Today, More Than Two Thirds Of All The Apparel Imported Into Japan Is From China


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Today, More Than Two Thirds Of All The Apparel Imported Into Japan Is From China

  1. 1. Customs and International Trade Update North Carolina World Trade Association Southern Pines, North Carolina September 17, 2004
  2. 2. Who Are Those Guys? <ul><li>Customs – now CBP – was organized in 1789 </li></ul><ul><li>Sheriff Pat Garrett and Herman Melville were customs officers </li></ul><ul><li>Always charged with “protecting the revenue” </li></ul><ul><li>More recently, CBP was merged into Homeland Security and assumed anti-terrorism responsibilities </li></ul>
  3. 3. The Main Characters <ul><li>Import specialists </li></ul><ul><ul><li>Local business contacts </li></ul></ul><ul><li>Inspectors </li></ul><ul><ul><li>Local uniformed officers </li></ul></ul><ul><li>Special agents </li></ul><ul><ul><li>Law enforcement officers; now in separate ICE </li></ul></ul><ul><li>Regulatory auditors </li></ul><ul><ul><li>Conduct focused assessments </li></ul></ul><ul><li>National import specialists </li></ul><ul><ul><li>Write rulings and advise ports </li></ul></ul><ul><li>Headquarters personnel </li></ul><ul><ul><li>Lawyers (also write rulings) and various administrators </li></ul></ul>
  4. 4. Security and Anti-Terrorism C-TPAT <ul><li>Several thousand companies now participate, as well as brokers, carriers, consolidators, intermediaries, terminals, and, most recently, selected foreign manufacturers (mostly North American and some selected others) </li></ul><ul><li>Participation somewhat more user friendly with revised security questionnaire and Executive Summary format </li></ul><ul><li>Participation is a condition of FAST, probably most important of the alleged benefits </li></ul><ul><li>We continue to advise that there is no downside, and that the right reason for participation is that for many companies it is the “right thing to do” to help in the country’s fight against terrorism </li></ul>
  5. 5. Security and Anti-Terrorism CSI <ul><li>On August 16, 2004, Tanjung Pelepas, Malaysia became the 25 th operational CSI port </li></ul><ul><li>CSI has four elements: </li></ul><ul><ul><li>Using intelligence and automated information to identify and target containers that pose a risk for terrorism </li></ul></ul><ul><ul><li>pre-screening those containers that pose a risk at the port of departure before they arrive at U.S. ports </li></ul></ul><ul><ul><li>using detection technology to quickly pre-screen containers that pose a risk </li></ul></ul><ul><ul><li>using smarter, tamper-evident containers </li></ul></ul>
  6. 6. Security and Anti-Terrorism Advance Manifest Transmission <ul><li>Requires advance manifest information to be transmitted to CBP electronically </li></ul><ul><ul><li>Air – Four hours (or “wheels up” for certain nearby areas) prior to U.S. arrival </li></ul></ul><ul><ul><li>Rail – Two hours prior to U.S. arrival </li></ul></ul><ul><ul><li>Vessel – 24 hours prior to lading at foreign port </li></ul></ul><ul><ul><li>Truck – 30 minutes (FAST), or one hour (non-FAST), prior to U.S. arrival </li></ul></ul>
  7. 7. Security and Anti-Terrorism Bio-Terrorism Rules for Food <ul><li>Interim final regulations became effective December 12, 2003, requiring advance electronic notice to FDA of incoming food shipments </li></ul><ul><li>FDA and CBP receive 160,000 prior notices per week </li></ul><ul><li>Enforcement began August 13, 2004, except for inaccurate registration numbers for manufacturers and shippers, inaccurate B/L numbers, and inaccurate name and address of ultimate consignee (where name and address of the express consignment operator or consolidator is used instead) </li></ul><ul><li>Final rule pushed back to June 2005 </li></ul>
  8. 8. Alternative Theories About 2005 <ul><li>The “you won’t feel a thing” theory </li></ul><ul><li>The nuclear waste theory </li></ul><ul><li>The Richard Gephart/Pat Buchanan theory </li></ul><ul><li>The tsunami theory </li></ul>
  9. 9. How Did We Get Here? <ul><li>The quota system, in place in various forms since 1957 </li></ul><ul><li>The Multi Fiber Agreement, in place since 1973 </li></ul><ul><li>The Agreement on Textiles and Clothing, which provided the 10-year integration schedule that ends this year </li></ul><ul><li>Monkey business </li></ul>
  10. 10. Monkey Business <ul><li>According to ITCB: </li></ul><ul><ul><li>out of 937 quotas applied by the U.S. against WTO member countries, it has phased out only 103 quotas to date </li></ul></ul><ul><ul><li>U.S. integration for Stages One through Three accounted for less than 20 percent of trade </li></ul></ul><ul><li>The remaining 80 percent has been “backloaded” for integration on the last day of 2004 </li></ul>
