Outlook ’24: A Trade Policy Primer
As America heads into an election year and Chinese relations reach an all-time low, trade policy takes on renewed urgency in 2024. The apparel industry has explored new sourcing locales and relationships to mitigate risk and bring production closer to home. This means renewing reinstating free-trade agreements and preference programs will play a critical role in decision-making this year.
Generalized System of Preferences (GSP)
Among the oldest and most widely supported trade preference program, the fate of the Generalized System of Preferences (GSP) is still in limbo three years after it lapsed. Its companion, the Miscellaneous Tariff Bill (MTB), also expired in December 2020.
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GSP gives 3,500 products including travel goods and handbags from 119 countries duty-free status, helping developing economies including Thailand, Indonesia, Brazil, Cambodia and the Philippines. MTB, by contrast, suspends or cuts tariffs on some products or components made offshore. U.S. importers must file individual MTB petitions for products they believe should be excluded from duties.
While many had hoped to see the programs reinstated in 2023, American Apparel and Footwear Association (AAFA) vice president of trade and customs policy Beth Hughes believes Washington could act in the first quarter. If it doesn’t, MTB, GSP and other trade priorities could lose momentum ahead of the presidential election, she said.
“We are very hopeful for GSP, though we definitely expect to see some changes,” Hughes said. AAFA has pushed for a raise to the Competitive Need Limitations (CNLs), which limits the quantities of goods that can be imported from GSP-beneficiary countries with duty-free benefits, to promote broader adoption. Lawmaker might also increase the threshold of value content added in the beneficiary country from its current requirement of 35 percent—which Hughes believes requires further study.
At September’s House Ways and Means Trade Subcommittee hearing on GSP program reform, Chairman Adrian Smith (R-Ne.) said, “There’s no question the GSP program has a proven track record.” Still, Congress should not “forgo the opportunity to examine ways to improve it,” Smith added.
MTB, which is usually attached to GSP, also has broad bipartisan support. According to Footwear and Distributors and Retailers of America (FDRA) vice president of government affairs Thomas Crockett, some House Democrats want finished goods excluded from the program moving forward. Disagreements over product eligibility has likely held up the process, along with changes in Committee leadership, according to Crockett.
“There are so many new members of Congress, and it’s been three years since we had new MTBs being voted on,” he said. “Now, it’s stalled so much, we’re having to go back and re-educate people who have never hear of the MTB and don’t understand its importance.”
Africa Growth and Opportunity Act (AGOA) and Haiti HELP-HOPE Acts
The Africa Growth and Opportunity Act (AGOA) and Haiti HOPE-HELP Acts promote similar investment in local economies, and both expire in September 2025. “Those programs are both vitally important for our members,” Hughes said.
AGOA gives dozens of African nations preferred, duty-free access to the U.S. market on more than 1,800 products. Industry players have called for its immediate long-term renewal to ensure the viability of their manufacturing investments.
USTR Ambassador Katherine Tai attended the AGOA Forum in November, meeting with senior government officials from the U.S. and AGOA-eligible nations as well as representatives from regional economic organizations, the private sector and civil society. Prior to her appearance, President Joe Biden called AGOA “a landmark, bipartisan law that has formed a bedrock for U.S. trade with sub-Saharan Africa for more than two decades,” and encouraged Congress to quickly reauthorize and “modernize this important Act for the economic opportunities of the coming decade.”
“We’re seeing a lot of really great investment in a more vertical industry on the continent, but we’ll start to see that trade slip and slow down as we get closer to September 2025,” Hughes said. To continue the momentum the government should renew AGOA for the next 10 years, she added. As with MTB and GSP, Hughes believes decision-makers could pull the trigger in Q1.
Meanwhile, lapsed trade preference programs could be devastating to violence-plagued Haiti, Hughes said. “Companies are supportive and want to stay in Haiti, but it’s very difficult right now to do business,” she said. “Without having Haiti HELP-HOPE secured again for another long-term renewal, it’s going to be hard for them to justify [remaining in the country].”
In August, Kenyan Foreign Minister Alfred Mutua declared that the African nation would send 1,000 police officers to support Haitian law enforcement. But Kenya’s high court blocked the order even after parliamentary approval, deferring a final ruling until Jan. 26.
