APRIL 4, 2008

USTR Report Highlights Trade Barriers Maintained by Top Legwear Suppliers
The Office of the U.S. Trade Representative (USTR) released its annual National Trade Estimate Report this week, which highlights recent policy successes and reviews unfair trade practices by 62 major U.S. trading partners. Among other things, the report shows that several top overseas suppliers of legwear products to the United States – China, India, Korea and Mexico – continue to maintain a range of barriers to U.S. textile and apparel exports. Those barriers include very high tariffs (35 percent in Korea), export subsidies (China) and costly import licensing, registration and labeling requirements (Mexico and Korea).

In anticipation of the report, 14 House Democrats – including Ways and Means Committee Chairman Charlie Rangel (D-NY) and Trade Subcommittee Chairman Sander Levin (D-MI) sent a letter to the President on March 28 stressing the need for stricter enforcement of trade agreements and identifying a range of specific concerns with particular countries. Highlighting an “unsustainable” trade deficit and its impact on American manufacturing, the letter called on the Administration to “move past merely inventorying the systemic, recurring trade barriers that U.S. companies continue to face, and to take a positive step forward and begin enforcing U.S. rights more vigorously.”

Recession Fears Send Commodity Prices Higher, Dollar Lower
Federal Reserve Chairman Ben Bernanke’s April 2 testimony before a joint congressional committee sent oil futures higher and the dollar lower in Wednesday trading. Giving no indication of additional interest rate cuts, Bernanke told Congress the U.S. economy is likely to shrink during the first half of 2008 and suggested the country may face recession. On that news, the dollar dropped against the Euro for the first time in three days, and crude oil prices rose $3.80 to $104.78 a barrel in futures trading on the New York Mercantile Exchange (NYMEX). Oil prices were also buoyed by an April 2 Energy Department report showing a third week of declines in U.S. gasoline stockpiles. With crude prices up 59 percent from a year ago and oil company profits last year at $123 billion, Congress grilled oil company executives at an April 1 hearing regarding the continued need for a range of tax incentives to the industry. Lawmakers have revived legislation that would repeal $18 billion of those incentives and use the savings to fund wind-power projects, solar panels and more energy-efficient cars.

The same speculative trading that has help drive up crude oil prices in recent weeks is also affecting other commodities, including cotton. The International Cotton Advisory Committee announced this week that U.S. cotton harvested area is projected to decline by 15 percent in 2008-2009 as a result of surging prices for other commodities. However, world cotton production is still projected to increase by 3 percent to 26.9 million tons, as cotton harvest areas increase in Mainland China, India, West Africa, Australia and Brazil. The Committee warned that increases in prices of competing corps and the increasing role of speculative activity and commodity investment funds may affect cotton prices in ways that are not reflected in fundamental measures of cotton supply and use.

FUTURES PRICES FOR SELECT HOSIERY INPUTS
(Thursday, March 27 - Wednesday, April 2, 2008)

Chinese Textile Manufacturers Facing Smaller Profit Margins as World Bank Forecasts Slower Growth
A combination of factors is dampening China’s rapid export growth and squeezing the profit margins of local textile manufacturers, according to a report this week by Xinhua, China’s official news agency. Those factors include rising raw material costs, appreciation of the Yuan against the dollar, and recent government actions to curb inflation and lower a widening trade deficit by tightening financial controls and reducing export rebates. The report showed China’s overall export growth dipping below 20 percent in January and February for the first time in recent years. Citing financial concerns, nearly half of Chinese cotton textile companies surveyed in a recent study by the China Cotton Textile Association are considering closing their operations and moving into more profitable sectors.

The full magnitude of any sustained economic slowdown in China won't be apparent until April 17, when the government is scheduled to report first-quarter gross domestic product figures. However, the World Bank this month lowered its 2008 economic growth forecast for China in light of the deteriorating U.S. economy. It now expects growth for the year to dip to 9.4 percent, down two full percentage points from 2007. That remains extremely fast growth by the standards of almost any other country, but would mean significant adjustments for an economy that has seen growth above 10 percent for five straight years. Treasury Secretary Henry Paulson will visit China this week to discuss developments in the U.S. economy and China’s progress toward adopting a more flexible currency.

U.S.-EU Agreement Lifts Transatlantic Air Cargo Restrictions
The U.S.-EU Open Skies Agreement entered into force on March 30, potentially creating opportunities to further streamline transatlantic air cargo operations and cut shipping times and costs. While the full extent of benefits to U.S. manufacturers, exporters and importers remains to be seen, the deal promises to increase transport competition and eliminate certain security screening delays by removing regulatory limits on the number of transatlantic cargo carriers and routes between the U.S. and Europe and increasing bilateral security cooperation. Open Skies also allows greater passenger airline access across the Atlantic, and may result in increased international competition and expanded service.

Customs Issues New Yarn Tariff Classification Rulings
In response to requests by two domestic firms, U.S. Customs and Border Protection (CBP) recently issued tariff classification rulings (March 25 Ruling, March 27 Ruling) for four types of imported yarn for retail and commercial use. Among other things, those classifications determine the duty that will be applied to the yarns on entry to the United States. The following chart lists the yarns, their tariff classifications and the applicable general or most-favored-nation (MFN) duty. Please note that the applicable duty for these yarns may be lower if they are imported under preference, including from a country with which the United States has a free trade agreement in force. Additional information is available in the U.S. Harmonized Tariff Schedule (HTS).