Nicaragua TPL and TPP
New York
June 10, 2014 Copyright © 2014 Jon Fee All Rights Reserved
ALSTON&BIRD LLP
Items of interest
• Nicaragua TPL extension
• Trans-Pacific Partnership
(TPP)
• Trade Promotion Authority
(TPA)
• Textile and apparel features
• Timing of TPA and TPP
• The trade and political
context
Nicaragua TPL
• Nicaragua TPL is a CAFTA
feature allowing duty-free
treatment of limited quantities
of cotton, man-made fiber and
certain wool apparel made
from foreign, non-CAFTA
fabric and yarn
• The TPL is limited to 100
million SMEs per year (with a
sublimit of 1.5 million SMEs
for certain men’s wool sport
coats)
Nicaragua TPL
• For woven trousers,
Nicaragua must export an
equal quantity of
originating trousers to the
United States, up to a cap
of 50 million SMEs
• Any shortfall is subtracted
from the TPL for the
succeeding year
• The TPL expires at the
end of 2014!
Nicaragua TPL
• Last summer, Sen. Feinstein (D-
CA) introduced legislation to
extend the TPL through 2024
• Extension is opposed by some
producers in other CAFTA
countries and their U.S.
customers, who enjoy no similar
advantage, and by U.S. textile
interests who say Nicaragua has
sufficiently developed its apparel
exports so that it no longer needs
this benefit
Nicaragua TPL
• Sen. Hagan (D-NC) introduced a more modest bill in December that would extend the TPL for ten years only as to woven trousers and shorts, subject to an earned import allowance program
• Participating producers or entities controlling production would establish accounts with U.S. Commerce and would get credit for exports of fabric wholly formed in the United States of yarns wholly formed in the United States
Nicaragua TPL
• The SMEs of eligible
apparel the producer or
entity could receive each
year could not exceed the
credits in his account
• The program would be
limited to 50 million SMEs
per year; but it could
generally be increased in 10
percent increments per year
if 90 percent utilized in the
previous year
Nicaragua TPL
• Prospects for passage of
either the Feinstein or
Hagan bill are uncertain
• In some ways the damage
of expiration has already
been done because
participants can’t plan past
2014 with confidence
• And uncertainty is the last
thing Nicaraguan producers
need right now with TPP
looming in the future
TPP generally
• Australia, Brunei, Canada, Chile,
Japan, Malaysia, Mexico, New
Zealand, Peru, Singapore, the
United States and Vietnam
• “Comprehensive,”
“ambitious,” “high-standard,”
“21st-century” FTA
• US “pivot,” “rebalancing”
toward Asia
• 40 percent of US goods trade
Vietnamese apparel and TPP
Vietnam
• Vietnam is a formidable supplier of apparel to the United States
• It’s second behind China
• Kim Glas, formerly of CITA, says that textile and apparel imports from Vietnam have increased 40 percent since TPP talks began in 2010
• 16 percent increase in first quarter 2014 compared to first quarter 2013
Vietnam’s China problem
• Vietnam doesn’t produce much yarn or fabric (that may change!)
• It gets lots of yarn and fabric from China; but apparel containing that fabric would not be yarn forward – that’s why Vietnam doesn’t like yarn forward
• And think about Korea, which provides one-third of Vietnam’s yarn and fabric!
Central America and TPP??
Yarn Forward??
• Vietnam doesn’t like it
• Malaysia likes it (but with
lots of single transformation
exceptions)
• US retailers and US importer
trade associations (AAFA,
USFIA) don’t like it
• US domestic industry
(NCTO) likes it
• US negotiators (USTR and
CITA) like it – a lot!
Yarn forward
• The TPP apparel origin rule will
almost certainly be “yarn
forward” for most apparel
• Preferential treatment will be
allowed if the component
determining classification is
knitted or woven in TPP
countries from yarn spun or
extruded in TPP countries and
the apparel is cut or knit to
shape and assembled in TPP
countries
What form of preferential treatment?
