Concern But No Crackdown On Chinese Currency

E
ven though the US China trade deficit is on a course to exceed $200 billion for the fifth
consecutive year, the Obama administration seems to be avoiding any get-tough measures that might
provoke the Chinese and instead is pursuing a diplomatic solution to the problem.

In its latest semi-annual report to Congress on world currency practices, the Treasury
Department expressed its “serious concern” about the value of China’s currency but failed to name
China a currency manipulator, a step that could lead to US trade sanctions. The National
Association of Manufacturers said the failure to cite China was a “missed opportunity to move ahead
on the Chinese currency issue.”

As the report was released, the Fair Currency Coalition, an alliance of manufacturing,
agriculture and labor groups, stepped up its appeals for Congress to pass the Currency Reform for
Free Trade Act, which provides for use of US anti-dumping and countervailing duty laws when it is
determined that a country is manipulating its currency in order to gain an advantage in
international trade. Placing little faith in administration efforts to get a diplomatic solution to
the problem, the coalition said, “Negotiating without leverage is wistful thinking.” It added that
“only by treating Chinese currency as the export subsidy that it is can our negotiators gain the
leverage they need to end this problem by diplomatic means.”

While the administration clearly sees an undervalued Chinese currency as a problem that
contributes to the continuing trade deficit, perhaps more importantly, it also sees China as a
major player in the broader picture of addressing global economic woes. While the Treasury report
addressed the currency issue, it also says China needs to become less dependent on exports and
encourage more domestic consumption. That will require policy changes, and in that regard, the
United States can only make suggestions, because China will do what’s best for its citizens,
without much regard for the wishes of US manufacturers and workers.

More Government Business Sought

In the face of the economic downturn, more and more textile companies are seeking ways to do
business with the military and other government agencies. At a recent conference on military
textiles sponsored by the Textile Industry Coalition on Government Procurement – comprised of the
National Textile Association, the American Manufacturing Trade Action Coalition, the National
Council of Textile Organizations and the US Industrial Fabrics Institute – attendance exceeded
expectations as companies showed an increasing interest in supplying the military.

In addition, textile industry trade associations are pressing the Department of Homeland
Security (DHS) to open doors for more purchases of US-made textiles and apparel. Together, the
Department of Defense (DoD) and DHS could purchase nearly 100 textile and apparel products.

The DoD has projected textile and apparel procurement totaling $2.7 billion in the current
fiscal year (FY), an increase from $2.4 billion in FY 2008. Items for the military include a vast
array of textile and apparel products, including dress and combat uniforms, extreme-cold-weather
gear, body armor, protective outerwear, tents, tarpaulins and medical supplies.

In view of the continuing demands, US textile manufacturers are working with military
procurement officials to clarify and simplify procurement processes so that domestic manufacturers
can meet military needs and in the process bolster the US textile and apparel industries. At the
textile coalition conference, military procurement officials outlined projections for funding and
discussed new items under development. They expect FY 2009’s funding of $2.7 billion to be reduced
somewhat next year, although demand will remain high.

Participants in the coalition conference emphasized that improving the contracting process by
awarding contracts more quickly and smoothing out ordering practices and delivery schedules will
help US manufacturers respond quickly and more effectively to their often changing demands.

Meanwhile, textile manufacturers are pressing for a broad interpretation of the Buy American
provisions in the American Recovery and Reinvestment Act. Sponsors of that legislation emphasize
that the purpose of the act’s Buy American provisions was to create jobs, but they feel the initial
regulations published by DHS fall far short of that goal and open the door to too many imports.

The problem centers around DHS classification of items “directly related to national
security.” Textile manufacturers say the current classifications are confusing and will make it
difficult for manufacturers and government contracting officials to implement the law.

In addition, US manufacturers are particularly concerned about the fact that Mexico, Canada
and Chile, which have FTAs with the United States, are not subject to the Buy American requirement
because those nations were not properly notified of the legislation. Textile industry and organized
labor organizations are pressing the Obama administration to act promptly to resolve the issue as
quickly as possible, as hundreds of millions of dollars of sales could be involved.

While military demands will fluctuate depending on what’s happening in Afghanistan, Iraq and
other areas of military involvement, homeland security requirements are likely to increase. How
much depends on the willingness of the DHS agencies involved to issue regulations that will require
domestic procurement.

In many cases, DHS and DoD agencies have resisted Buy American provisions because they likely
result in higher costs than overseas procurement, but the Obama administration and Congress seem
committed to maximizing the job-creation potential of government procurement of textiles and
apparel.

Some Legislation Likely This Year

While President Barack Obama and Congress both have for the most part avoided getting
involved in major international trade issues, some legislation of interest to textile manufacturers
still may be dealt with during the remainder of this year.

There is a miscellaneous tariff bill that grants temporary duty suspensions to products that
no longer are produced in the United States. The current exemptions, which must be renewed by the
end of this year, include some textile products and textile machinery, and additional products may
be added to the list.

Also expiring at year’s end is the Andean Trade Preference Act, which extends duty-free
benefits to Colombia, Ecuador, Peru and Bolivia. Congress likely will extend it.

A separate free trade agreement (FTA) with Colombia that was negotiated by the Bush
administration has been held up by Congress in view of some concerns over labor and human rights
abuses. President Obama strongly supports the Colombia agreement and has urged Congress to approve
it. If recent steps taken by Colombia to address congressional concerns satisfy organized labor,
the Democratic leadership in Congress is likely to give it a go-ahead.

A FTA with South Korea also is awaiting congressional action, but it is much more
controversial, and nothing is likely to happen very soon, if at all.

US textile manufacturers are urging Congress to strengthen textile and apparel Customs
enforcement when it acts on legislation re-authorizing US Customs and Border Protection. Claiming
that the textile sector attracts more fraudulent activity than any other industrial product, Cass
Johnson, president of the National Council of Textile Organizations, is pressing for more Customs
resources to be dedicated to policing textile and apparel trade.

November/December 2009