FEBRUARY 22, 2008

China Trade Deficit Hits New High, Fueling Renewed Push for Currency, Enforcement Legislation
While America’s overall trade deficit declined last year for the first time since 2001, the U.S. trade deficit with China reached a record $256.3 billion, according to data released by the Commerce Department on February 14. The U.S. textile and apparel trade deficit with China rose to a new high of $31.8 billion during the same period. The data renewed calls by labor unions, U.S. manufacturers and some in Congress for legislation that would discourage currency manipulation by China and other countries and permit industries harmed by currency manipulation to seek relief under U.S. unfair trade laws.

Ways and Means Committee Chairman Charlie Rangel (D-NY) and Trade Subcommittee Chairman Sander Levin (D-MI) released a joint statement on the deficit on February 14 criticizing the Administration for lack of trade law enforcement and inaction on China’s currency manipulation. The statement said the Committee would spend the next two months looking at ways to improve enforcement of international agreements and domestic trade laws. According to Capitol Hill sources, the Committee is in the process of developing legislation that would strengthen customs enforcement and consumer protection and empower U.S. industries to address currency manipulation through anti-dumping (goods sold at less than fair value) and countervailing duty (subsidy) laws.

Consultations to Continue on Honduras Socks
According to Administration sources, newly appointed Undersecretary of Commerce for International Trade Chris Padilla will travel to Honduras, Nicaragua and Costa Rica beginning this weekend for meetings with top government and private sector representatives. Commerce Department officials say socks will be among the key issues discussed with Honduran leaders, but emphasize the visit is not part of ongoing formal consultations with that government under the textile safeguard provisions of the CAFTA-DR Free Trade Agreement (FTA). The U.S. Committee for the Implementation of Textile Agreements (CITA) held formal consultations with Honduras on February 6, and the two sides may meet again in the coming weeks.

On January 18, CITA announced its intent to apply a textile safeguard measure to cotton socks imported from Honduras. Under the CAFTA-DR FTA, CITA can impose a tariff up to 13.5 percent on cotton socks from Honduras and would do so through December 31, 2008. Honduras requested consultations late last month regarding the United States’ intent to apply a safeguard measure last month, and the FTA specifies that such consultations must be completed within 60 days (by March 28, 2008). After the 60-day period, CITA has 30 days to make a final decision.

Senate to Consider Compromise Legislation on Product Safety
Senate lawmakers have reached agreement on proposed legislation that would broaden the authority of the U.S. Consumer Product Safety Commission (CPSC) and increase penalties for product safety violations. The compromise legislation is similar to a bill passed in the House last year (H.R. 4040), but includes some controversial provisions from a separate measure (S.2045) introduced by Senator Mark Pryor (D-AR). Both bills were discussed in the February 15 edition of Footnotes.

Manufacturers are particularly concerned about provisions of the compromise Senate bill that would increase maximum civil penalties for product safety violations to $20 million (as opposed to $10 million, included in the House-passed measure), authorize state attorneys general to enforce laws administered by the CPSC (possibly resulting in various interpretations of product safety laws across multiple jurisdictions), and extend whistleblower protection for employees of manufacturers, private labelers, distributors, and retailers. The bill would also mandate third-party testing and certification of children’s products (unless a propriety lab can provide equal or greater consumer protection) and require manufacturers to label children’s products with tracking information useful to consumers and retailers in identifying recalled items.

According to Capitol Hill sources, the Senate bill will be scheduled for a vote sometime after lawmakers return from President’s Day recess on February 25 – and possibly during the first week in March. If passed as drafted, representatives from the House and Senate will then negotiate in conference to determine which of the additional provisions in the Senate bill will make it into the final law presented to both chambers for a last vote.

Congress May Weigh New Trade Preferences for Pakistan, Afghanistan
Pakistan’s February 18 elections have revived serious discussion in Congress and within the Administration of possible legislation granting duty-free treatment to certain textile, apparel and other products made in designated territories (dubbed “Reconstruction Opportunity Zones” or “ROZs”) of Afghanistan and the western border regions of Pakistan. According to Administration sources, hosiery is not currently among the products being considered for new trade preferences, and it is too early to tell whether or when legislation necessary to implement those preferences might be introduced in the House and Senate. Footnotes will continue to monitor this issue closely and report on any developments that could affect the legwear industry.

Pakistan is the largest overseas supplier of cotton hosiery to the United States. However, preliminary import data produced by the Commerce Department’s Office of Textiles and Apparel (OTEXA) show U.S. hosiery imports from Pakistan have declined over the last two months compared with the same period a year earlier. According to Pakistani press reports, local textile and apparel manufacturers have failed to take advantage of appreciating currencies in China and India to capture additional U.S. market share, and recent political unrest and other factors are leading foreign buyers to reconsider whether to renew export orders.

USTR Requests Comments on Proposed Anti-Counterfeiting Trade Agreement
In a Federal Register notice published February 15, the Office of the U.S. Trade Representative (USTR) requested public comments on specific matters that should be covered in a proposed Anti-Counterfeiting Trade Agreement (ACTA). USTR announced in October 2007 that the United States, Canada, the European Union (with its 27 Member States), Japan, Korea, Mexico, New Zealand, and Switzerland would pursue ACTA negotiations, with the goal of establishing a higher common standard for enforcement of trademarks and other intellectual property rights. The eight original parties may be joined by others in the future. Public comments are due to USTR by March 21.

Widespread counterfeiting and growing trade in fake goods represents a significant challenge to U.S. designers and manufacturers of branded apparel. Wearing apparel accounted for more than 14 percent of all counterfeit goods seized by U.S. Customs at America’s borders in 2007. Seized counterfeit wearing apparel was estimated to have a domestic value of more than $27 million in 2007– an 11 percent increase from the previous year.