MARCH 21, 2008

Fed Interest Rate Cut Stabilizes Dollar, Oil as Producer Prices Rise
Despite the Federal Reserve’s three quarter percent interest rate cut Tuesday (to 2.25 percent) the past two days have seen somewhat greater stability in oil prices and the dollar. The U.S. currency declined against the Euro and Yen on Wednesday, but rebounded on Thursday. Interest rate cuts tend to weaken the dollar and spur investment in commodities such as oil, which is viewed as an increasingly vital hedge against inflation and stock market declines. Crude oil for April delivery surged by 3.5 percent in Tuesday trading on the New York Mercantile Exchange (NYMEX), settling at $109.42 per barrel – a sharp gain of $3.74 for the day. However, oil futures prices declined Wednesday and Thursday, at times dipping below $100 per barrel, amid concerns that continued weakness in the broader economy will dampen demand.

This week’s results are likely only a temporary correction in the market, and economists and traders expect further interest rate cuts to continue to drive the dollar lower and oil prices higher. However, signs of inflation may signal smaller cuts in the future. The Labor Department released data this week showing prices set by domestic manufacturers (including textile and apparel manufacturers) rose 0.3 percent between January and February, the largest monthly gain since November 2006. The data, known as the Producer Price Index, is a key measure of price inflation. They showed advances in synthetic fiber prices following slight declines in January and smaller increases for finished fabrics.

FUTURES PRICES FOR SELECT HOSIERY INPUTS
(Thursday, March 13 - Wednesday, March 19, 2008)

Senate Reviews Customs Enforcement and “First Sale Rule”
As lawmakers weigh legislation that could mean significant changes to the structure and practices of the Bureau of Customs and Border Protection (CBP), business community representatives testifying before the Senate Finance Committee on March 13 expressed serious concerns about CBP’s proposal to eliminate the so-called “first sale rule.” A popular valuation rule in place for more than two decades, the first sale rule often lowers duties paid on imported textiles, apparel and other products. According to Finance Committee Chairman Max Baucus (D-MT) the Customs legislation, which is still in development, will include a range of provisions designed to update current security and enforcement measures, information collection systems, and valuation practices. The Committee plans to hold another hearing early next month to question CBP officials directly.

As reported in the February 15 edition of Footnotes, eliminating the first sale rule could increase the cost of importing legwear and a wide range of other manufactured goods from Asia, Europe and elsewhere that do not receive duty-free treatment under a U.S. free trade agreement or preference program. CBP is accepting public comments on the proposed rule change until April 23. Footnotes will continue to monitor this issue closely and report on any developments.

Senators Introduce New Trade Preferences for Afghanistan, Pakistan
As previewed in the February 22 edition of Footnotes, Senators Maria Cantwell (D-WA), Orrin Hatch (R-UT), Kit Bond (R-MO), Joe Lieberman (I-CT) and Chuck Hegel (R-NE) introduced legislation (S.2776) on March 14 that would grant duty-free treatment to certain products made in designated territories (called “Reconstruction Opportunity Zones” or “ROZs”) of Afghanistan and the western border region of Pakistan. Among the products that would be eligible for duty-free treatment are certain textiles, apparel and agricultural goods. According to Administration sources, the bill would not extend trade preferences to legwear. However, congressional staff believes additional products could be added if fresh incentives are needed to ensure a smooth transition of power in Pakistan or to deliver greater economic benefits to Afghanistan. Congressman Chris Van Hollen (D-MD) is expected to introduce a similar bill in the House early next month.

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 show U.S. hosiery imports from Pakistan declined in December and January compared with the same period a year earlier. According to Pakistani press reports, the textile industry is facing increased production costs due to escalating petroleum prices and local textile and apparel manufacturers have failed to take advantage of appreciating currencies in China and India to capture additional U.S. market share. Recent political unrest and other factors are leading foreign buyers to reconsider whether to renew export orders.

CAFTA Apparel Cumulation Provision Expected In May
A long awaited provision that would permit the six Central American and Caribbean member countries of the U.S.-CAFTA-DR free trade agreement (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua) to use a certain amount of Mexican fabric and other inputs in apparel that qualifies for duty-free entry to the United States could be implemented soon after May 1, according to Administration officials. The so-called “cumulation” provision would limit the total amount of Mexican fabric and inputs that can be used in qualifying apparel to 100 million square meters equivalents (SMEs). The provision was agreed by the United States and the other CAFTA-DR countries in exchange for Mexico’s offer of reciprocal market access for 70 million SMEs of CAFTA apparel made with U.S. fabric and inputs.

A presidential proclamation issued December 21 stated that that the provision cannot be implemented until a separate change to CAFTA regarding origin rules for pocket lining is approved. Apparel manufacturers in the CAFTA countries will be able to benefit from the provision on a first-come, first-served basis until the limits are reached.

Commerce Announces Vietnam Trade Mission Following New Product Safety Agreement
Following agreement by the Consumer Product Safety Commission on a new U.S.-Vietnam product safety agreement earlier this month, the Commerce Department announced it is recruiting 22 U.S. companies from a cross section of industries to participate in a trade mission to Hanoi and Ho Chi Minh City on June 16-20. Led by Assistant Secretary for Trade Promotion Israel Hernandez, the mission will focus on helping U.S. companies launch or increase exports to the Vietnamese market. Applications to take part in the mission, due by April 11, 2008, are available on-line.

Vietnam is one of the fastest growing economies in Asia, a rising market for American yarns and an increasingly important supplier of manmade fiber hosiery to the United States. Two-way trade between the United States and Vietnam increased from about $1.5 billion in 2001 to $9.7 billion in 2006.