Trade & Policy Round-Up for January
Updated: Feb 1, 2022
Below is a collection of stories related to trade and government policy that may impact the sewn products industry around the world.
This month’s update is a little light, because some of the month’s biggest policy headlines are featured elsewhere in Behind the Seams:
RCEP Takes Effect The Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade agreement, went into effect January 1, 2022, strengthening trade ties and eliminating tariffs among 15 Asian and Pacific countries. While most of the discourse surrounding this agreement has been positive, Just Style shared an interesting article last month explaining why some of the biggest garment sourcing hubs, including Vietnam and Cambodia, could see exports negatively impacted by the agreement. There is concern that trade could be diverted from the smaller economies in the trading bloc (that have traditionally had low tariff rates) to the larger economies (which will now be dropping their tariff rates as part of the agreement). The article does note, however, that even with these possible trade diversions, the participating parties are likely to benefit overall from joining the agreement. Read more.
UK Import Controls Also taking effect January 1st, were much-delayed post-Brexit border control checks on businesses importing goods into the United Kingdom from the European Union. EU businesses will now need to supply full customs declarations, while traders will also have to prove that goods are allowed to enter tariff-free under rules of origin requirements. Read more.
USMCA Auto Dispute
At the beginning of January, the Mexican government requested a dispute resolution panel under the U.S.-Mexico-Canada free trade agreement (USMCA) claiming the United States is improperly interpreting regional content rules for the automotive sector. The government of Canada has since also joined the complaint. Under USMCA, 75% of a vehicle's components must originate in North America to qualify for tax-free status, up from 62.5% under NAFTA. Mexico and Canada utilize a flexible interpretation of the regulations, while the U.S. has adopted a stricter interpretation that benefits U.S. manufacturers. As trade firm Sandler, Travis & Rosenberg, P.A. explains: “If the panel’s decision favors Mexico, the two sides will have some time to reach agreement on a remedy, but if that effort fails Mexico could be allowed to impose retaliatory trade measures against U.S. exports to that country.” Read more.
In addition, Canada has already threatened to impose new tariffs against the U.S. auto sector and other industries in retaliation to a proposal to grant tax credits for purchases of electric vehicles made in the U.S. — part of President Biden’s Build Back Better plan. Read more.
India Tax Updates for Textiles and Footwear
Last month, we noted a new tax structure for fibers, textiles, and apparel in India. Following objections from state and industry officials, the GST (goods and services tax) Council has since announced it would defer its plan to increase taxes on textile items. India's federal finance minister confirmed the council would reconsider the proposal at a later date. Read more.
However, similar arguments from the country’s footwear industry were not as effective and, as of January 1, 2022, all footwear, irrespective of prices, will be taxed at a uniform rate of 12%. (Previously, lower priced footwear was taxed at 5%.) The Indian Government has stated that the new tax structure for footwear will facilitate trade and promote ease of doing business. Footwear manufacturers and retailers on the other hand argue the increased tax will be fatal to their businesses, which are already affected by higher raw materials costs and Covid-related challenges. Sourcing Journal reports that many of these businesses staged a protest in January and continue to ask government authorities to reconsider the tax increase. Read more.
African Countries Lose AGOA Benefits The United States has removed Ethiopia, Mali, and Guinea as beneficiaries of the African Growth and Opportunity Act (AGOA) — which provides certain Sub-Saharan African countries duty-free access to the U.S. market. Plans to cut the countries off from AGOA benefits were announced back in November, but the decision was officially enacted January 1, 2022, after the countries failed to address human rights violations. Read more.
U.S. Increases Limit on Duty-free Apparel from Haiti The U.S. International Trade Administration has raised the annual limit on duty-free apparel from Haiti as part of its preferential trade agreement, the Haitian Hemispheric Opportunity Through Partnership for Encouragement (HOPE) Act. For the one-year period beginning on December 20, 2021, and extending through December 19, 2022, the quantity of imports eligible for preferential treatment is 367,770,223 square meters equivalent, up almost 9% from the previous year.
Related: Legislation has been introduced in both the U.S. Senate and House of Representatives to extend the HOPE Act and the Haitian Economic Lift Program (HELP) Act until 2035. Read more.
U.S. Expands Truck Driver Pool The U.S. government is moving forward with a plan to let 18-20 year-old drivers operate semi-trailer trucks across state lines in a test program. The current minimum age for drivers is 21. The move is part of a larger plan to boost the U.S. shipping industry and help ease supply chain struggles within the country. The test program could run for up to three years, after which the Federal Motor Carrier Safety Administration (FMCSA) will analyze the safety of the teen drivers and make a recommendation to Congress on whether or not to make the change permanent. Read more.