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WASHINGTON — Capitol Hill lawmakers are poised to confront the daunting challenge of finding a compromise to avoid a “fiscal cliff” in the lame-duck session of Congress that begins Tuesday, but several trade-related measures with broad implications for the fashion industry also have a chance of advancing.
This story first appeared in the November 13, 2012 issue of WWD. Subscribe Today.
The top priority for lawmakers as they return this week after adjourning in September to campaign for the elections is negotiating a compromise solution to expiring tax cuts enacted under former President George W. Bush and to deep spending cuts to federal agencies and the Pentagon that will take effect in January unless action is taken. Last week’s elections, which sent President Obama back to the White House for a second term and saw Democrats retain and increase control of the Senate and Republicans maintain their majority in the House, have only increased pressure for some sort of compromise.
“What is still not clear is that anything will happen in a lame duck other than must-do legislation,” said Julia Hughes, president of the U.S. Association of Importers of Textiles & Apparel. “Russia [permanent normal trade relations] is likely to be included there, but they will mainly be looking at how to deal with extending tax cuts and taking action to prevent sequestration [deep spending cuts to the defense program] and the fiscal cliff. The economy is the priority.”
Still, industry officials said there are measures with bipartisan support that might advance before the end of the year. Among them are:
• Design Piracy: While there is an outside chance the Innovative Design Protection Act could advance in the lame-duck session, it is unlikely. The legislation would expand copyright laws to include fashion designs for the first time and provide protection for three years. The Senate Judiciary passed a bill in September, but the House Judiciary Committee has not taken up the legislation, making it more likely to be reintroduced and considered by Congress next year.
• Russia PNTR: Russia formally acceded to the World Trade Organization in August, but U.S. companies cannot take advantage of any of the benefits because Congress has not granted the country PNTR status.
• Farm Bill: The legislation continues federal funding for a program supporting U.S. textile mills that use domestic and imported cotton. It also attempts to bring U.S. cotton programs in line with WTO requirements and address a dispute over cotton subsidies with Brazil.
• Cotton Trust Fund: The fund, which expired in 2009, suspended duties on imported cotton shirt fabric and provided grants to cotton shirt manufacturers and yarn spinners in the U.S. The fund also created and maintained a pima cotton promotion program. It is funded through the revenue on tariffs on cotton textile imports, primarily yarn and fabric. With the expiration of the fund, U.S. companies have been forced to pay higher duties and the pima cotton promotion program was put on hold.
• Wool Trust Fund: Lawmakers have been trying to make a technical fix to the fund and expand the tariff collection on wool apparel imports to make up for a shortfall. The fund makes payments to U.S. wool fabric and yarn producers, as well as sheep growers, to encourage more production of wool fabrics. The tariff revenues collected on wool yarn and fabric imports fell sharply in 2009 and 2010, leaving the trust fund unable to make payments to mills and makers.
• A Miscellaneous Tariff Bill: It provides temporary duty suspensions on imported inputs. The bill must be renewed by Congress periodically and is meant to help domestic manufacturers compete by giving them tariff breaks on components such as yarns and fibers that are no longer made in the U.S. and must be imported.
The vote on PNTR for Russia is considered one of the first action items for Congress and could receive a vote in the House this week.
“I’m hopeful that Russia PNTR will move,” said Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association. “That would be another signal that Congress and the administration are serious about fixing our economy, not just about bringing jobs back to the U.S. but also about increasing trade.…They have to make a tactical, strategic decision in the next month to ensure that our economy is going to be healthy in 2013.”
U.S. retailers and apparel brands stand to gain from Russia entering a global rules-based system and its commitment to lower tariffs on imports and easing of direct investment opportunities.
The Senate passed the $500 billion farm bill in June but the legislation stalled in the House. U.S. textile mills benefit from a provision that would continue the Economic Assistance Adjustment program, in which the federal government gives them 3 cents a pound of domestic or imported upland cotton they use, provided it is invested in acquiring, modernizing or expanding land, plants, buildings or equipment.
“The textile portion of the bill has been very important to helping our producers reinvest in new equipment and machinery,” said Cass Johnson, president of the National Council of Textile Organizations.
If lawmakers opt to extend the existing farm bill, they could also risk trade retaliation from Brazil over a cotton dispute the country won at the WTO against U.S. cotton subsidies. The WTO sided with Brazil over a case it filed against U.S. cotton subsidy programs and issued a series of findings between 2005 and 2008. The U.S. and Brazil reached an agreement in June 2011 that established a $147.3 million fund to provide technical assistance and capacity building to the Brazilian cotton industry, and forestalled the imposition of sanctions on U.S. exports, including on raw cotton, woven fabric cotton pants and shorts and some jewelry, until this year.
Phillip Swagel, professor of international economic policy at the University of Maryland, said, “It would be a terrible way to start the new term by having other countries legitimately impose sanctions on us for noncompliance with the WTO rules.…I think everyone understands that agriculture subsidies as a whole are an area that has to be examined going forward and cotton subsidies are a part of that.”
Johnson said he is hopeful the MTB bill will also advance in the lame-duck session.
“These [tariff breaks] are for products that are no longer made in the U.S., but still have tariffs imposed on them,” Johnson said. “So our costs go up if tariffs are reimposed at the end of the year [if the MTB is not renewed.] Acrylic fiber is a great example of this. It is no longer made in the U.S. and we make a lot of acrylic fiber yarn here. There is an 8 percent duty on imported acrylic fiber and that is a significant cost and competitive issue if the tariff bills are not passed.”