“Companies are, if they aren’t already, going to be making sourcing decisions based on a program that expires in a year, and they’ll have to do risk assessments,” Hughes said. “We don’t want companies to have to feel like they have to pull out because of the security concerns.”
Central America-Dominican Republic Free Trade Agreement (CAFTA-DR)
While the nearshoring narrative received considerable attention in 2023, the textile industry “is facing significant economic headwinds right now,” according to Kim Glas, CEO and president of the National Council of Textile Organizations (NCTO).
After the pandemic factories in the Western hemisphere saw “skyrocketing demand from brands and retailers wanting to source closer to home,” she said. This led to $2 billion in U.S. and regional textile supply chain investments. But demand slumped starting 12 months ago, Glas said. “Inventory levels were really high among brands and retailers—we’re still seeing that problem,” she added. “The economy fluctuated with inflation, and now that’s started to recalibrate, but certain products like food remain expensive, so people are spending less at retail.”
Glas said NCTO members remain bullish about the prospects for Central America and Mexico. “Brands and retailers are looking to source more products closer to home,” she added. “They’re looking for diversity in the products they can source, they want quick response times and short runs so they’re not left…stranded with items that they have to mark down at the end of the season.”
In November, Sen. Ron Wyden (D-Ore.) urged the U.S. Customs and Border Protection (CBP) to enforce the “origin and content rules in U.S. trade agreements,” including items made and imported under USMCA and CAFTA-DR. Without enforcement trade preference programs “can create a temptation to circumvent rules of origin or otherwise utilize cotton, yarn, or textiles from non-partner countries,” he said. “Moreover, insufficient enforcement can create a pathway for banned Xinjiang cotton to infiltrate regional supply chains and undermine efforts to enforce the Uyghur Forced Labor Prevention Act (UFLPA).”
CBP data showed that the agency is conducting fewer on-site factory verifications In 2018, it visited 139 factories and verified just 38 by 2022. This suggests “a decline in audits, laboratory analysis, and special enforcement operations.” Glas said NCTO welcomes any actions that encourage compliance, as U.S. companies source in the region because prioritize transparency.
Hughes said AAFA members are interested in nearshoring options, especially around the U.S. market. But unlike Glas, she believes the rules of origin across trade agreements like USMCA) and CAFTA-DR are unnecessarily prohibitive. “We can’t accumulate amongst our trade partners in the Western hemisphere, and I think that’s a missed opportunity,” she said. “If we truly want a vertical industry that includes U.S. cotton and the domestic textile industry, let’s create a larger pie for everyone and be able to accumulate amongst the [free trade agreements].”
Research by Dr. Sheng Lu, associate professor and director of graduate studies in the University of Delaware’s Department of Fashion and Apparel Studies, showed that U.S. apparel imports from CAFTA-DR countries were nearly 20 percent lower in 2023 than the year prior. What’s more, the trade agreement’s utilization rate fell from 70.2 percent in the first six months of 2022 to a new low of 69.2 percent during the same period in 2023. “Thus, how to leverage CAFTA-DR to meaningfully encourage more US apparel imports from the region, particularly in light of US fashion companies’ eagerness to reduce their exposure to China, calls for sustained efforts and probably new strategies,” he said.
De Minimis
De minimis, which allows foreign shipments into the U.S. to bypass duties if they’re worth less than $800, is another hot-button issue for lawmakers.
At a Washington, D.C. roundtable hosted by House Ways and Means Trade Subcommittee Ranking Member Earl Blumenauer (D-Ore.) in December, representatives from the American manufacturing sector and law enforcement said the Section 321 trade provision gives offshore companies too much unregulated access to the U.S. market. Blumenauer’s Import Security and Fairness Act, introduced in June, would prevent imports from non-market economies, as well as from countries like China that are on the U.S. Trade Representative’s priority watch list, from utilizing de minimis. It would also require CBP to gather more information on such shipments.
“There’s a lot of talk on both sides of The Hill that de minimis is currently broken and is not being utilized as intended,” Glas said. She’s optimistic that reform is coming now that lawmakers are scrutinizing China and “e-conglomerates” such as Shein, which are “basically building multi-billion-dollar companies overnight through the de minimis structure.”
