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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 mens 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 cant 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

Its 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

Vietnams China problem

Vietnam doesnt 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 thats why Vietnam doesnt like yarn forward

And think about Korea, which provides one-third of Vietnams yarn and fabric!

Central America and TPP??

Yarn Forward??

Vietnam doesnt like it

Malaysia likes it (but with

lots of single transformation

exceptions)

US retailers and US importer

trade associations (AAFA,

USFIA) dont 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 NAFTAs

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? Thats 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 wont 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 dont

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 cant 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 didnt 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 couldnt support TPA as written

Other issues in Congress

Senate Finance Committee

Chairman Widen (D-OR) wants to

do TPA quickly; but doesnt want

to just throw something

together

Ranking Republican Hatch (UT)

recently said, the political clock is

ticking and there isnt much time

left this year

Sixty senators and 230 House

members want currency

manipulation addressed in TPP

And then theres Congress

TPA will likely not move

until after the 2014 elections,

maybe in a lame duck

session, when Democrats