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United States Trade Policy Update – and the impact on NAFTA and TPP

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United States Fashion Industry Association (USFIA) President Julie Hughes will provide an update on the key issues and developments in the U.S. trade policy, including NAFTA re-negotiation, European free trade and other current or pending free trade agreements.

The past year has seen a high level of activity on the trade policy front with existing trade arrangements under fire (NAFTA), pending agreements being disrupted (TPP) and important new agreements (CETA) coming into force and other policy issues from the perspective of the United States.

If your company imports or exports apparel or is affected by changing import and export patterns this is a talk you will want to see.

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United States Trade Policy Update – and the impact on NAFTA and TPP

  1. 1. U.S. TRADE POLICY UPDATE: IMPACT ON NAFTA, TPP … & BUSINESS Presented By: Julia K. Hughes, President United States Fashion Industry Association (USFIA) August 20, 2018 www.ApparelTextileSourcing.com/canada/ UNITED STATES FASHION INDUSTRY ASSOCIATION
  2. 2. 1 About the United States Fashion Industry Association USFIA Members & Affiliates include… • Brands, retailers, importers, and wholesalers of apparel, textiles, footwear, accessories, travel goods, home products, and other fashion products • Service providers, including customs brokers, freight forwarders, law firms, logistics providers, steamship lines, and testing and certification companies • Manufacturers and suppliers of finished products and inputs • Supplier associations, business councils, and promotional groups and agencies • Academic institutions
  3. 3. 2 The New U.S. Trade Policy Trade Policy in the Trump Administration • Let’s look beyond the campaign trail rhetoric and see what the new Administration has said and done in the first twenty months in office. • During the first year, the trade policy debate was “ferocious” between the “globalists” and the “protectionists.” • Who are the key decisionmakers today?
  4. 4. 3 Trade Policy in the Trump Administration – Cabinet Robert Lighthizer Wilbur Ross Steven Mnuchin United States Trade Representative Secretary of Commerce Secretary of the Treasury
  5. 5. 4 Trade Policy in the Trump Administration – White House Peter Navarro Director of the White House National Trade Council Larry Kudlow Director of the National Economic Council
  6. 6. 5 Trade Policy in the Trump Administration What has the Trump Administration done so far on trade? • Withdrew from the Trans-Pacific Partnership (TPP) • Five Executive Orders and four Presidential Memoranda on trade • Renegotiation of key Free Trade Agreements • New trade actions and retaliation starting in 2018
  7. 7. 6 President Trump’s Authority on Trade Statute Presidential Powers NAFTA Implementation Act of 1993 May terminate agreement with six months notice. Ability to proclaim a return to most-favored-nation tariffs on imports from Canada and Mexico. Ability to proclaim additional duties following consultations with Congress. International Emergency Economic Powers Act of 1977 Regulation of all forms of international commerce, including the power to freeze all kinds of foreign-owned assets, if the President declares a “national emergency” with respect to a foreign threat Trade Act of 1974, Section 122 Imposition of tariffs up to 15%, quantity restrictions, or both, for up to a 150-day period, when large US payment deficits exist, or to prevent a significant depreciation of the dollar Trade Act of 1974, Section 301 Ability to take retaliatory actions (e.g., tariffs and quotas) against any country that violates or otherwise denies benefits under any trade agreement with the United States Trade Expansion Act of 1962, Section 232(b) Ability to take action (e.g., impose tariffs or quotas) against imports to mitigate a threat to or impairment of national security when the Secretary of Commerce finds certain imports to impose such a threat Tariff Act of 1930, Section 338 Provides broad authority to raise tariffs and block imports in situations where the President determines that a foreign country has unfairly affected commerce in the United States.  Trading with the Enemy Act of 1917 Regulation of all forms of international commerce, including the power to freeze all kinds of foreign-owned assets, during a time of war
  8. 8. 7 US Section 301 Tariff Measures on Chinese Products List 1 Products that generally fall into the technology sector and cut across the aerospace, information and communications technology, robotics, industrial machinery, and automotive industries (818 Tariff lines) July 6, 2018 25% on $34 billion annual trade value Exclusion instructions published in July. Deadline in October. List 2 Products principally identified under China’s “Made in China 2025” policy (279 Tariff lines) August 23, 2018 25% on $16 billion annual trade value Public hearing in July. Exclusion process TBD. List 3 Many products including consumer items such as headwear, leather apparel, handbags, luggage, gloves, and furniture. (6031 Tariff lines) TBD 10% or 25% on $200 billion annual trade value Public hearing August 20-27. Exclusion process TBD. Affected products Effective date Tariff rate Process
  9. 9. 8 Trade Policy in the Trump Administration What has the Trump Administration done so far on trade? • Self-initiation of Section 232 cases to safeguard the U.S. economic national security: steel and aluminum • As of August 7, U.S. raised more than $2 billion in new tariffs • The biggest trade decision yet – and the potential to ignite a global trade war. 232 case on autos
  10. 10. 9 Trade Policy in the Trump Administration What has the Trump Administration done so far on trade? • 301 Case on Chinese practices related to forced technology transfers, unfair licensing requirements and IPR Violations. This has the potential for the highest penalties and biggest retaliation. • As of August 7, raised $477 million • “ We have a very big IP potential fine going, which is going to come out soon.”
