MARCH 28, 2008

Congress to Consider Action on Customs, Trade, Product Safety Measures as Lawmakers Return from Recess
Congress returns from its two-week spring recess on Monday and the Democratic Leadership is poised to take a closer look at the economy, citing a lack of government regulation as the reason for the downturn. While debate surrounding tougher product safety protections and greenhouse gas emissions standards have already begun, lawmakers will be engaged in full debate about a series of trade and regulatory issues in the eight weeks before the House and Senate break for the Memorial Day recess. Following is a snapshot of some of the issues likely to see action over the next two months:

First Sale Rule. U.S. Customs and Border Protection (CBP) officials will testify before the Senate Finance Committee on April 29, one week after the April 23 deadline for public comments on the CBP’s proposed elimination of the “First Sale Rule”. Senators plan to question officials on their plans to dump this popular valuation rule in place for more than two decades, as well as on security, enforcement and other topics that will be part of forthcoming legislation reforming and reauthorizing the agency. Eliminating the first sale rule could increase the cost of importing legwear and a wide range of other manufactured goods from countries in Asia, Europe and elsewhere that do not receive duty-free treatment under a U.S. free trade agreement or preference program.

Miscellaneous Tariff Bill. The Senate Finance Committee is expected to initiate a process to develop its version of a Miscellaneous Tariff Bill (MTB) by seeking proposals from Senators for the temporary reduction of duties on certain inputs used in U.S. manufacturing. Such proposals are generally non-controversial and designed to lower or eliminate duties on inputs that are not made domestically. Senators generally introduce proposals that would help businesses in their home states, but new ethics rules require that each proposal benefit a minimum of ten domestic firms. MTBs passed separately by the House and Senate will be reconciled in conference before final consideration in both chambers.

Colombia FTA. Despite opposition by House and Senate Democrats, the Bush administration may submit the U.S.-Colombia free trade agreement (FTA) to Congress in early April. Under Trade Promotion Authority rules, Congress would have to vote on the measure within 90 days. However, congressional staff believes lawmakers would either amend those rules to eliminate the deadline or vote down the agreement. Senate Finance Committee Chairman Max Baucus (D-MT) and House Speaker Nancy Pelosi (D-CA) have insisted that Trade Adjustment Assistance (TAA) be reauthorized before consideration of any new free trade agreement. TAA legislation in both the House and Senate would triple funding for financial assistance available to manufacturers affected by import competition, but will likely face delays in conference due to a Senate provision that would extend benefits to service sector workers and firms.

Product Safety. Senate and House legislators will conference next month to reconcile separate product safety bills passed by each chamber. While the outcome of those deliberations is far from clear, congressional staff believes some of the more controversial provisions in the Senate bill will be changed. Manufacturers are particularly concerned about provisions of the Senate bill that would increase maximum civil penalties for product safety violations to $20 million (twice that 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.

Consumer Confidence at Five-Year Low, as Oil Prices Resume Upward Climb and Dollar Falls
The dollar saw its largest one-day drop against the Euro since January 2006 on Tuesday. The decline followed release of a new report showing U.S. consumer confidence at a five-year low, amid growing concerns about a recession and job cuts. Lower consumer confidence is likely to slow spending, which accounts for two-thirds of U.S. economic activity. Oil prices also resumed their upward climb this week, with futures prices rising $4.15 to $105.26 in Wednesday afternoon trading on the New York Mercantile Exchange (NYMEX). The price jump followed an Energy Department report showing oil and gas inventories much lower than expected. Overall, crude oil prices are up 8 percent from a year ago, but down from their all-time record high of $111.80 on March 17. The President of the Organization of Petroleum Exporting Countries (OPEC) said this week he expects oil prices to fluctuate between $80 and $110 for the rest of 2008.

Continued high energy prices will increase costs along hosiery supply chains. U.S. cotton futures continue to rise as farmers face a surge in the cost of farming essentials, such as nitrogen fertilizer made from natural gas as well as diesel fuel for farming machinery. The U.S. trucking industry is struggling with diesel fuel costs at $4 a gallon, up $2.74 a year ago.

FUTURES PRICES FOR SELECT HOSIERY INPUTS
(Thursday, March 20 - Wednesday, March 26, 2008)

CPSC Updates Apparel Flammability Standard
The Consumer Product Safety Commission this week announced revisions to its flammability standards for clothing and textile products intended for use as apparel, effective September 22, 2008. According to the Commission, the revised rule better reflects current consumer practices and industry technologies, further clarifying several aspects of CPSC’s Standard for the Flammability of Clothing Textiles. Most changes are technical in nature, and most revisions are already in use by industry testing labs, the CPSC said. The revised rule permits the use of modernized flammability test apparatus, amends refurbishing methods to better reflect modern techniques for laundering and dry cleaning, and clarifies how the flammability test will be conducted and scored.

Administration Slams Import Taxes in Senate Climate Bill
A Senate climate change bill sponsored by Joe Lieberman (I-CT) and John Warner (R-VA) would impose new taxes on imports from developed countries that fail to meet U.S. greenhouse emissions standards. The bill calls for reductions in carbon emissions and would base import taxes on the level of emissions caused by the imported product. However, the Administration is warning such taxes could violate international rules and prompt major trading partners to retaliate with similar requirements of their own. In a letter to House Energy and Commerce Committee Ranking Member Joe Barton (R-TX), U.S. Trade Representative Susan Schwab warned import taxes likely would result in a World Trade Organization (WTO) dispute and provoke “an all-out trade war where no one wins and everyone loses.”

The full Senate is not expected to take up the bill until after returning from the Memorial Day recess on June 2. House Energy and Commerce Committee Chairman John Dingell (D-MI) and House Energy and Air Quality Subcommittee Chairman Richard Boucher (D-VA) reportedly are drafting similar legislation that may address the Administration’s concerns. They hope to have it through the House this summer and reconciled with the Senate measure by the end of the year.

Chinese Government Plans Inflation Fight as U.S. Lawmakers Prepare Fresh Request for Administration Action on China Currency
As members of Congress reportedly are preparing to renew their calls for WTO litigation to force China to revalue its currency, the Yuan, the Chinese Government has announced new steps to control rising inflation and export growth before the country’s trade surplus becomes unmanageable. The announcement came as the Yuan rose 0.23 percent to 7.0283 against the dollar on Wednesday after the Government’s decision to set a higher minimum wage in the booming city of Shanghai. Higher labor costs, soaring commodity prices and a steadily rising currency are already prompting many lower value-added producers to shift manufacturing out of China to other markets in Asia – including Vietnam and India.

U.S. Trade Representative Susan Schwab wrapped up meetings with Chinese officials in Beijing last week, where she addressed a wide range of concerns – including ongoing WTO negotiations, market access for agriculture, financial services, insurance, banking and securities, as well as intellectual property protection.