  11. 11. What Have Quotas Accomplished? <ul><li>They were supposed to protect American workers and industry, and provide “transition” for U.S. industry to diversify or become more competitive </li></ul><ul><li>Some say quotas saved businesses and jobs </li></ul><ul><li>Others say quotas kept U.S. textile workers in low paying jobs making goods that could be made more cheaply overseas, rather than finding more productive things for those workers to do </li></ul>
  12. 12. Odd Quota Effects <ul><li>Chased garment production to unlikely venues (U.A.E., Nepal, etc.) </li></ul><ul><li>Spawned bizarre “transshipping” problems </li></ul><ul><ul><li>Seizures, liquidated damages, penalties, criminal prosecutions </li></ul></ul><ul><ul><li>180-day conditional release, “aggravation” of penalties, blacklists </li></ul></ul><ul><ul><li>Byzantine origin rules </li></ul></ul><ul><ul><li>Jump teams, detentions, demands for detailed origin records </li></ul></ul>
  13. 13. China as the Monster <ul><li>The Economist recently reported that the World Bank estimates that China’s share of world garment production will increase from 20 to 50 percent in five years </li></ul><ul><ul><li>“ Is the wakening giant a monster?” The Economist (February 13, 2003) </li></ul></ul>
  14. 14. The Japanese Model <ul><li>Japan has no quotas </li></ul><ul><li>Today, more than two-thirds of all the apparel imported into Japan is from China </li></ul><ul><li>Maybe proximity has something to do with it, but the signal is that China is the most successful competitor for the Japanese apparel market </li></ul>
  15. 15. Clues on Where the Trade May Go <ul><li>Current quota utilization – which countries are using up all their existing quota now, and which ones aren’t? </li></ul><ul><ul><li>The former may be contenders, the latter may not </li></ul></ul><ul><li>Which countries have successfully exploited previously integrated classifications ( e.g. , knit fabric, dressing gowns, brassieres, luggage) </li></ul>
  16. 16. Percent Change in SMEs of US Imports of Open Quota Apparel Categories, Year Ended June 2004 from Year Ended June 2003 <ul><li>Bangladesh (17.85) </li></ul><ul><li>China 62.49 </li></ul><ul><li>Costa Rica (14.27) </li></ul><ul><li>Dominican </li></ul><ul><li>Republic 6.03 </li></ul><ul><li>Guatemala 7.78 </li></ul><ul><li>Source: International Development Systems, Inc. </li></ul><ul><li>Honduras (3.85) </li></ul><ul><li>India 6.73 </li></ul><ul><li>Mexico (9.48) </li></ul><ul><li>Nicaragua 8.90 </li></ul><ul><li>Vietnam 143.80 </li></ul>
  17. 17. Clues on Where the Trade May Go <ul><li>Which countries offer the best mix of the “right” sourcing ingredients? </li></ul><ul><ul><li>Inexpensive, reliable labor </li></ul></ul><ul><ul><li>Convenient access to inexpensive fiber </li></ul></ul><ul><ul><li>Sufficient infrastructure ( e.g. , roads, rail system, ports) </li></ul></ul><ul><ul><li>Reasonable government and legal system </li></ul></ul><ul><ul><li>Political and economic stability </li></ul></ul>
  18. 18. Clues on Where the Trade May Go <ul><li>Countries that not only offer favorable conditions, but also maintain a critical mass of viable sources </li></ul><ul><ul><li>Trained sewing machine operators, sewing supervisors, mechanics, managers </li></ul></ul><ul><ul><li>Trim and packaging suppliers </li></ul></ul><ul><ul><li>Equipment and parts </li></ul></ul><ul><ul><li>Frequent/adequate carrier service </li></ul></ul>
  19. 19. Clues on Where the Trade May Go <ul><li>How about regional preference programs – CBTPA, ATPDEA, AGOA, CAFTA, and FTAA? </li></ul><ul><li>Too little too late? Too restrictive on inputs? Too much paperwork and administrative burden? </li></ul><ul><li>Consider CAFTA – details about yarn forward, short supply, cumulative inputs, and ill fated TPLs were debated and rumored until the agreement was finally signed last December, and the President still hasn’t presented adopting legislation to Congress – while the Asian giant bides its time </li></ul>
  20. 20. Textile Safeguards <ul><li>The Accession Agreement </li></ul><ul><ul><li>WTO members can introduce “transitional safeguard measures” (quotas!) against China’s textiles and apparel until December 31, 2008 </li></ul></ul><ul><ul><li>Safeguards are allowed if Chinese textile and apparel, “due to market disruption, threaten to impede the orderly development of trade in those products </li></ul></ul>
  21. 21. Textile Safeguards <ul><li>The Accession Agreement requires a party seeking this relief to notify China and request consultations – no notification to the WTO is required </li></ul><ul><li>On receipt of the request, China must limit shipments to no more than 7.5 percent (6 percent for wool articles) above the first 12 of the 14 most recent months </li></ul><ul><li>Consultations must be held in 30 days, and the parties will try to agree within 90 days, after the request </li></ul><ul><li>The resulting limit is effective from the date of request to the next December 31 (or 12 months from the request if it was made less than 3 months before year-end) </li></ul>