  11. 11. 10 Trade Policy in the Trump Administration What has the Trump Administration done so far on trade? • 301 Case on Chinese practices related to forced technology transfers, unfair licensing requirements and IPR Violations. • Penalties focused only on China and the proposed retaliation lists contains many types of products.
  12. 12. 11 Trade Policy in the Trump Administration Section 232 “National Security” Steel & Aluminum Section 301 “IP Theft” Intermediate/Capital Goods US imposes $34b on July 6 $16b proposedChina retaliates $34b on July 6 US imposes $2.8b on March 23 China retaliates $2.4b on April 2 1 2 3 4 5 US counter- retaliates $200b on July 10 Pledges $16b retaliation
  13. 13. 12 Trade Policy in the Trump Administration What has the Trump Administration done so far on trade? • Bloomberg News highlights the potential for major impact from the 301 case. • “Chinese manufacturers won’t be the only ones hurt in a trade was, as their close relationships as suppliers to American brands will likely create a ripple effect.”
  14. 14. 13 Trade Policy in the Trump Administration Bloomberg News “Trump’s China levy threat puts Walmart, Nike suppliers on notice”
  15. 15. 14 Trade Policy in the Trump Administration Bloomberg News “Trump’s China levy threat puts Walmart, Nike suppliers on notice”
  16. 16. 15 Trade Policy in the Trump Administration What has the Trump Administration done so far on trade? • Began official re-negotiation of NAFTA with the goal to finish by the end of 2017. Still talking in August 2018 BUT rumors that there will be a deal soon. “I personally don't think you can make a deal without a termination but we're going to see what happens. Okay? You're in good hands, I can tell you.”
  17. 17. 16 NAFTA Renegotiation “A lot of people don't realize how good it would be to terminate NAFTA because the way you're going to make the best deal is to terminate NAFTA” President Donald Trump to Reuters Jan 17, 2018
  18. 18. 17 NAFTA Renegotiation
  19. 19. 18 Trade Update from Deputy USTR Jeffrey Gerrish 
 at CBP 2018 Trade Symposium • “Our trade agenda is driven by a pragmatic determination to use the leverage available to the world’s largest economy to open markets, obtain more efficient global markets, and receive fairer treatment for American businesses and workers.” • “This is certainly true in our ongoing renegotiation of the North American Free Trade Agreement where we are seeking to have Mexico and Canada offer treatment that is reciprocal to our world-leading customs service and border procedures. In the NAFTA renegotiations, we have called on Mexico and Canada to increase transparency, simplify processes, and ensure a high level of integrity and fairness.”
  20. 20. 19 Tariffs
  21. 21. 20 Tariffs
  22. 22. 21 Trade Policy in the Trump Administration What has the Trump Administration done so far on trade? • Re-negotiation of the U.S.-Korea Free Trade Agreement • Less media coverage than the NAFTA talks but still the potential to start a trade war
  23. 23. 22 Trade Policy in the Trump Administration 2018 Trade Policy Agenda Introduction to the 2018 Trade Policy Agenda “In 2016, President Trump told Americans, “Ladies and Gentlemen, it’s time to declare our economic independence once again.” Less than two years later, the Trump Administration has begun fulfilling that promise.”
