez Masto (D-NV). The full makeup of the committee is below.

Republicans:

  • Sen. Chuck Grassley (R-IA), Chairman
  • Sen. Mike Crapo (ID)
  • Sen. Pat Roberts (KS)
  • Sen. Mike Enzi (WY)
  • Sen. John Cornyn (TX)
  • Sen. John Thune (SD)
  • Sen. Richard Burr (NC)
  • Sen. Johnny Isakson (GA)
  • Sen. Rob Portman (OH)
  • Sen. Pat Toomey (PA)
  • Sen. Tim Scott (SC)
  • Sen. Bill Cassidy (LA)
  • Sen. James Lankford (OK)
  • Sen. Steve Daines (MT)
  • Sen. Todd Young (IN)

Democrats:

  • Sen. Ron Wyden (D-OR), Ranking Member
  • Sen. Debbie Stabenow (MI)
  • Sen. Maria Cantwell (WA)
  • Sen. Bob Menendez (NJ)
  • Sen. Tom Carper (DE)
  • Sen. Sherrod Brown (OH)
  • Sen. Michael Bennet (CO)
  • Sen. Bob Casey (PA)
  • Sen. Mark Warner (VA)
  • Sen. Sheldon Whitehouse (RI)
  • Sen. Maggie Hassan (NH)
  • Sen. Catherine Cortez Masto (NV)

Washington DC is officially on Shutdown Watch. Congress has until midnight on Friday, December 21st, to pass a funding bill for the government or face a partial shutdown just a few days before Christmas. The sticking point is President Trump’s request for $5 million to fund a border wall, which Democrats say they won’t support; any funding bill requires at least some support from Democrats to get to the required 60 votes in the U.S. Senate. White House senior advisor Stephen Miller over the weekend said the Administration is prepared to do “whatever is necessary to build the border wall,” even if this means a shutdown. However, today, White House spokeswoman Sarah Sanders said, "We have other ways that we can get to that $5 billion. At the end of the day we don’t want to shut down the government, we want to shut down the border," indicating that the White House may try to avoid a shutdown.

While we think Congress will come to some kind of agreement before the holidays, we are preparing for a potential shutdown. Although Congress has already funded about 75 percent of the government through September 2019, the Department of Homeland Security (including U.S. Customs and Border Protection) is one of the agencies that has not yet been funded after Friday. We do not expect that trade operations would be severely affected should the shutdown happen, but we encourage you to contact your National Account Manager at the Center of Excellence & Expertise (CEE) if you have specific questions or concerns. In the meantime, we will check in with our contacts at U.S. Customs & Border Protection and share any additional information so you can know what to expect.

USTR Formally Postpones Section 301 Tariff Increases to March 2019 

The Office of the U.S. Trade Representative (USTR) has published the Federal Register notice to postpone the increase in the Section 301 tariffs (Tranche 3) on imports from China. Unless President Trump takes further action, the tariffs will increase from 10 percent to 25 percent on March 2, 2019. The notice with more information is available here.

USFIA Files Comments on US-EU Trade Agreement

On December 10, 2018, the United States Fashion Industry Association (USFIA) filed comments on the probably economic effect of providing duty-free treatment for certain currently dutiable imports under the potential U.S.-EU Trade Agreement. The comments were filed in advance of the U.S. International Trade Commission hearing today, December 18, 2018, where we will testify. Our pre-hearing comments are available here.

We also joined comments by the U.S. Global Value Chain Coalition, available here.