Last month our column analyzed trade statistics from the previous year, so this month we will highlight important trade issues going forward. Although Washington is still experiencing unprecedented gridlock, both parties agree that spurring economic growth and reducing unemployment through bolstering trade is a crucial policy objective. Unfortunately, the two sides often don’t agree on how best to achieve their common goal. During the remainder of this year, the Obama administration will continue negotiations on two ambitious multi-lateral trade agreements that could greatly expand trade in American goods throughout Europe and Asia. However, if Congress cannot pass Trade Promotion Authority (TPA), the agreements will most likely never be finalized. Additionally Congress will be called upon to reauthorize two important trade-promoting pieces of legislation, namely the Miscellaneous Tariff Bill (MTB) and the Generalized System of Preferences (GSP).
Trans-Atlantic Trade Investment Partnership
In July 2013, the United States and the European Union announced the launch of negotiations toward the Trans-Atlantic Trade Investment Partnership (T-TIP). If the deal is consummated, it will create the world’s largest free trade area—covering approximately 40% of global commerce and generating $5 trillion in trade, investment and sales. Because the EU is an important export destination and supplier for INDA members, the agreement provides significant economic opportunities for our industry.
The fourth round of T-TIP talks concluded in mid-March in Brussels. These initial rounds have advanced from information sharing to exchanges of market-access offers, but the hard bargaining phase of the talks involving agreements on substantive issues and trade-offs from both sides is just beginning. The fifth round of T-TIP talks (scheduled for May in Washington at press time) is where observers expect the tough negotiating on key issues to begin.
INDA has taken advantage of opportunities to weigh in on the T-TIP and has identified three key objectives that an agreement should include to be beneficial for our industry. First, INDA has called for ambitious market access and tariff elimination provisions, specifically the immediate and permanent elimination of the EU’s 4.3% duties on nonwoven roll goods and of U.S. import tariffs on viscose rayon. Second, INDA has warned that any agreement must include stringent intellectual property protections, a critical safeguard for an industry as capital and technology intensive as ours. And finally, INDA has called for robust regulatory cooperation provisions that balance the importance of harmonizing regulations with the need to maintain regulatory autonomy.
INDA has also teamed with its European counterpart, EDANA, to form the Trade and Trends Advisory Board (T&T Board) to advise on key issues of interest to the nonwovens industry and to harmonize positions when feasible. INDA and EDANA have already jointly called for the immediate and permanent elimination of EU’s 4.3% duties on roll goods.
While certain EU officials have stated end of 2014 target for completing talks, most agree meeting this deadline will be impossible considering the many thorny issues to negotiate, including things like market access, financial services, government procurement, regulatory cooperation, and agriculture provisions, to name a few.
In 2011, the United States commenced talks toward the Trans-Pacific Partnership (TPP) regional free trade agreement with 11 other countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. U.S. trade experts expect the agreement to strengthen American trade and investment in the Asia-Pacific region and to serve as a U.S. counter-balance to the Chinese-driven Regional Comprehensive Economic Partnership (RCEP), an agreement currently being negotiated between China and many of same countries. The TPP would be an enormous trade deal--in 2012, 45% of U.S. exports went to TPP countries, which collectively, they represent 60% of the world’s GDP. Several additional countries, including the Philippines, Thailand, Colombia, Korea and Taiwan have expressed an interest in joining the TPP, however, they will be allowed to join only after the current partners have concluded negotiations.
Although there have been at least 19 rounds of TPP talks, many of the key provisions of the proposed agreement are unknown. It does appear that the rules of origin for textiles and apparel are following the traditional “yarn-forward” model, meaning yarns and fibers must originate in the TPP region to qualify for the deal’s benefits. There is, however, a substantial short supply list under development that will provide flexibility for sourcing inputs outside of the region with nearly 200 yarns, fibers and fabrics including viscose rayon staple fiber (HTS 5504.10) and several nonwovens (HTS 5603.11, 5603.12, 5603.13 and 5603.14) appearing on the list. Meanwhile, decisions are still being made about the timeline for phasing out tariffs once the deal has been implemented, but it is INDA’s expectation that duties on nonwoven roll goods will be eliminated immediately in countries where the United States doesn’t already have a pre-existing free trade agreement.
Although officials hope the TPP talks will be completed sometime in the 2nd quarter 2014, a more realistic deadline may be after the November midterm Congressional elections. Even if the talks do conclude sooner rather than later, questions remain as to when a deal can be passed on Capitol Hill.
Trade Promotion Authority
President Obama’s lack of Trade Promotion Authority (TPA), aka “fast track authority,” which expired in 2007, complicates the completion of both deals. TPA allows the administration to negotiate trade deals and submit them to Congress for approval on an expedited basis, establishing firm deadlines and preventing Congress from tinkering with the negotiated provisions of a deal. The business community has lobbied Congress to pass a pending bill renewing TPA, but several leading Democrats, foremost Senate Majority Leader Harry Reid (D-NV), have refused to take up the increasingly political issue.
TPA and TPP have become entwined, with the TPP becoming the target of increasing public suspicion, and even protests by labor and left-leaning political groups, because of its breadth and an alleged lack of transparency during negotiations. With detractors calling TPP “NAFTA on steroids” and a “job-killer,” some in Congress have been reluctant to take up the TPA measure before the looming midterm elections. ,Of course, given the lack of boldness on the part of Congress, it is quite possible the TPP won’t pass until after 2016 Presidential election and Congressional contests.
Miscellaneous Tariff Bill
May 15 marked the 500th day since the Miscellaneous Tariff Bill (MTB) lapsed, and there are still no visible signs of progress by Congress although insiders continue to report that lawmakers from both chambers are working on a deal behind-the-scenes.
The MTB provides critical import duty relief on hundreds of essential manufacturing inputs that are not available in the U.S., including viscose rayon staple fibers. Unfortunately, Congress allowed the benefits to lapse at the end of 2012, forcing U.S. companies to absorb the additional costs throughout the year. We will continue to advocate for the bill’s passage and will keep INDA members apprised of how to communicate with lawmakers about the importance of the MTB.
Generalized System of Preferences
The Generalized System of Preferences (GSP) expired on July 31, 2013, and bills to renew the program introduced in both chambers at the end of the last year have stalled.
The GSP is a U.S. trade program designed to promote economic growth in the developing world by providing preferential duty-free entry for approximately 4,800 products from over 100 designated beneficiary countries and territories. Manufacturing groups generally support the extension of the GSP, which reduces the cost of imports needed to produce goods domestically.
On several occasions since its enactment in 1976, Congress has renewed GSP after it expired and provided for the retroactive refund of tariffs. Supporters are hopeful that will be the case this time as well, although Congress has not indicated what the path it will take.