  24. 24. 23 NAFTA at the August 16 Cabinet Meeting Trump Lighthizer
  25. 25. 24 Trade Policy in the Trump Administration What’s Next? • More trade restrictions based on National Security concerns (Section 232) • More trade enforcement measures • More self-initiated trade remedy cases • Uncertain future for the World Trade Organization • New FTAs: – with the United Kingdom (after Brexit) – with Asia – Japan? the Philippines? – with Africa
  26. 26. 24 Trade Policy in the Trump Administration What’s Next? • Potential for additional import duties – Reciprocal Taxes “When a country Taxes our products coming in at, say, 50%, and we Tax the same product coming into our country at ZERO, not fair or smart. We will soon be starting RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!”
  27. 27. 26 Trade Policy in the Trump Administration
  28. 28. 27 Trade Policy in the Trump Administration Options for Expanded Protection • Self-Initiation of Trade Remedy Cases • Section 201 Safeguards (a global safeguard) – Solar panels – Washing machines (except Canada) – As of August 7, raised more than $263 million
  29. 29. 28 Trade Policy in the Trump Administration Focus on China “ Under President Trump’s leadership, we will use all available tools to discourage China – or any country that emulates its policies – from undermining true market competition. … In short, our trade policy – like our national security policy – will seek to protect U.S. national interests.”
  30. 30. 29 Trade Policy in the Trump Administration
  31. 31. 30 Key Findings from USFIA’s 2018 Benchmarking Study About the Benchmarking Study • Based on a survey of 28 executives at leading U.S. fashion companies (76% with 1,000+ employees; 20% with 101-999 employees; 4% with <100 employees) from April to May 2018. • Respondents represent various business types in the U.S. fashion industry: retailers, brands, importers/wholesalers and manufacturers. • Survey covers three topics: ➢Business environment and outlook ➢Sourcing practices ➢Viewpoints on trade policy related to the fashion industry
  32. 32. 31 Issue 1: Business Environment
 Top business challenges in 2018 ❖ Top challenge in 2018: “Protectionist trade policy agenda in the United States” Trump Administration’s Trade Record in 2018 • Section 301 action against China • Section 232 action on steel and aluminum • New Section 232 investigation on automobiles • Section 201 for washing machines and solar cells • Uncertain future of NAFTA … Uncertainty…
  33. 33. 32 Issue 1: Business Environment
 Top business challenges in 2018 ❖ The pressure of “increasing production or sourcing cost” is coming back this year (#3 top challenge in 2018)
  34. 34. 33 Issue 1: Business Environment
 Top business challenges in 2018
  35. 35. 34 Issue 1: Business Environment
 Respondents’ five-year outlook for the fashion industry
  36. 36. 35 Trade Policy in the Trump Administration • The best since 2014: 100 percent of respondents this year say they plan to hire more employees in the next five years • Positions most likely to increase hiring: 1. Market analysts 2. Data scientists 3. Sustainability/compliance related specialists or managers 4. Supply chain specialists • Positions least likely to increase hiring: Sewing machine operators General management administration
  37. 37. 36 Trade Policy in the Trump Administration • Respondents report sourcing from 51 countries or regions in 2018, the same as in 2017. • 8 out of the top 10 sourcing destinations are based in Asia #1 China (100%), covered from 91% in 2017 #2 Vietnam (96%), a new record high #3 Indonesia (79%) #4 India (75%) #5 Bangladesh (75%) #9 Mexico (50%) #10 USA (46%) • Almost all leading sourcing destinations in Asia are with a higher utilization rate in 2018 • Sourcing from the Western-Hemisphere is growing in popularity, including members of NAFTA and CAFTA-DR
  38. 38. 37 Issue II: Sourcing Practices Sourcing Base Larger companies (1,000+ employees) continue to use a more diversified sourcing base Respondents with less than 1,000 employees are actively diversifying their sourcing base
