Trade & Policy Round-Up for November
Below is a collection of stories related to trade and government policy that may impact the sewn products industry around the world.
U.S. Infrastructure Bill
President Biden signed a $1 trillion infrastructure bill into law November 15th. The bipartisan (but contentious) legislation will funnel billions of dollars to states and local governments to upgrade outdated roads, bridges, ports, internet access, and more. CNN and NPR both offer good breakdowns of what is included in the final bill.
In general, the U.S. sewn products industry has celebrated the passage of the bill and the expected influx of resources into the country’s supply chains and infrastructure. Among other things, the legislation includes a version of the Make PPE in America Act, legislation co-sponsored by Senators Rob Portman (R-OH) and Gary Peters (D-MI) ensuring personal protective equipment purchased by U.S. federal agencies are Berry Amendment-compliant (containing 100% domestic content) and establishing long-term opportunities for domestic manufacturing. Read more.
Section 301 Tariff Exclusions Update
In a November 16 Federal Register Notice, the Office of the United States Trade Representative (USTR) announced its determination to provide a 16-day transition period for all of the Covid exclusions from the Section 301 additional tariffs on imports from China (through November 30, 2021), and to extend 81 of the Covid exclusions for an additional six months. The announcement relates to the 99 exclusions for medical care products to address Covid-19 that were published on December 29, 2020, and were scheduled to expire on November 14, 2021.
The 81 products now excluded through May 31, 2022, are listed in Annex B of the notice.
Links to the original 99 medical care products excluded and an overview of previous actions in this matter are available in our September China 301 Tariff Update & Refresher.
And speaking of China, apparently a positive but rather uneventful meeting occurred this week: Biden and China's Xi Hold 'Expansive and Substantive' Virtual Meeting.
US, EU Reach Agreement on Steel and Aluminum Tariffs
On October 31st, the United States and the European Union announced their “commitment to negotiate the world’s first carbon-based sectoral arrangement on steel and aluminum trade by 2024.” In the meantime, the two parties have also reached an agreement on their steel and aluminum dispute. The U.S. has agreed to lift its Section 232 tariffs on steel and aluminum products imported from the European Union. In return, the EU will suspend its related retaliatory tariffs on U.S. goods and will not implement a further tariff increase scheduled to take effect December 1, 2021.
White House Fact Sheet | Supply Chain Dive Brief | Sandler, Travis & Rosenberg, P.A. Trade Report
No 301 Tariffs for Vietnam
On October 1st, the Office of the U.S. Trade Representative reached an agreement with Vietnam to resolve U.S. concerns in the Vietnam Timber Section 301 investigation. USTR Ambassador Katherine Tai determined that the agreement provided a satisfactory resolution of the matter and that no trade action was warranted, meaning no new tariffs.
USTR Press Release | Sourcing Journal Analysis
Digital Service Tax Agreement
At the end of October, the United States announced it would withdraw its threat of additional tariffs on imports from Austria, France, Italy, Spain, and the United Kingdom after reaching an agreement on their treatment of digital services taxes (DST). DSTs are taxes imposed on multinational firms based on their digital activities in a particular jurisdiction, mostly aimed at large companies like Facebook, Amazon, and Google. In June, USTR announced the United States would impose Section 301 tariffs (with a six month delay) on products from Austria, India, Italy, Spain, Turkey, and the UK because their DSTs discriminated against U.S. digital companies.
However, since then, Austria, France, Italy, Spain, the UK, and the U.S., along with 130 other countries, have approved a sweeping global tax deal under the Organization for Economic Cooperation and Development (OECD) establishing a 15% global minimum corporate tax. As part of the agreement, Austria, France, Italy, Spain, and the UK can continue to collect DSTs from U.S. companies until the OECD agreement comes into effect in 2023. Read more.
Trade firm Sandler, Travis & Rosenberg, P.A. points out that India and Turkey have not joined the OECD agreement and therefore could still be subject to Section 301 tariffs starting November 28th.
Three African Countries to Lose AGOA Benefits At the beginning of November, the United States announced plans to remove 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 — due to multiple human rights violations within the countries. The ongoing civil war in the Tigray region of Ethiopia has raged for more than a year now, with atrocities leading to accusations of both war crimes and genocide. (Recently updated explanations of the conflict and humanitarian crisis are available from CNN and The New York Times.) Mali and Guinea both experienced coups d’etat last year and, according to the White House, have not established rule of law and political pluralism.
