Trade & Policy Round-Up for July
Below is a collection of stories related to trade and government policy that may impact the sewn products industry around the world.
Senate Passes Uyghur Forced Labor Bill
The U.S. Senate unanimously approved the Uyghur Forced Labor Prevention Act (S.65) July 14th, a bill to ban all imports of products from China’s Xinjiang Uyghur Autonomous Region. The legislation states that all products from the region are automatically presumed to be made with forced labor and therefore banned from entering the United States under the 1930 Tariff Act, unless there is proof to the contrary that can be certified. This goes beyond the current rule which only blocks goods if forced labor is suspected. As Sourcing Journal explains, the legislation shifts the burden of proof from U.S. Customs and Border Protection to the importer. It also requires the White House to impose sanctions on foreign entities that knowingly engage in forced labor. Businesses will be required to disclose any dealings they have in Xinjiang. The bill now goes to the U.S. House of Representatives for consideration.
Meanwhile, six U.S. federal agencies joined in issuing a new advisory last week warning businesses about the growing risks of having supply chain and investment links to China's Xinjiang region, citing forced labor and human rights abuses there: "Given the severity and extent of these abuses, businesses and individuals that do not exit supply chains, ventures, and/or investments connected to Xinjiang could run a high risk of violating U.S. law." Reuters has reported that the advisory is leading into forthcoming additional sanctions.
ICYMI: Last month, Behind the Seams provided an overview of China’s new Anti-Sanctions Law which creates a wide-ranging legal framework for the country to retaliate against sanctions imposed by foreign governments.
Hong Kong Business Advisory The U.S. Government has also issued an advisory cautioning U.S. businesses about emerging risks to their operations and activities in Hong Kong. Issued jointly by the U.S. Departments of State, Treasury, Commerce, and Homeland Security, the business advisory explains that businesses and individuals working for them are subject to a restrictive national security law that Beijing imposed on Hong Kong a year ago. It cites the risks of electronic surveillance without warrants and of being compelled to surrender corporate and customer data to the government. The advisory recommends businesses with potential exposure be aware of the potential reputational, economic, and legal risks of maintaining a presence or staff in Hong Kong. Businesses should apply industry due diligence policies and procedures to address applicable and identified risks.
Vietnam Currency Agreement Means No 301 Tariffs On July 19th, the U.S. Department of the Treasury and the State Bank of Vietnam (SBV) reached an agreement to address U.S. concerns about Vietnam’s currency practices. After many months of discussion, SBV has pledged to refrain from the “competitive devaluation” of its dong currency in order to gain an export advantage. The good news for the sewn products industry, as explained by Sandler, Travis & Rosenberg, P.A., is “the agreement appears to delay indefinitely the potential imposition of tariffs on imports from Vietnam in a related Section 301 investigation.”
USMCA Sewing Thread Requirement While the United States-Mexico-Canada Agreement (USMCA) entered into force last July (in fact, we wrote about it in our very first issue of the new Behind the Seams), its updated sewing thread requirement was delayed for one year, going into effect July 1, 2021. The agreement requires that sewing thread, pocketing fabric, narrow elastic bands, and coated fabric used in the production of apparel products be made within the USMCA region in order for those products to be treated as originating, and thus qualify for duty-free access. Under NAFTA, these components were allowed to be sourced from outside the region. The requirement applies to sewing thread listed under headings 5204, 5401, or 5508, or yarn of heading 5402 of the Harmonized Tariff Schedule that is used in clothing and clothing accessories under chapters 61 and 62. A CBP fact sheet on the sewing thread provision is available here.
CBP Implements USMCA Provisions U.S. Customs and Border Protection issued an interim final rule amending its regulations to implement “significant portions” of the United States-Mexico-Canada Agreement, including provisions related to marking rules and tariff-rate quotas. This rule took effect July 1st and comments on it are due September 7th. Our friends at Sandler, Travis & Rosenberg, P.A. have a good breakdown of the provisions here.