• Central America,
Colombia, Peru, Panama
and Korea got duty free
treatment right away
• But remember Mexico,
under NAFTA?
• For some NAFTA
garments, duties were
phased out in stages over 5
or more years
• Expect the same for TPP
Baskets for TPP tariff relief
• United States has
proposed three baskets
• First, apparel in a non-
sensitive basket would
be duty-free right away
• Second, apparel in a
middle basket would be
subject to a linear duty
phase-out (20 percent
each year) over five years
• And …
The “X” basket
• an “X basket” of
sensitive apparel
classifications would be
treated specially
• Duty rates on X basket
apparel would be cut by
some percentage (35 to
50 percent?) for an initial
period of several (ten or
15?) years before they
would be reduced to Free
X basket
• X basket will likely cover shirts, sweaters and trousers of cotton and synthetic fiber
• Importers from TPP countries that already have FTAs with the United States (Australia, Canada, Mexico and Peru) could continue to use Free rates available under those FTAs rather than the X basket rates
TPP short supply
• Not like CAFTA – more like
the original NAFTA (but
without NAFTA’s
cumbersome, little-used short
supply feature that theoretically
allows new designations)
• Remember how some single
transformation features were
written into NAFTA for
selected garments of hard-to-
find fabrics? That’s how TPP
will work
TPP short supply
• Interested persons were invited
to suggest (or oppose) short
supply fabrics and yarns on a
website operated by USTR and
OTEXA
• Some non-sensitive apparel
articles will be temporarily
(three years) or permanently
duty-free (or eligible for
reduced duty rates) even though
they incorporate foreign, non
TPP fabrics or yarns
TPP short supply
• The list of short supply
apparel will be fixed by the
terms of the TPP
• Interested persons won’t be
allowed to request new
designations after the TPP
effective date as they are
able to do under CAFTA
• Mexico (a TPP member),
seeks to shorten the list to
protect its access to the U.S.
market
TPP short supply
• U.S. policy perpetuates two
myths
• First (remember the quota
system?) temporary short supply
features will give U.S. and TPP
industries breathing room to
catch up and start producing
inputs and apparel they don’t
make now
• Second, CAFTA short supply is
unsuccessful
TPP short supply
• Will TPP short supply be an
advantage for Central
American apparel
manufacturers?
• Consider: a new designation
under CAFTA will never get
short supply treatment under
TPP
• And, a short supply fabric or
yarn will be available for any
apparel article and not limited
to certain apparel like TPP
TPA
• TPA is “fast track” trade negotiation authority under which Congress gives the President authority to negotiate FTAs that Congress can approve or disapprove, under expedited procedures, but can’t amend or filibuster
• Last TPA expired in 2007
• President Obama has negotiated TPP as though TPA were still in effect, gambling that Congress will pass TPA legislation while TPP negotiations are ongoing
TPA
• Bipartisan TPA proposed in early 2014
• Democrats complained it didn’t allow sufficient Congressional oversight of the final TPP terms
• Slowed when key cosigner Sen. Baucus (D-MT) left the Senate to become ambassador to China
• Slowed further when House Minority Leader Pelosi said Democrats couldn’t support TPA as written
Other issues in Congress
• Senate Finance Committee
Chairman Widen (D-OR) wants to
do TPA quickly; but doesn’t want
to just “throw something
together”
• Ranking Republican Hatch (UT)
recently said, the “political clock is
ticking” and there isn’t much time
left this year
• Sixty senators and 230 House
members want currency
manipulation addressed in TPP
And then there’s Congress
• TPA will likely not move
until after the 2014 elections,
maybe in a lame duck
session, when Democrats
learn whether Republicans
gain control of the Senate
and have their last chance to
control the content of the bill
• After that, the Presidential
election comes into play –
TPP could be delayed until
the next administration
So don’t hold your breath for either