According to U.S. Commerce Department data, Ethiopia exported about $237 million worth of goods to the United States under AGOA in 2020, making up more than 40% of its total exports to the U.S. and comprising about 7% of Ethiopia’s total export revenue. Ethiopia is the 22nd largest supplier of apparel to the U.S. market. The loss of AGOA benefits will certainly be damaging to the country’s apparel, textile, leather, and footwear industries, and to those who work within them. However, the country is now reportedly exploring alternative export markets.
Unless they take urgent action to correct the violations and meet statutory eligibility for the program, the three countries will be terminated from AGOA as of January 1, 2022.
White House Statement | Just Style Analysis | African Business Analysis
Related: Early in October, the U.S. Committee for the Implementation of Textile Agreements announced increased limits on duty and quota-free imports of apparel articles under AGOA for fiscal year 2022. Read more.
ICYMI: CBP Updates Import Requirements for Mexico
As of October 5th, U.S. Customs and Border Protection (CBP) is requiring all imports of textile and apparel goods from Mexico eligible for preferential duty treatment under a tariff preference level to have a valid certificate of eligibility with a corresponding Electronic Certification System (eCERT) transmission in order for the importer to be able to claim the preferential duty rate. Read more.
RCEP Sets January 1 Effective Date
The Regional Comprehensive Economic Partnership (RCEP) will officially come into force on January 1, 2022. The announcement comes after the trade deal was recently ratified by Australia and New Zealand, fulfilling the requirement that it be ratified by six Association of Southeast Asian Nations (ASEAN) nations and three of the other nations involved. RCEP was finalized almost exactly one year ago, and includes Australia, Brunei, Cambodia, China, Japan, Indonesia, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. The participating countries account for about 30% of the global GDP and 30% of the world population, making it the world’s largest trade agreement to date. Read more.
We also suggest taking a look at Dr. Sheng Lu’s recent explanation of why RCEP matters to the textile and apparel industry.
While RCEP’s gargantuan size is impressive, trade enthusiasts are also eager to analyze its impact and role in global trade relations. RCEP was initially regarded by many as a China-backed alternative to the Trans-Pacific Partnership (now the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP), which famously excluded China. However, in September, China formally requested to join CPTPP. If successful in its bid, China’s global reach would grow exponentially. For anyone interested, here are a few articles to check out on this topic:
China Moves to Join the CPTPP, but Don’t Expect a Fast Past - The Brookings Institution
China Will Likely Fail in its CPTPP Bid — But it’s a ‘Smart’ Move Against the U.S., Say Analysts - CNBC
Can the CPTPP Change China, or Will China Change it? - Nikkei Asia
Note: Taiwan is also attempting to join CPTPP. It is a whole, wonky political pretzel that the SPESA team would love to discuss with anyone interested.
Trade Agreement Updates
There have also been several smaller scale trade deals and maneuvers in the last couple months:
South Korea and Cambodia officially signed a free trade agreement in October deepening their economic ties. With this agreement and the benefits of RCEP (see above), Cambodia will lift tariffs on 93.8% of all products traded; South Korea will remove tariffs on 95.6% of all items. Read more.
South Korea has also concluded a free trade agreement with the Philippines. This mark’s South Korea’s 5th bilateral trade deal with an ASEAN member nation. The Korea Times explains: “South Korea has an FTA with ASEAN but has sought to also clinch separate free trade deals with ASEAN nations, particularly after launching the New Southern Policy in 2017 aimed at deepening diplomatic and economic cooperation with the regional bloc.”
In very 2021 fashion, the United Kingdom and New Zealand recently finalized a free trade deal, which was signed via Zoom call. Interestingly, the agreement is not expected to do much for the UK economy. But UK leadership has expressed hope it will help "pave the way" for Britain to eventually join CPTPP. Read more.
The United States and Ukraine met in November — the first session of the new U.S.-Ukraine Strategic Partnership — to discuss increasing two-way trade, among other things. Read more.
Back in September, the United States and the European Union laid out plans to more closely coordinate their responses to emerging technologies and pressing trade threats (i.e. China). Read more.
We’ll wrap up this month with a bonus read from our favorite professor, Dr. Sheng Lu, University of Delaware: U.S. Apparel Sourcing: Understanding Import Duty Savings.