  39. 39. 38 Issue II: Sourcing Practices Sourcing Base “China Plus Vietnam Plus Many” is the most popular sourcing model, and it is evolving “China” • Gradually shifts from 30-50 percent of a company‘s sourcing portfolio to “11-30 percent” “Vietnam” • Typically accounts for 11-30 percent of a company‘s sourcing portfolio “Many” • Include the United States, North America, South & Central America, Africa, and Europe • Each typically accounts for <10 percent of a company‘s sourcing portfolio
  40. 40. 39 Issue II: Sourcing Practices Sourcing Base
  41. 41. 40 Issue II: Sourcing Practices Rating of Sourcing Base Strength Average Weakness Most balanced: Vietnam China Mexico CAFTA-DR
  42. 42. 41 Issue II: Sourcing Practices Source in Socially Compliant & Sustainable Ways
  43. 43. 42 Issue II: Sourcing Practices Source in Socially Compliant & Sustainable Ways
  44. 44. 43 Issue II: Sourcing Practices Source in Socially Compliant & Sustainable Ways
  45. 45. 44 Issue II: Sourcing Practices Source in Socially Compliant & Sustainable Ways 100 percent audit; 96.3 percent use third-party certification program
  46. 46. 45 Issue II: Sourcing Practices Source in Socially Compliant & Sustainable Ways
  47. 47. 46 Issue II: Sourcing Practices Source in Socially Compliant & Sustainable Ways Brands and retailers overall conduct more comprehensive audits No clear pattern between the size of the company and the scope of audit
  48. 48. 47 Issue II: Sourcing Practices Emerging Sourcing Trend Keeping a relatively diverse sourcing base will remain a key element of U.S. fashion companies’ sourcing strategy in the next two years. • Only 10 percent plan to consolidate their sourcing base(i.e., source from less countries and work with less suppliers.) • Close to 80 percent plan to source from the same number of countries or more countries. • Respondents are equally divided regarding whether to increase (54 percent) or decrease (46 percent) the number of suppliers they will work with
  49. 49. 48 Issue II: Sourcing Practices Emerging Sourcing Trend 67 percent plan to somewhat decrease sourcing from China, a significant increase from 46 percent in 2017
  50. 50. 49 Issue II: Sourcing Practices Emerging Sourcing Trend Cost concern may not be the most critical factor that drives U.S. companies to source less from China
  51. 51. 50 Issue II: Sourcing Practices Emerging Sourcing Trend Respondents appear to be more optimistic about the prospect of sourcing from Vietnam over the next two years. Nevertheless, still very few respondents plan to substantially increase apparel sourcing from Vietnam
  52. 52. 51 Issue II: Sourcing Practices Emerging Sourcing Trend
  53. 53. 52 Issue II: Sourcing Practices Emerging Sourcing Trend Respondents express more interest in expanding sourcing from Bangladesh in the next two years as companies are actively seeking China’s replacements. Respondents still regard “risk of compliance” a notable weakness of Bangladesh
  54. 54. 53 Issue III: Trade Policy Utilization of FTAs FTA overall remain underutilized for sourcing As an encouraging sign, the utilization rates of NAFTA (65 percent), CAFTA-DR (58 percent) and AGOA (50 percent) reached 50% this year.
  55. 55. 54 Issue III: Trade Policy Utilization of FTAs
  56. 56. 55 Duty-Free Apparel Imports Are Underutilized NAFTA and CAFTA represent 76% of the duty-free apparel imports
  57. 57. 56 Issue III: Trade Policy Usage of Exceptions to the Yarn-Forward Rules of Origin Respondents also say they use the exceptions to the “yarn- forward” RoO mostly when importing under CAFTA-DR and NAFTA.
  58. 58. 57 Issue III: Trade Policy Usage of Exceptions to the Yarn-Forward Rules of Origin Barriers that prevent U.S. fashion companies from using the exceptions more often: 68.4 percent: We do not use the short supply list mechanism because the list is too limited (i.e., not enough products on the list). 21.1 percent: We do not use the short supply list mechanism because the documentation requirements are too complicated. 26.7 percent: We do not use cumulation because we are not familiar with the rule.
