USFIA Counsel: Decision on Nicaragua Tariffs Required by Dec. 10
NEW YORK -- Although the president's obsession with domestic manufacturing doesn't extend to apparel, there are no signs the administration will adjust tariff policy to make clothing imports more affordable, or even adjust rules of origin to privilege nearshoring, an old Washington hand told the U.S. Fashion Industry Association annual conference audience.
Sign up for a free preview to unlock the rest of this article
Export Compliance Daily combines U.S. export control news, foreign border import regulation and policy developments into a single daily information service that reliably informs its trade professional readers about important current issues affecting their operations.
USFIA Washington Counsel David Spooner, in a session on Nov. 5 on what's next in trade policy, quoted Trump from a "60 Minutes" interview talking about how the U.S. doesn't want to produce clothing domestically. Trump said that China "can produce things that we don't want to produce because it's not really worth our while -- making undergarments ... you know, certain things. We don't want to do that, and we can buy them inexpensively from other places in the world while we can lead the world in AI, and chips, and lots of other things."
USFIA President "Julie [Hughes] and I sort of laughed," Spooner recounted. "If only he would follow through, maybe he'd stop whacking us" with higher tariffs on imported apparel.
Why isn't apparel on the list of goods that can't be obtained at scale in the U.S. if we don't want to reshore production, he asked rhetorically.
Domestic textile interests want to preserve strict rules of origin for Central American, Dominican and Mexican production, so as to create demand for American yarn, cotton and fabric. Apparel buyers say they need more flexibility to produce garments made from man-made fabrics in the CAFTA-DR region, and argue that they'd be more likely to source in the Western Hemisphere, despite Vietnamese and Chinese efficiency advantages, if it were easier to do so.
"The textile and apparel lobby -- the protectionist side -- is less powerful than 20 years ago, but is still quite powerful," Spooner said.
"We have long fought for more liberal, easier to use rules of origin in USMCA and other agreements," Spooner said, but he said USFIA didn't bother to do so in this round of USMCA comments, because the group felt the likelihood that this administration would make it easier to import anything duty-free was low.
Instead, he said, "We've urged USTR not to touch it."
Another way to import apparel at a lower tariff rate are trade preference programs for Haiti and sub-Saharan Africa, which expired at the end of September. He said, "I think in the short term, there's very little chance of them being renewed."
Spooner also reminded the audience of trade compliance apparel professionals that the Office of the U.S. Trade Representative must make a recommendation on the tariff level for Nicaraguan goods by Dec. 10, one year after the Biden administration opened a Section 301 investigation centered on the authoritarian abuses of the Nicaraguan government. Nicaragua, as part of the CAFTA-DR free trade pact, is important for the apparel sector, Spooner said. The USTR is seeking comments on the enforcement actions it has proposed, which could be up to a 100% tariff on all Nicaraguan exports, as well as actions against Nicaraguan inputs into products of other CAFTA-DR countries. Only 18% of apparel imports are duty-free, but of those, CAFTA-DR dominates, accounting for 38% of the duty-free imports.
Spooner touched on the broad International Emergency Economic Powers Act tariffs, both the Supreme Court cases and the reciprocal trade frameworks and negotiations that have followed the higher tariffs.
The highest IEEPA tariffs apply to Brazil, which is not a source of apparel, and India, which is a major player.
Spooner said he has contacts who speak to insiders in the India trade negotiations. "They seem to be very on and off again," he said.
He pointed to the language in many Southeast Asian trade frameworks that says that goods that were transshipped will face an additional 40% tariff. USTR Jamieson Greer has said that means 60% tariffs plus most-favored nation tariffs in the case of Vietnam, for example.
"This has flummoxed trade practitioners because, of course, it is already illegal to transship," Spooner said. "The best I can guess" as to why the reciprocal trade deals set an additional 40% tariff for transshipped items is that the administration plans to negotiate rules of origin with these countries, so goods that have too much foreign content will face the additional tariffs.
Conventional wisdom is that these rules of origin will target Chinese content rather than any content from other countries.
Spooner said these further agreements will be "stipulating how much processing has to go on in the country to receive the tariff" rate of that country.
At a later session at the conference, University of Delaware professor Sheng Lu shared that the proportion of the Chinese value in apparel and shoes made in Southeast Asian countries varies. For example, Vietnamese apparel and footwear have 19.5% Chinese value-added, while Cambodian apparel has 29.4% Chinese value-added.
He also said it's unclear what the benefit has been to countries that negotiated deals. He noted that Sri Lanka had its rate reduced from an announced 44% on Liberation Day to 20% without opening its market to U.S. exports, and Cambodia agreed to open its market and did not get any reduction below the already set 19%. Malaysia had a reduction of six percentage points to 19%, he noted.