Controversies Surround Plans To Extend Trade Preference Programs

US textile manufacturers, retailers and a host of less developed countries have told Congress they
strongly support trade preference programs that allow underdeveloped countries quota-free,
duty-free access to the US market, and they would like to see them extended and improved. How they
define “improved,” however, is an area of broad division and controversy.

The House Trade Subcommittee has asked for comments on its plans to assess the operation,
impact and future course of US trade preference programs. The United States currently has
preferential programs with developing countries in Central America, the Caribbean, Africa and Asia,
plus the General System of Preferences (GSP) that covers products from 131 countries.

Forty-five trade associations representing 29 preference and free trade countries in North
and South America, Africa and the Middle East told Congress they depend on the preferential trade
agreements for some $30 billion in two-way trade. Noting that these trade agreements have helped
lift millions of textile and apparel workers out of poverty, the associations warned that adding
Cambodia and Bangladesh to the list of countries eligible for preferential trade would have
“catastrophic results.”

The associations claim that Cambodia and Bangladesh already have built “large and
competitive” apparel sectors at the expense of trade preference and free trade areas, and more
increases are anticipated even under existing trade rules.

Testifying before Trade Subcommittee, David Hastings, chairman of Mount Vernon Mills Inc. and
vice-chairman of the National Council of Textile Organizations (NCTO), urged Congress not to take
any actions that could cause future job losses in the United States, and he believes extending
benefits to Cambodia and Bangladesh would do just that.

He said such a move, in addition to job losses, would deprive the US Treasury of at least $1
billion in duties, and it would erode the ability to maintain a strong domestic production base for
the US military’s needs.

In a letter to the subcommittee, the National Retail Federation (NRF) urged Congress to renew
and expand preference programs that are allowing developing nations to provide US retailers with
billions of dollars worth of duty-free merchandise that helps keep consumer prices down.

Erik Autor, NRF’S vice president and international trade counsel, called for consolidating
six major trade preference programs into one with permanent or long-term authorization that would
make planning and sourcing decisions easier. Among other things, this single, consolidated plan
would extend preferential treatment to all developing countries, including Cambodia and Bangladesh,
and it would have a single rule of origin for all products. That would run counter to the textile
industry’s hard-won yarn-forward rule of origin that has been a key element in the industry’s
support of preferential programs.

NCTO’s Hastings told the subcommittee: “The current rules that govern trade in textiles and
apparel were developed in close consultation with Congress over the course of many decades in many
different types of agreement.” He noted that the North America Free Trade Agreement (NAFTA) and the
Central America-Dominican Republic FTA (CAFTA-DR), which support 75 percent of  US textile
exports, were “hard fought agreements that the US industry supported because they got specific
rules of origin that supported US jobs.” He added that “any trade preference reforms that undercut
those rules would be a mistake.”

Autor said many developing countries have difficulty meeting the current rules of origin for
textiles and apparel, and he opts, instead, for what he called a more flexible GSP standard for
manufacturing or processing that results in “substantial transformation” of inputs into a product
plus 35-percent value added in the beneficiary country.

Following the hearing, Rep. Jim McDermott, D-Wash., introduced a New Partnership for Trade
Development Act of 2009, which, among other things, would grant duty-free, quota-free treatment to
goods from Cambodia and Bangladesh and extend GPS treatment to textiles and apparel for 10
years.  At the present time, only a few specialized hand-made textile products are given GPS
treatment because they do not compete with domestic manufacturers. The McDermott bill would create
a Trade Development Review Panel that would consider adding more textile products to the GPS list.
That provision is strongly opposed by US textile manufacturers, who believe it would open the
floodgates to more imports and wipe out more US jobs, but it won the hardy support of importers who
say it would benefit consumers because duties would not have to be paid on imports and the lower
costs could be passed on.

NCTO President Cass Johnson, like the importers, believes the existing preference programs
should be renewed for longer periods in order to encourage investment and long-term trade
relationships. However, NCTO is opposed to a one-size-fits-all rule of origin, contending that each
preferential agreement has its own specific conditions and requirements.

House Ways and Means Committee Chairman Charles Rangel, D-N.Y., expects Congress this year to
enact legislation providing a short-term extension for GPS and the Andean Free Trade Agreement,
both of which expire December 31, and then next year take a more comprehensive look at how to
handle preferential trade agreements. Senate Finance Committee Chairman Max Baucus, D-Mont.,
expects the same thing to happen in the Senate.

November 24, 2009