  59. 59. 58 Issue III: Trade Policy Trade Policy Priorities Respondents predominantly support the policy initiatives to eliminate trade barriers of all kinds
  60. 60. 59 Issue III: Trade Policy Trade Policy Priorities Respondents predominantly support the policy initiatives to eliminate trade barriers of all kinds
  61. 61. 60 Issue III: Trade Policy Trade Policy Priorities More divided policy issues among respondents
  62. 62. 61 Sourcing Trends for 2018 Do No Harm To NAFTA Barriers that prevent U.S. fashion companies from using the exceptions more often: Many respondents say the North American Free Trade Agreement (NAFTA) is important to their business. “NAFTA is VERY IMPORTANT. We own a factory in Mexico that uses NAFTA eligibility to keep our cost low.” “(NAFTA) is important to support speed initiatives.” “NAFTA re-negotiations are a concern for our industry, especially with any precedence that is set.”
  63. 63. 62 Sourcing Trends from 2016 and 2017 • 2016 was a difficult year with declines in most imports: – Apparel -1% – Fabric +5% – Made-Ups -4% – Yarn -5% • 2017 was better for U.S. imports but apparel imports are steady: – Apparel 0.79% – Fabric -2% – Made-Ups 4% – Yarn 10%
  64. 64. 63 Sourcing Trends for 2018 • The first six months of 2018 were strong for all imports: – Apparel 1.22% – Fabric 6.53% – Made-Ups 6.74% – Yarn 8.91%
  65. 65. 64 Top 2017 Apparel Suppliers Rank Country Million SME Million $ % Share % Growth 1 China 11,365.24 27,649.58 41.9 1.8 2 Vietnam 3,601.85 11,560.18 13.2 7.4 3 Bangladesh 1,854.23 5,067.96 6.8 -0.3 4 Indonesia 1,228.72 4,565.92 4.5 -2.9 5 India 1,064.74 3,682.19 3.9 1.9
  66. 66. 65 Top 2018 Apparel Suppliers – YTD Rank Country Million SME Million $ % Share % Growth 1 China 4,844.436 11,276.229 37.44 -0.83 2 Vietnam 1,838.751 5,724.742 14.21 3.33 3 Bangladesh 1,005.472 2,702.272 7.77 4.23 4 Indonesia 619.043 2,245.128 4.79 -5.43 5 India 595.271 2,075.060 4.60 2.38
  67. 67. 66 Sourcing Outlook China Remains The Dominant Supplier • 48% of U.S. total textile and apparel imports continue to come from China. • 41% of U.S. apparel comes from China. • Even with shifts in sourcing patterns, no other country challenges China.
  68. 68. 67 Sourcing Outlook China Remains The Dominant Supplier
  69. 69. 68 Sourcing Outlook China Remains The Dominant Supplier
  70. 70. 69 Sourcing Outlook Vietnam Continues To Grow • Vietnam remains the third-largest supplier of textiles and apparel combined, and ranks second for apparel. • Vietnam supplies 8% of total imports, and 13% of apparel. • Even without TPP, Vietnam market share continues to grow.
  71. 71. 70 Sourcing Outlook Economic Trends Affecting American Brands and Retailers • Store closings • Expanding e-commerce • Global uncertainty and risk
  72. 72. 71 What Is the Outlook for 2018 and Beyond? Uncertainty • Political and Economic challenges and volatility will continue to influence companies and consumers Positive Outlook from the C-suite • In the PwC Global CEO Survey, a majority of CEOs are optimistic that global economic growth will “improve” during the next year.
  73. 73. 72 What Is the Outlook for 2018 and Beyond?
  74. 74. 73 What Is the Outlook for 2018 and Beyond? CEOs are more optimistic in the U.S.
  75. 75. 74 What Is the Outlook for 2018 and Beyond? Top Investment Destinations are the U.S. and China
  76. 76. 75 RESOURCES Julia K. Hughes, President United States Fashion Industry Association (USFIA) www.usfashionindustry.com 2018 Seminars See More Seminars from the ATSC 2018 Show: ApparelTextileSourcing.com/ Canada/Sessions UNITED STATES FASHION INDUSTRY ASSOCIATION
  77. 77. First Link In Your Supply Chain Sourcing | Wholesale | B2B eCommerce www.ApparelTextileSourcing.com

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