What About China?


Although a number of congressional leaders, President Obama and top cabinet trade officials
have pledged a crackdown on what they believe are illegal trade practices by China, they have
softened their rhetoric and backed off at least for now on some proposals. China owns so much US
government debt, this is not a very good time to pick a fight and face some form of retaliation.
China also is working with the United States in efforts to overcome the global economic crisis.

Following a series of recent meetings with Chinese officials in Beijing, Treasury Secretary
Timothy Geithner emphasized the importance of cooperation and diplomacy and said the United States
and China are working together to “shape a strong global strategy to contain the global crisis and
lay the foundation for recovery.” He made only a passing reference to the Chinese currency issue,
which many US manufacturers say amounts to an illegal subsidy for its exports to the United States.
Geithner simply said the government of China must continue its progress toward “a more flexible
exchange rate regime.” There was no mention of currency legislation pending in Congress or any
plans to take action with the World Trade Organization (WTO) or make greater use of US anti-dumping
and countervailing duty laws.

In the meantime, a bipartisan group of House and Senate members has introduced the Currency
Reform for Fair Trade Act, which would allow injured US manufacturing industries to seek offsetting
duties under US trade remedy laws. It states that currency manipulation occurs when a foreign
government engages in protracted, large-scale intervention in exchange markets so that currency is
under- or overvalued by at least 5 percent over 18 months. The legislation is backed by the Fair
Currency Coalition, which includes a number of textile lobbying groups.

The administration also is putting off seeking congressional approval for three free trade
agreements (FTAs) negotiated by the Bush administration. Even though President Obama said at a
recent summit of the Americas that he would seek approval of FTAs with Panama and Colombia, action
is being delayed while administration trade officials try to find ways to tailor the agreements to
meet new requirements for labor and environmental standards in FTAs. A much more controversial FTA
with South Korea is even further down on the agenda.

Value-Added Tax?


A new trade issue has come into play that, while highly controversial, seems to be getting
some traction as a possible source of revenue to help finance universal healthcare. It is a
value-added tax (VAT) on the transfer of goods and services that ultimately is passed on to the
consumer. In use by some 130 countries, the VAT has never taken off in the United States because it
is seen as a form of a national sales tax. Senate Budget Committee Chairman Sen. Kent Conrad,
D-N.D., says the VAT needs at least to be considered along with other taxes. Other countries refund
the VAT on their exports, but levy it on imports, placing export of US goods at a disadvantage.

Sen. Lindsey Graham, R-S.C., has introduced legislation that would approach the VAT problem
differently in terms of international trade, directing the US Trade Representative (USTR) to
negotiate “fair border tax arrangements” by Jan. 1, 2010, to offset the trade advantages. The VAT
is a political hot potato, but it cannot be ruled out at this time. The National Retail Federation
strongly opposes the VAT, saying it would depress spending and “lengthen and deepen the recession.”

A wide range of manufacturing industries support a US VAT as a way to overcome what they see
as a trade advantage enjoyed by countries that have VATs. George Shuster, co-chairman of the
American Manufacturing Trade Action Coalition, says, “Unless the United States addresses the
competitive disadvantage caused by foreign border tax schemes such as VATs, it will never be able
to level the playing field for domestic manufacturers and other producers of goods and services.”

Enforcing Agreements


Administration trade officials and many members of Congress have repeatedly said the United
States must do a better job of enforcing its trade agreements. Textile industry leaders believe US
Customs and Border Protection must make Customs enforcement a high priority in view of the high
risk for textile and apparel fraud. Last year, industry lobbyists succeeded in getting $9 million
in the Department of Homeland Security (DHS) budget dedicated to textile and apparel customs
enforcement. In this year’s Customs reauthorization bill, they will seek steps to correct what they
see as structural problems and provide additional funding to create a sophisticated electronic
system to crack down on illegal trade. They also are relying on two ongoing textile-import
monitoring programs to pinpoint import surges and illegal activities by Chinese exporters, which
can provide data that can be the basis for filing cases seeking relief under anti-dumping and
countervailing duty laws.