“This is having implications to the U.S. industry—the regional industry as a whole has lost market share because people are taking advantage of this loophole to get duty-free trade in from anywhere in the world,” Glas added.
At last month’s roundtable, North Carolina-based textile producer Parkdale Mills CEO Andy Warlick said, “Nearly every textile facility in the country is now running at significantly reduced capacity.” With U.S. textile companies closing eight plants and affecting 1,000 workers in Q4, Warlick described these moves as “just the proverbial canary in the coal mine” if lawmakers leave de minimis untouched.
Producers in the Western hemisphere say de minimis law undermines their free trade agreement benefits from USMCA and CAFTA-DR, putting non-market economies on equal footing when it comes to duty-free privileges. As such, decision-makers should prioritize the problem this year. “I don’t think this is a can we can afford to kick down the road for the next year,” Glas said.
Section 301 Tariffs
Nearly six years after they were implemented, the Section 301 tariffs on China-made goods are still in place.
The punitive duties remain “a part of the U.S.-China bilateral relationship” due to “unfair” conditions within the global economy, Tai said at an event hosted by media outlet Semafor last month. Earlier in December the House bipartisan select committee on China laid out nearly 150 policy recommendations aimed at resetting the relationship with world’s factory. They include raising tariffs again and limiting China’s access to the U.S. market under de minimis law.
On Dec. 26, USTR extended tariff exclusions on 352 products and 77 Covid-related categories—such as face masks and latex gloves—until May 31.
FDRA’s Crockett says the trade group maintains “some optimism” about exclusions that could benefit footwear companies. The industry is forced to source certain materials and components from China, which remains a top shoe manufacturer. Children’s footwear in particular has “an extremely high tariff burden” that hurts U.S. consumers—especially those purchasing lower-priced options, he said. A more “targeted approach” to imposing and excluding goods from tariffs could ease the burden on shoppers, he added.
Tariffs are poised to be a key topic of discussion this election cycle. Former president, and future hopeful, Donald Trump already raised the tariff specter when attempting to launch his latest run last year. Plus, lawmakers have batted around the idea of amending China’s Permanent Normal Trade Relations (PNTR) status and opening the country up to tariff increases.
“An idea that wasn’t being given serious consideration not that long ago is now at the forefront,” Crockett said. “I think that’s another issue to watch.”
Uyghur Forced Labor Prevention Act (UFLPA)
The Uyghur Forced Labor Prevention Act (UFLPA), which bans goods made in China’s Xinjiang province from entering the U.S. under the rebuttable presumption that they were made or mined using forced labor, has seen ups and downs since it was signed into law two years ago.
In effect since June 2022, the UFLPA has posed significant enforcement challenges for CBP, with “opaque” de minimis system taking much of the blame, Glas said.
Congress gave CBP $101 million to aid in UFLPA enforcement last year—a 108-percent increase from the year prior. But many U.S. importers believe cooperation and direction from CBP are lacking, challenging their ability to root out supply chain risks. “More information and more transparency from CBP about detentions is critical,” Hughes said. “It needs to be more of a partnership, because brands don’t want forced labor in their supply chains.”
Hughes said AAFA members have mapped the first three tiers of their supply chains since the law was passed. “It can be an exhausting exercise, but it’s really opened the eyes of the brands to be able to pinpoint that information,” she added. “It also that helps them in their future sourcing strategy to know where the good actors are—where they can utilize a trade preference program or a free trade agreement, and really pull back from China.”
If CBP won’t share information with AAFA members, Hughes believes UFLPA will remain a vehicle for enforcement rather than prevention. “I think we’re also going to continue to see more entities being added to the Entity List—I don’t think that’s going to change,” she said. “More industries are being brought up as having forced labor in their supply chains, so it’s not just apparel with cotton.”
“U.S. apparel, footwear, and travel goods companies continue to seek opportunities to diversify their sourcing from China and other traditional suppliers to de-risk and build resilient supply chains,” AAFA president and CEO Steve Lamar said. The trade group wants lawmakers to renew AGOA and Haiti HELP-HOPE, and encourages greater usage CAFTA-DR. “That said, even though we are experiencing the largest sourcing diversification in a generation, China will remain an important partner and market—not just for the industry but also for our entire country as we look to China to participate on global solutions such as efforts to mitigate climate change,” he added.
