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October 9 2012 Issue

Tuesday, October 09, 2012
Sandler, Travis & Rosenberg Trade Report

Trade Groups Praise Congress for Acting on FTAs but Lament Lack of Major New Trade Efforts      

The National Foreign Trade Council and USA*Engage released Oct. 5 an interim evaluation of steps taken by the 112th Congress to facilitate and increase international trade. The Congressional Report Card praised lawmakers for enacting legislation to implement free trade agreements with Korea, Colombia and Panama and reauthorize programs like the Generalized System of Preferences. At the same time, this Congress “did not take up any new major trade initiatives” and failed to “act on several bills of importance to American commerce.” NFTC President Bill Reinsch noted that one final positive development could come after the elections in November if legislation granting permanent normal trade relations status to Russia is approved. 

The report states that during the 112th Congress 64% of senators (37 Republicans and 27 Democrats) and 43% of members of the House (138 Republicans and 48 Democrats) received an “A” or “B” score for “enacting trade legislation critical to U.S. economic growth and job creation.” Bills that contributed to these scores included those on the three FTAs, the alleged undervaluation of China’s currency, the extension of the Trade Adjustment Assistance program, the reauthorization of the Export-Import Bank, economic sanctions on Iran, the domestic sugar program and immigration reform. The report notes that votes on other trade legislation such as the renewal or reauthorization of trade preference programs was passed without recorded opposition and was therefore not scored.

Report Examines Potential Impact of Trans-Pacific Partnership on U.S. Textile Makers      

The Congressional Research Service released Oct. 5 a report examining the potential impact of the Trans-Pacific Partnership agreement now under negotiation on U.S. manufacturers of textile products. The report states that because the TPP talks include Vietnam, a major apparel producer that now mainly sources yarns and fabrics from China and other Asian nations, “the agreement has the potential to shift global trading patterns for textiles and demand for U.S. textile exports.” At the same time, the TPP “seems likely to have less impact” on textile manufacturers that supply the home furnishings and technical textile sectors, which in 2011 accounted for 44% and 40% of U.S. textile shipments, respectively. 

According to the report, in 2011 the U.S. textile industry generated $53 billion in shipments and directly employed about 238,000 workers, accounting for 2% of all domestic factory jobs. About one-third of U.S. textile production is exported and two-thirds of exports go to Western Hemisphere nations that are members of NAFTA or DR-CAFTA, both of which provide that certain exports from member countries may enter the U.S. duty-free only if they are made from textiles produced in the region. This has encouraged manufacturers in Mexico and Central America to use U.S.-made yarns and fabrics in apparel, home furnishings and other products, which in turn contributed to a $2.5 billion U.S. trade surplus in yarns and fabrics in 2011. 

The report finds that the TPP has the potential to affect U.S. textile exporters in at least two ways. First, it could enable Asian apparel producers, principally Vietnam, to export clothing to the U.S. duty-free. This would eliminate much of the advantage now enjoyed by Western Hemisphere apparel producers in the U.S. market and, because Vietnamese manufacturers make little use of U.S.-made textiles (importing only $40 million worth in 2011), could reduce demand for U.S. textile exports. Second, if the TPP were to allow Western Hemisphere apparel manufacturers to use yarn and fabric made anywhere in the TPP region and still enjoy preferential access to the U.S. market, an enlarged Vietnamese textile industry could, at some future time, compete with U.S. exporters in Mexico and Central America. 

As a result, there is a significant disagreement on the TPP textile rules of origin issue among U.S. business interests. Textile industry trade groups have urged U.S. negotiators to insist on a “yarn forward” rule under which yarn production, fabric production, and cutting and sewing of the finished garment would all have to occur within the TPP region for the garment to enter the U.S. duty-free. On the other side, retailers and apparel companies want to be able to import apparel from the lowest-cost producer regardless of whether U.S. textiles are used. 

On the other hand, the report adds, domestic manufacturers of household and technical textiles seem less likely to be immediately affected by any TPP agreement. U.S. manufacturers appear to be internationally competitive in these sectors and Vietnam’s low labor costs will provide little comparative advantage in areas like these where production is highly automated. In the case of technical textiles, U.S. manufacturers also benefit from proximity to their industrial customers. While domestic technical textile manufacturers point out that Vietnam has been expanding its reach into industrial fabrics and higher-end textiles in recent years, including tire cord and coated fabrics, the report concludes that Vietnam will probably not be a significant global competitor in the near future.

Lawmakers Target Chinese, Canadian Paper for CV Duties      

In an Oct. 2 letter six Democratic members of Congress asked that the U.S. “take swift action” to counter “large subsidies from state and local governments in China” that are putting the U.S. paper industry “at a significant and unfair competitive advantage.” The lawmakers noted that an estimated 105,000 jobs in the U.S. paper and paper products sector have been lost in recent years and warned that this industry “will be in serious danger” unless steps are taken now to “restore a level playing field.” In related news, Rep. Mike Michaud has secured a pledge from U.S. Trade Representative Ron Kirk to investigate alleged subsidies to a paper mill in the Canadian province of Nova Scotia. 

China Subsidies. According to the letter, the Economic Policy Institute estimates that China's subsidies to its paper industry totaled approximately $33.1 billion between 2002 and 2009. These subsidies “have resulted in a surge of paper-product exports” from China to the U.S. that as of February 2010 were growing at an annualized rate of 22%. The lawmakers said this “export-led paper development strategy poses great risks to our own paper industry and the subsidies that back it are likely violations of both U.S. trade laws and the World Trade Organization agreements to which China is a party.” 

The letter therefore asks the Commerce Department to “immediately open a broad-based investigation of the subsidies China provides to its paper manufacturers, the degree to which such subsidies violate the rules of the WTO and other relevant trade agreements, and the impact of such subsidies on American paper producers.” Following that investigation Commerce should “take swift action to counter these unfair Chinese subsidies,” ostensibly by imposing countervailing duties on imports of Chinese paper products. The U.S. already imposes antidumping duties on various types of paper products from China, including crepe paper, lined paper, tissue paper and lightweight thermal paper. 

Canada Subsidies. On Oct. 4 USTR Kirk sent a letter informing Rep. Michaud that his agency will conduct an expedited investigation of reports that the governments of Canada and/or Nova Scotia have reached agreement to provide various forms of assistance, including possible subsidies, to a paper mill in Nova Scotia. Kirk noted that recent news accounts “raise troubling questions about potential injurious and/or WTO-inconsistent subsidies” and that USTR will be requesting further information from Ottawa as well as raising the issue at meetings of the World Trade Organization’s Committee on Subsidies later this month. “Based on what we find, we will consider all feasible and effective options,” Kirk pledged, “doing so aware that this is a time sensitive matter.”

Of Note: U.S.-Panama FTA, Cleaning Containers, Andes Tunnel, Chile Port Strikes End      

U.S., Panama to implement trade pact by early November 
UN body calls on logistics industry to comment on new standards for cleaning containers 
Tunneling through Andes to speed global trade 
Port workers end strike in Chile after 12 days

ITC Looks to Lower Costs of Discovery in IPR Infringement Cases      

The International Trade Commission is accepting comments through Dec. 4 on proposed amendments to its Rules of Practice and Procedure concerning adjudication and enforcement in its intellectual property rights infringement proceedings under Section 337 of the 1930 Tariff Act. Specifically, the ITC is considering adopting certain rules relating to discovery generally, to e-discovery specifically, and to the discovery of privileged information and attorney work product. The ITC states that the intended effect is to reduce expensive, inefficient, unjustified or unnecessary discovery practices in these proceedings while preserving the opportunity for fair and efficient discovery for all parties.

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