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Tough Love on Trade: New Congress’ Stance Stirs Industry to Adapt

Congress returns this week under the control of Democrats and its new agenda is expected to reshape the fashion industry's business and sourcing strategies.

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China's exporting dominance is expected to be the subject of legislation early in the Congressional calendar.

WWD Staff

WASHINGTON — Congress returns this week under the control of Democrats for the first time in 12 years and its new agenda is expected to reshape the fashion industry’s business and sourcing strategies.

The Democrats’ new goals for trade policy will drive some of the action on Capitol Hill early on and industry executives are closely watching which philosophy will prevail: free trade, which places an emphasis on lowering barriers for imports and increasing market access for U.S. exports, or fair trade, which focuses on protecting workers’ rights overseas while preserving U.S. jobs.

The key issues the new Congress is expected to tackle in the next session, which begins Thursday, include:

  • The growing trade deficit with China and its alleged currency manipulation. Apparel and textile imports contributed to the broader trade deficit in goods with China in October, which widened by 6.1 percent to $24.4 billion compared with the preceding month. Observers expect the new Congress to propose a much tougher stance toward the Asian giant.
  • The future of free trade agreements and of the president’s Trade Promotion Authority.
  • How to jump-start global trade talks, which have stalled.
  • Stricter rules to protect workers’ rights, both in the U.S. and overseas.

Overall, the consensus on both sides of the debate is that a new skepticism toward trade has taken hold in both parties in Congress. Organized labor’s agenda also is expected to gain prominence and experts said legislative action on new laws governing workers and unions is possible.

House Speaker-elect Nancy Pelosi (D., Calif.) already has laid out her broad agenda for the first 100 hours of the session — and her initial salvo set off alarm bells within the industry. Pelosi has promised that the House will pass legislation raising the federal minimum wage, requiring 100 percent screening of all cargo containers at foreign ports, rolling back subsidies to big oil and reforming health care and Social Security. The screening proposal raised an immediate outcry from apparel importers, who said the plan could cause major disruption to shipments.

It is more difficult to gauge the agenda in the Senate, where Democratic leaders have been more circumspect about their legislative priorities in the 110th Congress.

"It will be a big year for trade regardless of other issues, such as the war in Iraq," said Tim Kane, director of the Center for International Trade & Economics at the Heritage Foundation, a conservative think tank.

However, the chances of Congress "actually erecting new trade barriers is unlikely," he said, adding, "A slowdown in trade deals is more likely, since that was already happening with Republicans who were getting nervous about trade."

Kane said there are conflicting forces on international commerce within the Democratic caucus in the House and Senate, which makes it difficult to predict which voices will prevail.

He said experts will be closely watching newly elected Democrats who are coming into office on a wave of antitrade sentiment and how leaders balance their voices with more pro-trade constituents, such as the Congressional Black Caucus, which has been supportive of trade benefits for sub-Saharan Africa.

Although Pelosi has not unveiled a trade agenda to date, many experts expect several issues to gain traction, including the widening deficit with China and bills targeting its currency manipulation and subsidies; the president’s expiring trade promotion authority; the global round of trade talks, and a push to strengthen labor and environmental laws in free trade agreements, which could affect the pending Peru and Colombia free trade deals. For the 12 months ended Oct. 31, Peru shipped 103.8 million square meter equivalents of apparel and textiles to the U.S., valued at $842.5 million, and Colombia’s imports tallied 142.7 million SME, worth $560.3 million.

"We are definitely going to see a China trade bill this year and it’s going to be bad," predicted Erik Autor, vice president and international trade counsel at the National Retail Federation. "Members [of Congress] are chomping at the bit…to do a China bill. It’s just a question of whether cooler heads can prevail. I think they will be under a lot more pressure to whack China. We are keeping a wary eye on the whole situation."

Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, said he believes there is already momentum on China, though "how the Democrats choose to deal with this issue is up in the air."

"First of all, you’ve got people like [Sens.] Sherrod Brown [D., Ohio] and Jim Webb [D., Va.], who are coming into powerful positions in the Senate and who are vowing to be more aggressive on these issues, and China is at the front of the line for them," Tantillo said.

Signaling the possible fight ahead, Rep. Sander Levin (D., Mich.), who will chair the House Ways & Means trade subcommittee, has already said he plans to submit an unfair trade practices case against China’s currency manipulation and reintroduce legislation to apply countervailing duties to non-market economies.

In addition, Sen. Max Baucus, incoming chairman of the Senate Finance Committee, has indicated he is looking for "new tools" to address China’s currency policies, other than the Department of the Treasury’s semiannual report that has passed on labeling China a currency manipulator.

The president’s TPA, which requires Congress to vote up or down on trade agreements without the ability to amend them, expires at the end of June and also will generate a heated debate. The prospects of Congress renewing the authority, without any substantive changes to it — such as addressing stronger enforcement mechanism for labor standards — are slim, according to experts.

The global round of trade talks, which has faltered for some time now, will be affected if TPA is not renewed.

"It’s hard to say what the prospects for trade promotion authority are, but it will be a long shot," said Cass Johnson, president of the National Council of Textile Organization. "The election made it more difficult for the administration to get an agreement on TPA through, rather than less difficult. It has given the administration less maneuvering room."

Gary Hufbauer, senior fellow at Peter­son’s Institute for International Economics, said he wouldn’t be surprised to see the White House package the Peru and Colombia FTAs with an extension of TPA.

On the labor front, two Democrats chairing key labor policy committees, Sen. Edward Kennedy (D., Mass.) and Rep. George Miller (D., Calif.), will be closely watched by the industry and organized labor.

Kennedy and Miller already have said they will push for passage of a bill they introduced that would instruct the National Labor Relations Board to develop a procedure under which a union can be recognized if a majority of employees sign authorization cards choosing the union as their bargaining representative — known as a "card check" system. The bill also would strengthen remedies for employer coercion when employees try to organize by imposing civil fines up to $20,000 per violation.

"The bill would go some distance toward leveling the playing field in terms of freedom of association," said Tom Snyder, national political director for UNITE HERE.

"In actual practice, workers are not able to associate in their place of employment. If they try to form a union, they are fired, demoted or harassed," alleged Snyder.

Snyder also expects Congress to pass comprehensive immigration reform legislation providing a guest worker program for millions of illegal immigrants and a path to citizenship.

The union official, without wanting to sound "Pollyannaish," contended the overall environment on Capitol Hill will be "more hospitable to union issues and middle-class family issues."

"That does not mean these things will sail through very simply or without lots of struggle and negotiation," he said. "But underneath, the anxiety about free trade agreements is the anxiety being felt by the middle class and working class, so I think any issues that can raise their standard of living…will find a good hearing among those who campaigned for fair trade."

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