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May 23, 2008
Lawmakers Push Farm, Trade and Tax Legislation ahead of Memorial Day Recess; Product Safety, Customs and Spending Bills Likely this Summer
As anticipated in the May 16 edition of Footnotes, this year’s highly controversial Farm Bill – overwhelming approved by the House and the Senate - was vetoed by the President on Wednesday afternoon. The House voted to override the veto late Wednesday evening by a 316 to 108 majority. However, due to an administrative foul up, the version of the bill originally sent to the President left out 34 pages of trade provisions, including measures that would have a direct impact on the hosiery industry by preventing U.S. Customs and Border Protection from eliminating the first sale rule and making it easier for manufacturers in Africa and the Caribbean to export legwear to the United States duty free. The House and Senate plan to pass the correct version of the legislation today and then send it back to the President. The President is expected to veto the bill again, requiring a fresh round of congressional votes necessary to override the veto before lawmakers depart for their Memorial Day recess – which begins this weekend.
In addition to action on the Farm Bill, Congress plans to pass other legislation this week – including a defense spending measure and a tax bill that would renew certain expired tax breaks that benefit legwear manufacturers and other businesses. Among the tax breaks in the bill are provisions to restore the research and development credit and the 15-year recovery period for improvements to leased commercial properties. When lawmakers return to Washington in early June, they are expected to take up legislation that would strengthen product safety and authorizing funding and programming for the U.S. Bureau of Customs and Border Protection. They will also turn their attention to federal spending bills for fiscal year 2009, which begins at the end of September.
Oil Price Hits New Record as Dollar Falls and Producer Prices Rise
Crude oil prices hit a new high this week, touching a record $134.15 a barrel on Wednesday as U.S. petroleum stockpiles unexpectedly dropped and banks raised price forecasts because of supply constraints and demand growth. According to the U.S. Department of Energy, oil inventories fell 5.32 million barrels to 320.4 million, the biggest drop in four months. Light sweet crude for July delivery rose $4.19, or 3.3 percent, on Wednesday to settle at $133.17 a barrel on the New York Mercantile Exchange (NYMEX) – more than double the price a year ago. Dragged down by high oil prices, the dollar fell to its lowest level against the Euro in nearly four weeks on Wednesday. The Euro climbed as high as $1.5790, its highest mark against the dollar since April 24, while the Australian dollar hit $0.9652 against the U.S. currency – its highest level since 1983.
A report released by the U.S. Department of Labor on Tuesday added to bad economic news for manufacturers. The Department’s April Producer Price Index showed prices set by domestic manufacturers climbed 0.4 percent last month after rising 0.2 percent in March and 0.5 percent in February. The April rise in finished goods prices, which excludes food and energy, was double was economists had expected. According to the report, inflation outside food and energy rose by 3 percent over the past 12 months, the fastest increase for a 12-month period since late 1991. The preliminary producer price index for hosiery and sock mills reached 113.3 in April – a 1.16 percent increase from April 2007 and the highest level since December 2002.
FUTURES PRICES FOR SELECT HOSIERY INPUTS
(Thursday, May 15 -- Wednesday, May 21, 2008)
Census Bureau Releases First Quarter Data on U.S. Sock Production
On May 9, the U.S. Census Bureau released its Current Industrial Report (CIR) which, among other things, provides data on U.S. domestic production of and trade in socks for the first quarter of 2008. The data show the impact of a slower domestic economy and a weaker dollar on legwear manufacturing. While the quantity and value of all finished socks produced in the United States declined markedly in the first quarter of 2008 compared to the same period last year (from 26.7 million dozen pairs to 20.5 million dozen and $209 million to $167 million), imports also declined and the percentage of U.S. sock production exported abroad grew from 46 percent to nearly 60 percent. As the dollar continues to decrease in value relative to other major currencies, U.S. goods should continue to become more attractive in foreign markets.
Senate Finance Committee Holds Hearing on Trade Enforcement
The Senate Finance Committee held a hearing Thursday to examine legislation that would strengthen trade enforcement, particularly with respect to China. Committee members Max Baucus (D-MT), Debbie Stabenow (D-MI) and Orrin Hatch (R-UT) have co-sponsored legislation, S. 1919, that would allow American manufacturers to seek higher “countervailing” duties on products imported from China and other non-market economies that subsidized their exports, either through currency manipulation or other means. The proposed legislation would also enable Congress to force the White House to abide by International Trade Commission recommendations granting import relief to U.S. companies, including legwear manufacturers. The President currently has broad discretion to reject those recommendations.
Committee members also railed against currency manipulation and other practices that unfairly disadvantage American manufacturers. The panel passed a bill S. 2813 to deal more directly with China's currency practices in April, but an ongoing dispute with the Senate Banking Committee has prevented further action. In a report last week, the Treasury Department failed to cite China as a currency manipulator, arguing China’s currency, the yuan, has appreciated this year. In a statement following release of the report, Senate Finance Committee Chairman Max Baucus (D-MT) said "there remains a need for Congress to pass robust legislation addressing currency issues with China" and other countries whose currencies are misaligned.
According to Capitol Hill sources, Baucus wants to move on trade enforcement soon. House Ways and Means Democrats are readying their own separate enforcement bill, boosting the chances for action this year. Insiders suggest congressional leaders may use the trade enforcement measure as a bargaining chip with the White House in exchange for movement on the Colombia Free Trade Agreement. However, Chairman Baucus' first priority is enacting a package of trade adjustment assistance (TAA) measures designed to help workers and firms harmed by overseas competition. The House passed its version of those measures last year, but the White House threatened to veto it, arguing it was too broad and costly. Now, the White House is directly involved in TAA negotiations with Baucus and Senate Finance Ranking Member Charles Grassley (R-IA) because they realize that will be their only chance to get a vote this year on Colombia.
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