  22. 22. Textile Safeguards <ul><li>The Committee for the Implementation of Textile Agreements (CITA) promulgated guidelines in May 2003 allowing domestic persons to request safeguard relief </li></ul><ul><li>A request can be filed by an “entity” (trade association, firm, union, or worker group) representing (A) domestic producer(s) of a competitive product, or (B) domestic producer(s) of a component used in a competitive product </li></ul>
  23. 23. Textile Safeguards <ul><li>The request by a domestic person for action by CITA is supposed to contain: </li></ul><ul><ul><li>Product descriptions of the imported product and the domestic product or component </li></ul></ul><ul><ul><li>Five years of import data about the imported product </li></ul></ul><ul><ul><li>Five years of production data about the domestic product or component </li></ul></ul><ul><ul><li>Five years of market share data showing China imports, all imports, and domestic production as percentages of the domestic market </li></ul></ul>
  24. 24. Textile Safeguards <ul><li>If CITA finds a request to be in order, it must publish a notice requesting public comments </li></ul><ul><li>The comment period lasts 30 days </li></ul><ul><li>CITA must, within 60 days, publish either a determination or a notice of the date by which it will reach a determination </li></ul><ul><li>If it makes an affirmative determination, it will notify China that it is requesting consultation </li></ul>
  25. 25. Textile Safeguards <ul><li>Significantly, the CITA regulations state the following: </li></ul><ul><ul><li>“The committee may, on its own initiative, consider whether imports of Chinese origin textile and apparel products are, due to market disruption, threatening to impede the orderly development of trade in these products” </li></ul></ul><ul><li>CITA doesn’t need a request from interested parties – it can initiate safeguards all by itself </li></ul>
  26. 26. Textile Safeguards <ul><li>Actions taken: </li></ul><ul><ul><li>Brassieres </li></ul></ul><ul><ul><li>Dressing gowns </li></ul></ul><ul><ul><li>Knit fabric </li></ul></ul><ul><li>Action pending </li></ul><ul><ul><li>Socks </li></ul></ul><ul><li>These categories were integrated in 2002 </li></ul><ul><li>The requests are seen as the “test” for many more to come </li></ul>
  27. 27. What Safeguards Should We Expect? <ul><li>Cotton classifications generally </li></ul><ul><li>Cotton trousers </li></ul><ul><li>Woven and knit shirts and blouses </li></ul><ul><li>Made ups, such as sheets, towels, etc. </li></ul><ul><li>Any categories that fill </li></ul>
  28. 28. Will Safeguards Be Effective Immediately in 2005? <ul><li>Plenty of people would like to see quotas extended </li></ul><ul><ul><li>Turnaround specialist and new Burlington owner Wilbur Ross went to China and asked for three more years </li></ul></ul><ul><ul><li>The Istanbul Declaration </li></ul></ul><ul><ul><li>Request for talks by Mauritius, Bangladesh, Nepal, Lesotho, the Dominican Republic, Turkey and Sri Lanka in Geneva WTO ministerial (opposed by China, Hong Kong, India, Brazil, Egypt, Indonesia, Pakistan and Thailand) </li></ul></ul><ul><li>Domestic interests could ask for safeguards this summer </li></ul><ul><li>Request plus 30 day comment period plus 60 day deliberation equals 90 days – they could ask as late as October 1 </li></ul>
  29. 29. Prospects for Early Safeguard Requests <ul><li>How can there be market disruption for commodities that have been the subject of quotas for the last 30 years? </li></ul><ul><li>Proponents would have to argue that there is potential market disruption </li></ul><ul><li>The Administration has discouraged action based on “potential” disruption </li></ul>
  30. 30. Prospects for Later Safeguard Requests <ul><li>Put it in the bank! </li></ul><ul><li>After a surge of Chinese imports in early 1995, it would be far easier to claim market disruption </li></ul><ul><li>But the longer the industry waits, the larger will be the base of import volume which, increased by 7.5 percent, becomes the limit for the safeguard period </li></ul>
  31. 31. How Will China React? <ul><li>Negotiate global quotas? </li></ul><ul><ul><li>Fat chance! </li></ul></ul><ul><li>Don’t underestimate the probability of an angry reaction </li></ul><ul><ul><li>China waited a long time for this access, and conceded a lot in the accession agreement </li></ul></ul><ul><ul><li>WTO complaint </li></ul></ul><ul><ul><li>Retaliation </li></ul></ul>