Buy American Problems


The highly-touted Kissell amendment that broadened the Defense Department Buy American
textiles and apparel requirement to include Transportation Security Administration (TSA)
procurement has run into problems because the office of the USTR failed to give Mexico, Canada and
Chile timely notification as required by the WTO’s Government Procurement Agreement, which bans
domestic procurement requirements unless a waiver is claimed on grounds of national security. Under
the law, participants in FTAs with the United States must be notified; and the Caribbean, Central
America and other FTA partners did receive timely notice. Because of the failure to do so with
Canada, Mexico and Chile, those countries may bid on TSA contracts. The USTR says it is missing an
effort to resolve the problem with Chile and the North America Free Trade Agreement partners, but
that could take months.

While the legislation also provided for extending the Buy American requirement to other DHS
agencies, that, too, could be a long, drawn-out process, as government agencies generally resist
such requirements because of what they can do to their budgets.

Union Organizing Effort


Although President Obama and the Democratic Congress are strongly committed to enacting the
Employee Free Choice Act (EFCA), which would change the way unions are allowed to organize
employees, that highly controversial measure is on the sidelines for the time being. It is strongly
opposed by businesses ranging from manufacturers to retailers. The Coalition For a Democratic
Workplace, comprised of more than 580 organizations, including textile and apparel manufacturers
and retailers, contends the EFCA would undermine long-standing principles of federal labor law. The
so-called “card check” would certify a union as a bargaining agent if more than 50 percent of the
workers sign a card, thus eliminating the secret ballot. It also provides for a government
arbitrator to step into labor disputes after 120 days and force both sides to accept a two-year
contract. There also are harsh new penalties for companies violating regulations during an
organizing campaign.

Although a similar measure passed the House of Representatives in the 110th Congress, the
outlook for the EFCA at this time is at best uncertain.

July/August 2009

US textile manufacturers and their supporters in Congress have blocked, at least for the time
being, an effort to expand duty-free treatment for apparel imports from Pakistan and Afghanistan.
The effort revolves around legislation creating Reconstruction Opportunity Zones (ROZs) designed to
strengthen the economies of two key US partners in the war on terrorism. Senate sponsors of the
legislation say it will give the people in Pakistan and Afghanistan “new hope and opportunities.”

The legislation, which has passed the House of Representatives as part of the Foreign Affairs
Authorization, would permit non-sensitive exports of textiles, apparel, agricultural products and
hand-crafted goods from these areas to enter the United States duty-free. In order for an area to
be designated a ROZ, President Barack Obama must determine that Pakistan and Afghanistan are
meeting a number of criteria, including establishing or making progress toward establishing
market-based economies, eliminating barriers to US trade and investment, protecting intellectual
property rights, meeting internationally recognized worker rights standards, and taking steps to
reduce poverty.

When the legislation was being considered by the House, an effort was made, at the behest of
US importers, to include the so-called “sensitive product categories” that had been excluded from
quota-free treatment under the now-expired US-China bilateral agreement.

Importers of textiles and apparel have pressed to have the duty-exempt categories expanded to
include all textile and apparel products, but particularly cotton trousers and shorts and cotton
knit tops. These products, importers say, would most likely create job opportunities in the areas
covered by the legislation.In a statement made when the legislation was pending in the House, a
coalition of textile importers said these products currently account for 64 percent of the apparel
exports from Pakistan and more than a quarter of all exports from Pakistan to the United States.
“Configuring the ROZ program to include these items will give Pakistan a fighting chance in this
competitive industry,” the coalition said, “Moreover, US producers are not at risk from apparel
exports from Pakistan, it is the other Asian producers who compete with Pakistan.”

With a big assist from Rep. John Spratt, D-S.C., the sensitive products were removed from the
bill before final House passage, although an effort to restore them is expected to be made in the
Senate.

Sen. Maria Cantwell, D-Wash., is sponsoring a ROZ bill that would exclude the sensitive
product categories, and Sen. Lindsey Graham, R-S.C., a co-sponsor of the Cantwell bill, has voiced
his strong opposition to any changes. The National Council of Textile Organizations supports the
ROZ legislation in general but not the expansion into the sensitive categories.

July 14, 2009