FTC Issues New Made in USA Labeling Rule
The Federal Trade Commission (FTC) finalized a new rule that will crack down on marketers who make false, unqualified claims that their products are Made in the USA. Under the rule, marketers making unqualified Made in USA claims on labels must be able to prove that their products are “all or virtually all” made in the United States. The rule does not impose any new requirements on businesses. Instead, it codifies the FTC’s longstanding enforcement policy regarding U.S.-origin claims. It codifies a broader range of remedies by the FTC, including the ability to seek redress, damages, penalties, and other relief from those who lie about a Made in USA label. It will enable the Commission for the first time to seek civil penalties of up to $43,280 per violation of the rule. Read more.
California Garment Worker Bill Makes Moves
California’s proposed Garment Worker Protection Act (SB 62) passed through the state’s Assembly Judiciary Committee at the end of June and moved to the Assembly Appropriations Committee where it is expected to be discussed in August. SB 62 is the reincarnation of SB 1399, a bill that failed to come up for a vote at last year’s legislative session. It sets out to end piece-rate pay, through which factory staff are paid based on the amount of stock they produce, rather than the state-wide minimum wage. In addition, it would hold brands and retailers accountable for unpaid wages when they work with subcontractors that produce goods sold at their stores. The bill has already caused significant controversy between business interests and workers’ rights groups, but this component in particular has raised alarms within the apparel industry.
Related: Last week, California became the first U.S. state to approve a guaranteed income policy.
Maine Bans PFAS Maine has passed a law to ban perfluoroalkyl and polyfluoroalkyl substances (PFAS) in nearly all products by 2030, noting the need to immediately protect public health. However, the American Chemistry Council argues it is a misguided law that could damage local textile businesses. Read more on Just Style or Reuters.
EU Due Diligence Guidance
Last week, the European Union issued a Guidance “On Due Diligence For EU Businesses To Address The Risk Of Forced Labour In Their Operations And Supply Chains.” While the guidance is not legally binding, it is likely a precursor for EU legislation to come. As we previously reported, the European Parliament voted in March to pursue adoption of a binding EU law that would require companies to conduct environmental and human rights due diligence along their supply chains or face consequences such as fines, sanctions, or civil action.
Nigeria Plans for Leather Industry Expansion
Nigerian Vice President Yemi Osinbajo recently announced a National Leather and Leather Products Policy Implementation Plan to help harness the country’s immense potential in the sector. According to a study by the Nigerian Economic Summit Group, the Nigerian leather industry, which currently employs more than 750,000 workers, has the potential to generate more than $1 billion by 2025. A central feature of the plan is the development of technical capacity in leather works and technology. The Nigerian Institute of Leather Science and Technology has established nine extension centers across the country for innovative research and workforce training. Read more.
U.S. Secures Support for GMT
On July 1st, the U.S. Treasury Secretary announced that officials from 130 countries have agreed to a global minimum tax (GMT) on corporations, part of a broader agreement to overhaul international tax rules. If widely enacted, the GMT would effectively end the practice of global corporations seeking out low-tax jurisdictions to move their headquarters to, even though their customers, operations, and executives are located elsewhere. It would also be the most sweeping change in international taxation in the last century. Read more.
U.S.-Taiwan Trade Talks The United States and Taiwan renewed trade talks at the end of June, the first since 2016. Nothing concrete has come out of the talks yet, but the two countries have agreed to work together to strengthen supply chains and address a number of concerns including forced labor. It is an interesting development in the ongoing U.S.-China conflict. The Chinese government has objected to the negotiations.
UK Aircraft Dispute Resolved
Last month, we shared that the United States and the European Union resolved a long-running trade dispute over government subsidies for rival aircraft manufacturers and agreed to suspend tariffs imposed as part of the trade battle for a period of five years. Two days later, the U.S. and the UK basically made the same deal. Read more.
UK-Australia Trade Agreement
The United Kingdom and Australia have finalized an agreement in principle on the terms of a Free Trade Agreement between the two countries. It is the first major agreement negotiated from scratch by the UK government since it left the EU, and could be a precursor to the U.K. joining the wider Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The UK-Australia agreement is due to come into effect in 2022.