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Keeping Tabs on Trade Policy

Importers wait for impact of Obama Administration

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The campaign talk of President Obama might have morphed into a more politically pragmatic stance on trade policy, but in an area where small details can make expensive differences in supply chains, Wal-Mart Stores Inc. and other importers are still taking the measure of the White House.

This story first appeared in the April 28, 2009 issue of WWD.  Subscribe Today.

“We’re very much still reading the tea leaves for what the Obama administration is going to do on trade,” said Sarah Thorn, Wal-Mart’s director of international trade.

Obama sounded notes that were interpreted as hostile to trade last year, such as the potential renegotiation of the North American Free Trade Agreement, but Thorn said she was “fairly pleased” with the administration’s policy agenda for the area, released last month.

“It’s actually a fairly progressive approach to trade, that is open markets still matter, international trade still matters,” she said.

But trade policy as it relates to apparel and textile concerns is still a work in progress for the administration, which has yet to appoint a special textile negotiator or a chair for the Committee for the Implementation of Textile Agreements. New U.S. Trade Representative Ron Kirk did say last week any tweaks to the NAFTA agreement would likely be done without a full renegotiation of the pact, which reshaped economic relationships in North America.

Caroyl Miller, deputy textile negotiator in the USTR office, said Obama was focused on “making trade work for working American families.”

“Trade does not stand alone from our education policies, our polices related to the environment, our policies related to energy, our polices related to transportation,” Miller said. “This is all something that needs to be looked at as an integrated whole.”

Much of the trade policy that concerns the fashion industry is tied in some way to China, an economic and global powerhouse that is locked into a broader strategic dance with the U.S., which often creates an overlap in political agendas.

Thorn said Wal-Mart was closely watching the regulation of apparel imports from China, which after years of waiting began flowing into the U.S. completely quota free in January.

“The domestic textile industry is extremely nervous about this,” Thorn said. “They had spent a lot of time prior to the quotas coming off predicting that there were going to be surges in imports and slashed prices.”

Last month, the National Council of Textile Organizations said January apparel imports from China surged in categories that had been covered by quotas, as prices dropped by as much as 20 percent. China produces 34.5 percent of the apparel sent to the U.S. in volume terms.

Thorn’s reading of the import figures zeroed in on an overall drop in apparel shipments and a price increase, but she said there is validity to looking at the flow of trade on a category-by-category basis.

Should the domestic industry be successful in getting the administration to bring an antidumping, countervailing duty or other trade case against Chinese apparel imports, it is specific types of goods that would be impacted.

“As sourcing agents, watch your numbers coming from China,” Thorn said. “Make sure that you’re watching your categories and make sure you’re preparing. If you’re seeing monthly trends of prices declining and imports going up…you have to assume that you have a higher risk of some sort of government action.”

China’s currency policies, which critics say give producers in the country an unfair advantage by depressing the value of the yuan, continue to draw the ire of many, but the financial crisis could delay any retaliation. This month, the Treasury Department again decided to not label China a currency manipulator.

“The rhetoric and the tone on China’s currency has certainly changed in Washington, largely because they do hold $700 billion of our debt and they remind of us that frequently,” Thorn said.

In 2005 and 2006, Sens. Charles Schumer (D., N.Y.) and Lindsey Graham (R., S.C.) pushed legislation to impose a 27.5 percent tariff on Chinese imports if the country did not revalue the yuan.

If the temperature has come down on China’s currency, it’s only been turned up on safety issues, which also have a Chinese connection after the discovery of contaminated imports ranging from toothpaste to pet food.

Last year’s Consumer Product Safety Improvement Act has had unexpected consequences for the fashion industry. The legislation requires reductions in lead levels in all children’s apparel, footwear and toys, and defines children as 12 years old or younger.

“It’s had an enormous impact on our suppliers,” Thorn said, noting the company had pushed Congress for more time to implement the changes. “The attitude from the staff and certainly from the lawmakers was, ‘I don’t care, these are hazardous substances and they need to be out of the supply chain.’”

Already the legislation has complicated life for brands that have to certify their products are safe, said Mark Burstein, vice president of product life cycle management solutions at New Generation Computing Inc.

“The punishment for breaking this law could be millions of dollars in fines and prison,” said Burstein.

Many brands are managing their certificates of compliance manually, sending hosts of e-mails back and forth to various suppliers to keep track of laboratory results for details as small as painted buttons.

Burstein said the safety certificates should be managed along with other shipping information and advocated his company’s Web-based platform that helps keep all parties — from the factory to the brands — on the same page.

“This has to become part of a comprehensive sourcing strategy,” he said. “It can’t be stand-alone. It can’t be one person in your company who’s running it on their own laptop.”

 

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