WASHINGTON — Fashion firms pressing the Obama administration to make certain travel goods imports duty-free under a U.S. trade preference program said their arguments are supported by a new federal agency report analyzing the scope and size of the industry, imports and the U.S. market.
The Obama administration is weighing whether to give duty-free benefits to goods such as handbags, wallets and luggage to countries under the Generalized System of Preferences. As part of the process, the U.S. International Trade Commission issued a fact-finding report providing advice on the “likely impact on U.S. imports, competing U.S. industries and U.S. consumers of providing duty-free benefits to certain travel goods.”
In its review, the administration will weigh, among other things, the impact of lifting duties on imports on U.S. travel goods manufacturers against the benefits to U.S. companies that source the majority of those products aboard and to developing countries seeking to expand their market share in the categories.
Companies such as Coach Inc., Michael Kors, Tory Burch, VF Corp., Kate Spade, Ann Inc., REI and Columbia Sportswear have petitioned the government either individually or as part of coalitions for duty-free benefits on a broad array of travel goods under the trade preference programs and are awaiting a final decision from the Obama administration.
One travel goods manufacturer petitioned the government in opposition, stating it would negatively impact domestic producers. That company, Korchmar, a 99-year-old travel goods manufacturer based in Naples, Fla., said providing duty-free benefits to imported travel goods under GSP would have a negative impact on the domestic industry.
“There are over 20 companies actually manufacturing ‘like or directly competitive products in the USA’ that the suggested GSP modification will severely impact,” the owner of Korchmar, who was not identified in the ITC report, said in a public submission. “A new and re-growing U.S. manufacturing industry that is hiring and training Americans with a trade skill is and will be negatively impacted, resulting in the loss of U.S. jobs in this manufacturing sector.”
Expanding GSP to include travel goods will “eliminate duties on the largest producing Asian countries for travel goods just when our U.S. manufacturing industry is starting to recover from being devastated by Asian imports in the Eighties, Nineties and early Aughts,” it contended.
The owner of Korchmar said he has put further investment in U.S. facilities and hiring on hold.
Congress passed legislation last year that removed a 41-year-old statutory prohibition on travel goods under the GSP program that then allowed companies to petition the government to include imports of certain travel goods for duty-free treatment.
The GSP program provides duty-free benefits for more than 5,000 types of products from 122 designated countries and territories. While the entire GSP program does not cover most apparel and textile imports to the U.S., it does cover some accessories.
In most of the travel goods segments under review, the ITC found the existence of small numbers of U.S. makers of luggage, handbags and small leather goods, and a significant amount of imports, primarily from China.
In the case of handbags, for example, the agency estimated there are less than 50 U.S. producers that are “actively engaged” in the production of the product.
“Many of them are independent craftsmen who design and make higher-end luxury items for a niche market of U.S. consumers who either wish to buy American-made products or who want a custom-made, high-quality or artisan bag,” the ITC report said.
The agency said the broader leather goods and luggage manufacturing industry consists of about 4,400 U.S. businesses, many of which make their products in other countries.
“Some of these firms, such as Coach Inc., do not manufacture in the United States, but retain domestic design operations,” the report said. “U.S. domestic shipments of other leather and allied products totaled $1.4 billion in 2014. Most of the manufacturing in this sector has moved offshore to lower-cost countries.”
Many companies said they have tried to establish production facilities in the U.S., “but have failed because of high wage rates, a lack of skilled labor and scarce raw materials,” the report said.
Imports from China totaled $1.7 billion, accounting for 56 percent of total U.S. imports of those categories.
“Several U.S. buyers, retailers and importers expressed concern about their dependency on one supplier country and the exposure to risk this entails for their business,” the report said. “Therefore, most U.S. buyers stated they are exploring options to diversify their sourcing base for handbags and other travel goods beyond just China.”
The Philippines, India and Indonesia were the leading GSP-eligible suppliers of these articles in 2015.
“[The ITC report] reinforces all of the points the industry has been making from the beginning,” said Stephen Lamar, executive vice president at the American Apparel & Footwear Association. “There is very little domestic production…and most global production is concentrated in China, so the opportunity for duty-free access to all GSP countries creates an opportunity for sourcing diversification and for companies to reduce duty costs.”
An interagency panel is expected to issue its ruling and recommendation to the president for his determination by July 1.