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Washington Outlook Archive

Congress Reconvenes With Textile Issues On The Agenda

By James A. Morrissey, Washington Correspondent

As the second session of the 106th Congress gets underway this month, the agenda includes a number of issues that will help shape the future course of the US textile industry and importers of clothing and textiles. By far the most far-reaching issue is the ratification — or rejection — of whatever the Bush administration agrees to in connection with the Doha Round of trade liberalization negotiations. In addition, there are a number of regional bilateral free trade agreements the administration is pursuing, an ultimate goal of a Free Trade Area of the Americas and new limitations on procurement of foreign goods for the military and homeland security. Step 2 of the cotton/textile competitiveness program will be killed by Congress in order for the United States to comply with a World Trade Organization (WTO) ruling that the subsidies paid to textile mills and cotton merchants are illegal.

The Doha Round

Although the WTO’s 149 members have agreed to a broad framework for carrying out Doha Round negotiations that they hope will conclude by the end of this year, many contentious issues remain for textiles and other industries. Lobbyists for both importers and manufacturers will be leaning on their supporters in Congress to influence the talks as the administration moves forward with negotiations. In a nutshell, importers and manufacturers in the less-developed countries are making a push for deep cuts and eventual elimination of tariffs on textiles and apparel.

On the other hand, US textile manufacturers are seeking to limit tariff reductions and are demanding that any tariff cuts be linked to greater market access to countries that want to increase their exports to the United States. They are particularly concerned that countries like Bangladesh and Cambodia, which already are competitive in the US market, not be granted major additional tariff concessions.

While the WTO members have agreed to grant zero tariffs to 97 percent of the imports from least-developed countries, the textile industry hopes “sensitive” textile products will be excluded. Although he has not made any promises, US Trade Representative (USTR) Rob Portman says he is aware of the textile problems and has stated, “[T]here is enough space to deal with sensitive products and concerns of Congress.” Is he saying textiles and apparel? No one knows at this point.

In any event, whatever is negotiated will have to be voted up or down in its entirety under the president’s Trade Promotion Authority, and there will be a lot of give and take before anything is agreed upon that Congress will be willing to accept.

Free Trade Agreements

The Bush administration has negotiated free trade agreements with 13 countries — Chile, Singapore, Australia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Morocco, Bahrain, Oman and Peru. For the most part, US textile manufacturers — sometimes reluctantly — have ultimately endorsed them after a lot of haggling over rules of origin for products eligible for special concessions.

In addition, the Bush administration is involved in negotiations with 10 more countries —C olombia, Ecuador, the United Arab Emirates, Panama, Thailand and the five nations of the Southern Africa Customs Union. The administration says, taken together, the pending free trade agreement partners would constitute the United States’s third-largest market and the sixth-largest economy in the world.

The question from the standpoint of US textile manufacturers is, How much of a potential market for US textile exports do these countries actually constitute? Many industry representatives say very little.

With all of these agreements in place or pending, an overriding question arises — What would the zero tariffs proposed by the WTO for all least-developed countries do to undercut the benefits of these special bilateral agreements?

The Chinese Currency Issue

Look for members of Congress to continue their efforts to pressure China to modify what they say is “illegal currency manipulation,” which they contend amounts to an unfair subsidy for its international trade.

Although China has announced some initiatives to bring the yuan into line with the US dollar, industry lobbyists don’t think they go far enough. Textile lobbyists claim the Chinese currency imbalance amounts to as much as a 40-percent subsidy.

Legislation introduced in the Senate would impose a 27.5-percent tariff on all Chinese imports. A bill in the House would define “exchange-rate manipulation,” and tag it as a prohibited export subsidy. The legislation would establish guidelines for the US International Trade Commission to determine the extent of currency manipulation impact on US industries.

Last July, the Chinese government announced it would revalue its yuan by about 2 percent. While some government officials and textile importers said the action was a step in the right direction, textile industry representatives called it “woefully inadequate.”

Good-bye Step 2

A cotton subsidy program that has provided US textile manufacturers and cotton merchants with some $2 billion since its 1995 inception to help offset a competitive disadvantage with foreign manufacturers has been declared illegal by the WTO, and Congress will repeal it by August. The August 1 cutoff day means the program will run through the 2005-2006 marketing year.

Still intact is a provision under the competitiveness program that permits US textile mills to import some cotton under certain conditions. If the US price for raw cotton exceeds the world price for a consecutive four-week period, a special import quota is triggered. The quota is equal to one week of upland cotton mill use based on the most recent three months’ seasonally adjusted data.

While that provision has been available since the competitiveness program’s inception, it has rarely been used. With the elimination of Step 2, it would become more important.

Buy American Gaining Ground

Efforts by members of Congress to require federal agencies to buy US-made textiles and clothing are gaining ground with the US Departments of Defense (DOD) and Homeland Security (DHS). Although there has been a law on the books since 1941 requiring the military to buy US-made textiles and clothing whenever possible, it has to be renewed each year. In recent years, some members of Congress and DOD officials have succeeded in watering it down somewhat and frequently were able to get around it.

As the defense authorization bill passed Congress last December, language authored by Rep. Robin Hayes (R-NC) was included that will require procurement agencies to notify Congress and publish a public notice when they decide to buy textile and apparel goods from foreign sources. In addition, the new domestic procurement language is expanded to require components of textile and apparel goods used by the military to be sourced domestically as well. One of the past problems with the Buy America provisions was that defense agencies frequently said the products they needed were not available domestically. Now, with the new notification language, domestic producers will have an opportunity to show they can provide the necessary products.

Hayes also has been attempting to get a similar requirement applied to DHS procurement. His cause got a major boost when it was discovered that border guards were wearing uniforms made in Mexico. Hayes and other members of Congress raised a red flag, pointing out how easy it would be for illegal immigrants to get uniforms that would enable them to cross the border undetected. When the DHS authorization bill comes before Congress, probably in early February, Hayes will attempt to get an effective Buy American amendment. He said these efforts will have a “significant deterrent effect” on foreign procurement and will expand opportunities for domestic manufacturers to provide the goods, and at the same time, improve national security.

January 1, 2006