The United States swears in its 46th president today, and there are a lot of opinions out there on what President Biden’s priorities should be when it comes to trade.
Before we dive into this month’s round-up of stories related to trade and government policy that may impact the sewn products industry, here are a few articles explaining what we might expect to see from the new administration:
No 301 Tariffs for Vietnam Despite previous concerns, it appears there will be no new tariff increases on goods imported into the United States from Vietnam. Following a Section 301 investigation initiated in October 2020, the U.S. Trade Representative (USTR) has determined that Vietnam’s acts, policies, and practices related to currency valuation are unreasonable and burden or restrict U.S. commerce. However, the agency “is not taking any specific actions in connection with the findings at this time.” With a new administration and an additional 301 investigation into Vietnam’s timber practices, the threat has not been extinguished entirely, but importers can breathe easy for now.
China 301 Tariff Exclusions Extended
Speaking of Section 301 tariffs, on December 29th, USTR announced it would extend tariff exclusions for some medical care products, including specific textile and apparel products with medical uses. Since the extension is only through March 31, 2021, however, trade experts such as Sandler, Travis & Rosenberg, P.A. recommend affected companies continue to push Congress and the new administration for permanent extensions.
Bonus trade info: This isn’t exactly new information, but Sourcing Journal this month provided a helpful overview of the pros and cons of using the de minimis provision to bring merchandise into the country.
U.S. Suspends Retaliatory French Tariffs In 2019, France implemented a three percent digital services tax (DST) on revenue generated by some tech companies (it is slightly more complicated than that, but for today we’ll stick with tech companies). In response, USTR announced it would impose 25% tariffs on imports of specific French goods including handbags. The tariff increase was supposed to take effect January 6, 2021, however USTR has since announced it is suspending the tariff increase indefinitely. USTR said suspending the action against France would allow the U.S. government to “pursue a coordinated response” as it continues DST investigations with other countries including India, Italy, and the United Kingdom. Read more.
MTB & GSP Expire As reported in the last issue of Behind the Seams, the Generalized System of Preferences (GSP) and the Miscellaneous Trade Bill (MTB) – which provide duty-free or reduced tariff treatment for a range of imported goods – both expired December 31st after Congress failed to renew them. This wasn’t super surprising considering everything else Congress had to deal with in December, including the National Defense Authorization Act and the Omnibus Spending Bill/Stimulus Package. This also isn’t the first time these trade programs have lapsed. MTB last expired in 2012 and wasn’t renewed until 2018. GSP has expired several times, the most recent in 2017. When GSP was renewed in 2018, however, its benefits were retroactive and importers were able to request refunds on duties paid during the lapse. There is a good chance the same thing will happen when GSP is next renewed. U.S. Customs and Border Protection is encouraging importers to continue to flag GSP-eligible imports with special program indicator (SPI) “A.” Doing so will allow CBP to automate the duty refund process if GSP is once again renewed with a retroactive refund clause.
During the last session of Congress, there was a Democratic push to not just renew GSP, but update it in a way that tied benefits to other priorities related to human rights and rule of law. Now that Democrats hold the majority in both chambers, we may see new legislation leaning more in that direction.
DRC Eligible for AGOA
President Trump announced December 22nd that the Democratic Republic of the Congo (DRC) would once again be eligible for benefits under the African Growth and Opportunity Act (AGOA), effective January 1, 2021. According to the U.S. Embassy in the DRC, the decision was based on “progress towards establishing a market-based economy, rule of law, political pluralism, and the right to due process, as well as eliminating barriers to U.S. trade and investment, and enacting policies to reduce poverty and protect human rights.”
Vietnam & Korea Fabric Cumulation
Vietnam and South Korea recently signed several cooperation agreements to boost bilateral trade and foreign investment, including an exchange letter on implementation of the provision of origin cumulation of textiles between the two countries in the EU-Vietnam Free Trade Agreement (EVFTA). The FTA allows for garments produced in Vietnam with Korean fabric to receive preferential treatment. Read more.
EU-UK Brexit Deal The European Union and the United Kingdom finally reached an agreement at the end of December to ensure a smooth(ish) transition post-Brexit. Going “well beyond traditional free trade agreements,” the EU-UK Trade and Cooperation Agreement consists of three main pillars: 1) a free trade agreement providing zero tariffs on all goods that comply with the appropriate rules of origin (fabric-forward for apparel), 2) a new framework for law enforcement and judicial cooperation in criminal and civil law matters, and 3) a horizontal agreement on Governance intended to give maximum legal certainty to businesses, consumers, and citizens. The agreement is in effect now on a provisional basis until it is ratified by the European Parliament.
While tariffs are addressed in the trade deal, there have been reports that changes in the UK collection of value-added tax (VAT) are causing problems for retailers and shippers. Read more.
AfCFTA Goes Into Effect While a lot of us were focused on Brexit and U.S. politics last month (SPESA included), history was being made on a different continent. Trade officially launched within the African Continental Free Trade Area (AfCFTA) January 1, 2021, making it the largest free trade area (by number of participating countries) since the development of the World Trade Organization. AfCFTA will create a single market for goods and services, with the goal of boosting Africa’s historically low internal trade. “The agreement will work towards a continental customs union; eliminate tariffs on 90% of intra-Africa goods; aid in the movement of capital and people between countries; facilitate external investment; and reduce non-tariff barriers, like the time it takes goods to pass through customs.” (Quoted from Quartz) Furthermore, the World Bank estimates AfCFTA could add $76 billion in income to the rest of the world.
However, a number of challenges remain which could hinder the agreement’s impact and the ability of member nations to benefit from it, including underdeveloped infrastructure, a lack of diversification of exports, the entrenched protectionism of some of its members, and, of course, delays and disruptions caused by Covid-19. Foreign Policy magazine provides a good analysis of the potential impact of and next steps for the agreement.
As we talk more and more about reshoring, regionalization, and limiting supply chains, AfCFTA and other giant trade initiatives like the recent Regional Comprehensive Economic Partnership (RCEP) are interesting case studies going in the opposite direction.