  32. 32. Carry Forward Shenanigans <ul><li>Denial of carry forward </li></ul><ul><ul><li>Carry forward allows exporting countries to borrow up to six percent of next year’s quota for the current year </li></ul></ul><ul><ul><li>17 countries asked the WTO to “take steps to ensure that there is no diminution of quota access … on account of quota carry forward in 2004” </li></ul></ul><ul><ul><li>The request has fallen on deaf US ears – no carry forward relief is forthcoming </li></ul></ul>
  33. 33. Visa Issues <ul><li>Will the United States still require China visas for goods that leave China in 2004 and arrive in the United States in 2005, or, better yet, will they allow entries in 2005 of goods shipped in 2004 with 2004 visas? </li></ul><ul><ul><li>Yes, they will require those visas </li></ul></ul><ul><ul><li>Yes, they will allow entry (but beware; in the late 1980s, CITA claimed the right to require “staging,” over several months, of the previous year’s overflow, and actually required staging of certain textile products in one year) </li></ul></ul>
  34. 34. Price Deflation <ul><li>When apparel goes off quota, will prices drop? How far? </li></ul><ul><li>Reports are anywhere from 10 to 30 percent </li></ul><ul><li>Production of key items in Central America, duty free, barely competes now </li></ul>
  35. 35. Price Deflation <ul><li>Will anyone in the distribution chain (factory, middleman, wholesaler, retailer) hold on to the savings? </li></ul><ul><li>J.C. Penney officials have predicted overall clothing costs for American consumers could drop between 8 percent and 18 percent </li></ul><ul><li>Wal-Mart spokesman said the discounter's shoppers wouldn't notice that much of a difference </li></ul><ul><li>Chinese factories and U.S. retailers both talk about improving the quality of garments, or adding extra make detail, while holding prices – but will they? </li></ul>
  36. 36. Cancun <ul><li>Mexico’s foreign minister and Cancun’s chairman, Luis Ernesto Derbez, pulled the plug and adjourned the talks last summer to end disastrous negotiations </li></ul><ul><li>The talks were supposed to focus on the four “Singapore issues” (competition, government procurement, investment, and trade facilitation) but they fell apart for different reasons </li></ul>
  37. 37. What Went Wrong? <ul><li>The G-21 (or whatever the number), led by Brazil, India, and China, wanted greater commitment from the developed countries to cut agriculture subsidies </li></ul><ul><li>The developed countries wanted more tariff reduction commitment from developing countries </li></ul>
  38. 38. Ominous Tensions <ul><li>Cancun reflected ill will between southern and northern (developing and developed) states </li></ul><ul><li>The developing states asked, why shouldn’t we enjoy protection like you did 100 years ago? </li></ul><ul><li>Ironically, the developing states charge most of their duties against each other, and would benefit most from tariff reductions </li></ul>
  39. 39. Subsidy Shenanigans <ul><li>US and European subsidies are huge, effectively wiping out export competition in the undeveloped world </li></ul><ul><li>Undeveloped states were outraged </li></ul>
  40. 40. Geneva <ul><li>But the Geneva negotiations, concluded July 31 this year, offer more promising prospects </li></ul><ul><ul><li>Greater substance to promises by the US and Europe about reducing agriculture subsidies – particularly the trade distorting domestic subsidies (as distinguished from export subsidies) </li></ul></ul><ul><ul><li>Greater commitment by undeveloped countries to tariff cuts, although there are a lot of exceptions </li></ul></ul>
  41. 41. More from Geneva <ul><li>Agreed to talk about simplifying customs procedures </li></ul><ul><li>This is no small matter </li></ul><ul><li>Clearance in Guatemala, for example, can take several days, compared with as little as half an hour in the US </li></ul>
  42. 42. Geneva Disappointments and Concerns <ul><li>Too much slack and exceptions for developing countries </li></ul><ul><li>No much to say about services – formerly held more promise </li></ul><ul><li>Pascal Lamy, Europe’s influential trade minister, will leave office this fall </li></ul><ul><li>US’ Robert Zoellick may leave even if Bush is re-elected </li></ul>
  43. 43. Prospects? <ul><li>If Kerry wins, look out for less enthusiasm, and more emphasis on labor and environmental concerns </li></ul><ul><li>TPA expires in mid 2005, and either Kerry or Bush could have a hard time getting it reinstated </li></ul><ul><li>Watch for Hong Kong ministerial, to be held in December 2005 </li></ul>
  44. 44. Jonathan M. Fee Alston & Bird LLP 601 Pennsylvania Avenue, N.W. North Building, 9th Floor Washington, D.C. 20004 202 756 3387; fax 202 756 3333 [email_address]