Sequester Crisis Could Hit Imports, Trade Talks

Budget impasse seen slowing ports and impeding the launch of a U.S.-European Union trade accord.

WASHINGTON — Federal officials have warned that the steep automatic cuts that hit government agency budgets at midnight Friday could choke goods moving through the nation’s ports, impair ongoing trade negotiations on an Asia-Pacific trade deal and impede the launch of a U.S.-European Union trade accord.

This story first appeared in the March 4, 2013 issue of WWD.  Subscribe Today.

While industry trade groups are concerned about the warnings, most are taking a wait-and-see approach to the actual impact on trade. The failure of the Obama administration and Congress to break through the budget impasse after a White House meeting on Friday triggered $85 billion in across-the-board spending cuts through the end of the current budget year, which runs through Sept. 30.

The cuts will slice into the budgets of key agencies that process billions of dollars of imports, negotiate and enforce trade deals and inspect cargo for counterfeits, product safety and security.

“[The U.S. Trade Representative’s office] is currently conducting or preparing to launch three major trade negotiations,” said Carol Guthrie, assistant U.S. trade representative for public and media affairs at USTR, which is responsible for negotiating free trade agreements and enforcing the rules in existing trade treaties. “Sequester cuts could significantly hamper these and other efforts to support American jobs by opening global markets, including through reduced staffing and reduced capability to engage with trading partners when needed to achieve job-supporting trade goals.”

In addition, USTR may no longer have the funding to initiate new legal disputes, resulting in reduced enforcement of trade agreements, Guthrie said.

The administration is in talks for the Trans-Pacific Partnership with 10 countries, including Vietnam, the second-largest apparel supplier to the U.S. In its annual report to Congress on Friday, USTR said it hoped to conclude the negotiations this year with the TPP countries.

The U.S. is also set to launch trade negotiations with the EU and is joining 20 other nations in negotiating an international services agreement, which could have implications for retailers.

Department of Homeland Security Secretary Janet Napolitano said the billions of dollars in budget cuts could lead to a slowdown in processing cargo container ships at the ports. The fashion industry imported $100.9 billion of apparel and textiles in 2012 and faces significant exposure to slowdowns at ports.

“At our seaports, delays in container examinations would increase to up to five days, resulting in increased cost to the trade community and reduced availability of consumer goods and raw materials,” said Napolitano, adding that $2.3 trillion in trade comes through the ports every year.

Napolitano said border trade with Canada and Mexico, the first and third largest trading partners with the U.S., respectively, will also be impaired. She said, “One of the chief complaints I receive whenever I travel to either border is it takes too long to move the trucks across; it takes too long for people in passenger vehicles to get through. And all I can tell you is that with sequestration, that situation is not going to improve, it’s going to go backward.”

The Obama administration and Congress negotiated a debt-ceiling deal in 2011 that established a supercommittee tasked with reducing the deficit by $1.5 trillion over 10 years. In the event of the committee’s failure to find the deficit reductions, the law stipulated that $1.2 trillion in automatic spending cuts, dubbed the “sequester,” would be spread over nine years, which kicked in on Friday.

“There is a lot of uncertainty around this and a lot of anxiety,” said Stephen Lamar, executive vice president at the American Apparel & Footwear Association, adding that it is premature to speculate on what will happen as the cuts take effect. “We are eager to see USTR and Customs and other agencies fulfill their missions, whether it is facilitating trade or opening foreign markets. Those are government services that we hope and expect will continue, and I think there is a belief by the Obama administration that those are essential government services, too.”

Lamar said while agencies have relied more on Webinars and teleconferences in the past couple of years, it is no substitute for face-to-face meetings, particularly during trade negotiations.

“The TPP covers four continents and involves a lot more travel,” he said. “The needs are more pressing so when you are faced with these kinds of budget cuts, it creates more concerns.”

Julia Hughes, president of the U.S. Association of Importers of Textiles and Apparel, said, “I think most companies are nervous about what the impact will be, but they are not in a panic mode that the sequester is going to have an immediate impact on their business operations…But given the game of chicken that we have seen several times now in D.C., I think most in the industry still feel relatively confident there will be some kind of a deal that will prevent a serious impact.”