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Washington Outlook Archive

Trade Issues Set Aside By Congress, Administration

James A. Morrissey, Washington Correspondent

W ith Congress and President Barack Obama focusing almost entirely on the economy, healthcare and environmental reform, many other issues of particular importance to the textile industry such as international trade issues and the Employee Free Choice Act are on the back burner for the time being.

What About China?
Although a number of congressional leaders, President Obama and top cabinet trade officials have pledged a crackdown on what they believe are illegal trade practices by China, they have softened their rhetoric and backed off at least for now on some proposals. China owns so much US government debt, this is not a very good time to pick a fight and face some form of retaliation. China also is working with the United States in efforts to overcome the global economic crisis.

Following a series of recent meetings with Chinese officials in Beijing, Treasury Secretary Timothy Geithner emphasized the importance of cooperation and diplomacy and said the United States and China are working together to "shape a strong global strategy to contain the global crisis and lay the foundation for recovery." He made only a passing reference to the Chinese currency issue, which many US manufacturers say amounts to an illegal subsidy for its exports to the United States. Geithner simply said the government of China must continue its progress toward "a more flexible exchange rate regime." There was no mention of currency legislation pending in Congress or any plans to take action with the World Trade Organization (WTO) or make greater use of US anti-dumping and countervailing duty laws.

In the meantime, a bipartisan group of House and Senate members has introduced the Currency Reform for Fair Trade Act, which would allow injured US manufacturing industries to seek offsetting duties under US trade remedy laws. It states that currency manipulation occurs when a foreign government engages in protracted, large-scale intervention in exchange markets so that currency is under- or overvalued by at least 5 percent over 18 months. The legislation is backed by the Fair Currency Coalition, which includes a number of textile lobbying groups.

The administration also is putting off seeking congressional approval for three free trade agreements (FTAs) negotiated by the Bush administration. Even though President Obama said at a recent summit of the Americas that he would seek approval of FTAs with Panama and Colombia, action is being delayed while administration trade officials try to find ways to tailor the agreements to meet new requirements for labor and environmental standards in FTAs. A much more controversial FTA with South Korea is even further down on the agenda.

Value-Added Tax?
A new trade issue has come into play that, while highly controversial, seems to be getting some traction as a possible source of revenue to help finance universal healthcare. It is a value-added tax (VAT) on the transfer of goods and services that ultimately is passed on to the consumer. In use by some 130 countries, the VAT has never taken off in the United States because it is seen as a form of a national sales tax. Senate Budget Committee Chairman Sen. Kent Conrad, D-N.D., says the VAT needs at least to be considered along with other taxes. Other countries refund the VAT on their exports, but levy it on imports, placing export of US goods at a disadvantage.

Sen. Lindsey Graham, R-S.C., has introduced legislation that would approach the VAT problem differently in terms of international trade, directing the US Trade Representative (USTR) to negotiate "fair border tax arrangements" by Jan. 1, 2010, to offset the trade advantages. The VAT is a political hot potato, but it cannot be ruled out at this time. The National Retail Federation strongly opposes the VAT, saying it would depress spending and "lengthen and deepen the recession."

A wide range of manufacturing industries support a US VAT as a way to overcome what they see as a trade advantage enjoyed by countries that have VATs. George Shuster, co-chairman of the American Manufacturing Trade Action Coalition, says, "Unless the United States addresses the competitive disadvantage caused by foreign border tax schemes such as VATs, it will never be able to level the playing field for domestic manufacturers and other producers of goods and services."

Enforcing Agreements
Administration trade officials and many members of Congress have repeatedly said the United States must do a better job of enforcing its trade agreements. Textile industry leaders believe US Customs and Border Protection must make Customs enforcement a high priority in view of the high risk for textile and apparel fraud. Last year, industry lobbyists succeeded in getting $9 million in the Department of Homeland Security (DHS) budget dedicated to textile and apparel customs enforcement. In this year's Customs reauthorization bill, they will seek steps to correct what they see as structural problems and provide additional funding to create a sophisticated electronic system to crack down on illegal trade. They also are relying on two ongoing textile-import monitoring programs to pinpoint import surges and illegal activities by Chinese exporters, which can provide data that can be the basis for filing cases seeking relief under anti-dumping and countervailing duty laws.

Buy American Problems
The highly-touted Kissell amendment that broadened the Defense Department Buy American textiles and apparel requirement to include Transportation Security Administration (TSA) procurement has run into problems because the office of the USTR failed to give Mexico, Canada and Chile timely notification as required by the WTO's Government Procurement Agreement, which bans domestic procurement requirements unless a waiver is claimed on grounds of national security. Under the law, participants in FTAs with the United States must be notified; and the Caribbean, Central America and other FTA partners did receive timely notice. Because of the failure to do so with Canada, Mexico and Chile, those countries may bid on TSA contracts. The USTR says it is missing an effort to resolve the problem with Chile and the North America Free Trade Agreement partners, but that could take months.

While the legislation also provided for extending the Buy American requirement to other DHS agencies, that, too, could be a long, drawn-out process, as government agencies generally resist such requirements because of what they can do to their budgets.

Union Organizing Effort
Although President Obama and the Democratic Congress are strongly committed to enacting the Employee Free Choice Act (EFCA), which would change the way unions are allowed to organize employees, that highly controversial measure is on the sidelines for the time being. It is strongly opposed by businesses ranging from manufacturers to retailers. The Coalition For a Democratic Workplace, comprised of more than 580 organizations, including textile and apparel manufacturers and retailers, contends the EFCA would undermine long-standing principles of federal labor law. The so-called "card check" would certify a union as a bargaining agent if more than 50 percent of the workers sign a card, thus eliminating the secret ballot. It also provides for a government arbitrator to step into labor disputes after 120 days and force both sides to accept a two-year contract. There also are harsh new penalties for companies violating regulations during an organizing campaign.

Although a similar measure passed the House of Representatives in the 110th Congress, the outlook for the EFCA at this time is at best uncertain.

July/August 2009