By Sourcing Journal
This article was published in Sourcing Journal February 7, 2022.
Apparel importers face a challenging year with more customs regulations being imposed and high-volume traffic expected at overtaxed ports seeing record volumes.
The No. 1 challenge will be the Uyghur Forced Labor Prevention Act signed into law on Dec. 23 by President Joe Biden to combat the Chinese government imposing forced labor conditions on the Uyghur people in Xinjiang. That law goes into effect on June 21 and sunsets in eight years.
Because Xinjiang in western China is a major cotton producer, importers must now make sure that none of their apparel or textiles sourced in China or even other parts of the world contains cotton from that region. At the Chicago Collective men’s wear trade show on Sunday, Terresa Zimmerman, founding CEO of Wood Underwear, said her company recently decided to diversify sourcing into India after spending two years trying to ensure its supply chain was free of cotton from the divisive region. “Cotton out of China is being very scrutinized,” she told Sourcing Journal of how working with a factory in India offers a means of “risk mitigation.”
Zimmerman is far from the only executive worried about de-risking supply chains.
In a one-day Fashion Forward 2022 webinar organized by the U.S. Fashion Industry Association last week, 100 percent of the participants said that managing risk from forced labor used in their supply chain was their biggest concern. Many were worried about how to prove to customs officials on high alert that their supply chain contained no cotton from Xinjiang or forced labor was used in factories.
“The new law assumes that goods made in that region are made by forced labor and that they should be denied entry into the United States,” said David Spooner, an attorney and partner with the Washington, D.C. law firm Barnes & Thornburg, who spoke at the webinar.
Providing detailed paperwork outlining every step of the production process will be more important than ever. That means showing where imported cotton was planted, harvested, ginned and baled. In the words of one customs official, importers should “document, document, document.”
If customs is convinced that forced labor was not used anywhere along the supply chain, merchandise may be entered.
Another country that may soon be under import restrictions is Myanmar. One year ago, the military overthrew the democratically elected government, putting civilian leader Aung San Suu Kyi under house arrest.
On Jan. 26, the Biden administration advised U.S. companies that there was a risk to doing business in Myanmar as well as evidence of child labor. “Expect suspensions of the trade and investment framework agreement, suspension of GSP [Generalized System of Preferences] when GSP is renewed and targeted sanctions,” Spooner said.
These restrictions could be similar to 2003 when imported apparel was banned from Myanmar after Aung San Suu Kyi was placed under house arrest. When she was released from house confinement in 2010, the government lifted import restrictions and constraints on doing business with Myanmar.
Free Trade Negotiations
Meanwhile, not much is going on with free trade agreement negotiations. In 2020, the Trump administration said it intended to start negotiations with Kenya on a free trade agreement, but not much activity has been seen on that front.
Under Trump, the U.S. withdrew from the Trans-Pacific Partnership, a free-trade accord that was negotiated during the Obama administration between the U.S. and 11 other countries around the Pacific Rim. It was signed in 2016, but the United States withdrew from the pact in 2017 when former President Trump took office. Because the U.S. withdrew, the TPP could not be ratified. Instead, the remaining 11 countries regrouped and formed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
“Now Congress and the U.S. trade representative have expressed the desire to negotiate a new free trade agreement called the Indo-Pacific Partnership,” Spooner said.
In 2018, the Trump administration placed tariffs on more than $360 billion of Chinese goods to force that country to strengthen its intellectual property protections. To get around those additional tariffs, which added 7.5 to 25 percent to imports, hundreds of companies asked to be excluded from the Section 301 tariffs.
Some 2,200 exclusions were granted, but most of those exclusions expired at the end of 2020. In October, U.S. Trade Representative Katherine Tai said her office would re-evaluate those exclusions on a case-by-case basis, starting with some 500 products to determine how bringing them into the United States would affect domestic businesses.
Importers are still waiting to see what happens. Among those asking for tariff exclusions are American Textile Co., Swaddle Designs and Sweet Jojo Designs. “Folks have become increasingly frustrated at the non-action in respect to the China tariffs,” Spooner said. “You don’t see 141 House members writing to the U.S. Trade Representative office asking Tai to reinstate the product-exclusion process.”
While tariffs are of major concern to importers, shipping delays pose another worrisome problem. Last year, U.S. ports saw record volumes of merchandise being unloaded at their docks as pent-up consumer demand saw a tsunami of goods hitting U.S. shores.
The ports of Los Angeles and Long Beach, the largest port complex in the United States, were overwhelmed with cargo containers. Last year, the Port of Los Angeles had 10.67 million 20-foot containers, a 15.9 percent uptick, come through its gates while the Port of Long Beach wasn’t far behind with 9.38 million containers, a 15.7 percent rise over the previous year.
“The year 2021 was a year like no other,” said Noel Hacegaba, the deputy executive director of the Port of Long Beach. “The pandemic was responsible for giving us our most historic year.”
Hacegaba said port officials don’t expect to see things slow down this year, but the ports are doing their best to accommodate the volume and avoid a cargo container ship traffic jam. At one point, some 100 vessels idled off the coast waiting to offload goods at the two ports.
“What we determined in October is that almost 45 percent of empty containers sitting on the terminals were there for nine days or longer, and we knew we had to do something fairly quickly [to get rid of the containers] to bring in the ships anchored offshore,” Hacegaba said, noting that before the pandemic, about 25 percent of empty containers idled at the port. Looking for a solution, the two ports threatened to impose a $100 daily fee at the end of January on empty containers dwelling nine days or more at the docks, but the idea has been postponed for now. Still, the fee threat has resulted in a 59 percent decrease in parked empty containers.
In addition, the Port of Long Beach opened 130 acres of land to accommodate 25,000 containers, and it is pushing terminal operators to expand their work hours to help truckers collect cargo.
“The conversations we have had with shippers and importers is that it is going to be another strong year,” Hacegaba said. “I think 2022 in many ways will look like 2021 but with measurable improvements.”