Capitol Comments

Washington Poised To Advance Trade Deals

By Jessica Franken, INDA Director of Government Affairs | June 8, 2011

Pacts with Korea, Colombia and Panama will have impact on nonwovens industry

U.S. Trade Representative Ron Kirk sent letters to key Capitol Hill officials May 4 notifying them of plans to begin technical discussions with members of Congress on the U.S.'s long-pending free trade deals with Colombia, South Korea and Panama. The three pacts have been in limbo since the Bush years due to various Congressional objections to specific provisions and have been stalled by Democratic lawmakers' concerns about labor rights in Colombia. However, Colombia recently met several key milestones included in a labor reform action plan negotiated this April so the Administration is ready to move the deals forward.

With the final hurdles out of the way, White House officials say they hope to secure Congressional approval by the end of the summer, although recent partisan spats over an expired job training program for trade-displaced workers could derail that timeline. Still, given the critical role that trade plays in the nonwoven fabrics industry's success, there is value in looking more closely at each pending deal.

Korea: If approved, the U.S.-Korea or KORUS would be this nation's most significant trade pact since the 1994 North American Free Trade Agreement and would link the U.S. to the world's 12th largest economy. The International Trade Commission (ITC) predicts the pact could increase annual U.S. exports by $10 to $11 billion by removing tariffs on over 95% of U.S. industrial and consumer goods exports within the first five years. For this reason, there's broad U.S. business community support, with some 800 corporations and trade groups representing manufacturing, retail, consumer products, apparel, aerospace, chemicals and other sectors participating joined in a coalition to secure KORUS passage.

However, the pact is not without its detractors with one of the most vocal being the "traditional" textile industry in the U.S., which argues that eliminating the traditionally high U.S. tariffs on textile and apparel imports would create a deluge of these products from Korea, which is already one of the largest sources of U.S. knit and specialty fabric imports. They also criticize the fact that a number of these U.S. products do not receive immediate and reciprocal duty-free treatment.

However, the KORUS appears to offer more opportunity than threat. The U.S. is already highly competitive with Korea, having exported to Korea nearly $27 million worth of nonwovens (Harmonized Tariff Schedule 5603) in 2010 versus some $20 million in Korean imports. This is despite the fact that U.S. nonwovens exports going to Korea face 8% duties while Korean exports to the U.S. face none.

This trade deal, therefore, stands to improve the industry's already strong position since a substantial portion of U.S. nonwoven roll good exports to Korea will see their duties go to zero as soon as the KORUS is implemented with the only exception being the following three product categories for which the tariffs will be eliminated over five years: 1) HTS 56031390—Nonwovens of manmade filaments, weighing between 70gsm and 150gsm; 2) HTS 560392 – Nonwovens others, weighing between 25gsm and 70gsm; and 3) HTS 560394—Nonwovens, others, weighing more than 150gsm. An ITC report on the probable economic effects notes the greatest increases in "U.S. exports of textiles and apparel to Korea under the FTA is likely to be concentrated in goods for which the U.S. industry is competitive, including...industrial and specialty fabrics, including nonwoven, coated, and knit fabrics..."

Colombia: Although less economically significant than Korea, Colombia is the third largest economy in Central and South America, according to an Obama Administration fact sheet, with two-way trade totaling nearly $28 billion in 2010 and U.S. exports accounting for $12 billion of that amount. However, while most American products going to the South American country face duties up to 20%, approximately 90% of Colombian exports enter the U.S. duty free under unilateral market access programs like the Andean Trade Preference Act.

The good news is that more than 80% of U.S. exports of consumer and industrial products and 100% of textiles and apparel going to Colombia would become duty free immediately. This means that the 15% duties Colombia charges on U.S. nonwoven roll goods will go the way of the dodo on day one of the agreement. The even better news is that Colombia is already a significant export destination for American nonwoven roll goods with the U.S. sending some 3.4 million kilograms worth more than $15 million in 2010. Colombia offers export opportunities to a number of other key industrial sectors, the ITC notes, including chemicals, plastic products, machinery, oil and gas equipment, pollution control equipment, food and beverage processing equipment.

Perhaps even more importantly, the FTA with Colombia is a key piece of the U.S. larger strategy to build upon NAFTA, the Central America-Dominican Republic Free Trade Agreement, and pacts with Chile and Peru to further economic and supply chain integration throughout the Western Hemisphere. The White House argues that it is also crucial to this country maintaining its foothold in the region, noting that Colombia implemented an accord with Brazil, Argentina, Paraguay and Uruguay in 2009, will soon do the same with Canada and the European Union and is also pursuing talks with South Korea and Japan.

Although it's the smallest of the three deals, Panama offers one of Latin America's fastest expanding economies, according to the White House, growing 6.2% in 2010, with similar annual forecasts through 2015. Further, U.S. exporters are expected to be the main beneficiaries of the Panama Trade Preference Agreement (PTPA) since most of that country's exports already enter the U.S. duty‐free under various trade preference programs, while less than 40% of U.S. goods enjoy similar status.

Even still, ITC notes, the impact of the PTPA on the U.S. economy is expected to be relatively minor due to the small size of the Panamanian market. If our industry is any guide, the Commission's prediction is probably right on the money: the U.S. sent less than $600,000 worth of nonwoven roll goods in 2010, despite the fact these items currently enter Panama duty-free. Even with the limited export opportunities, Panama is still an important trade partner due to its strategic location as a major shipping route, which further supports the expansion of the Western Hemisphere supply chain.

The three pending agreements appear to offer new opportunities for a free-trade oriented industry like nonwovens. Unfortunately, some of our enthusiasm is tempered by the fact that they all feature the same "yarn-forward/fiber-forward" rule of origin that has been included in every U.S. trade pact to date. Despite our having repeatedly communicated to U.S. officials that these kinds of rules do not reflect the realities of our capital-intensive industry or the availability of inputs, unlike the aforementioned dodo, these rules of origin never seem to never go away.

Further, even with the recent signs of progress, and broad bipartisan support for trade, Washington is hyper-partisan these days, particularly a year and a half from the next election, which means if obstacles can possibly emerge, they will.

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