Many US fashion companies are concerned the Section 301 investigation against Vietnam may result in new US punitive tariffs on imports

Many US fashion companies are concerned the Section 301 investigation against Vietnam may result in new US punitive tariffs on imports

The latest round-up of updates to key free trade agreements and trade preference programmes involving the United States, the European Union and Japan covers developments in October 2020.

UNITED STATES

Caribbean Basin Trade Partnership Act (CBTPA)

On 10 October 2020, President Trump signed into law H.R. 991, which extends the Caribbean Basin Economic Recovery Act (CBTPA) for another ten years from 30 September 2020 to 30 September 2030. H.R. 991 was approved by the House on 23 September 2020, followed by another vote in favour by the Senate on the evening of 30 September 2020. The CBTPA offers qualifying textiles and apparel, travel goods, and footwear originating from members of the agreement duty-free access to the US market. 

The value of US apparel imports from the CBTPA region in 2019 totalled US$986m (up 7.6% from 2018), within which US$955m were under the preference programme (a 97% utilisation rate).

US-UK Free Trade Agreement

The US and the UK are scheduled to host their fifth round of negotiations on a bilateral free trade agreement in early November 2020. According to UK side, the talks have entered "advanced stages" that include consolidating texts in a majority of chapters. Both sides remain optimistic about concluding a deal "reasonably soon" regardless of the results of the US presidential election.

Over the past decade, the US and UK bilateral trade in apparel has enjoyed steady growth, reflecting the ever closer business ties between fashion companies in the two countries. While US apparel exports still predominantly go to geographically nearby countries such as Mexico and Canada, the UK has emerged as the single largest export market for "Made in the USA" apparel outside the western hemisphere. Similarly, the United States has always been the UK's single largest export market outside the EU region.

The value of US apparel exports to the UK increased from $205.3m in 2010 to $325m in 2019 – a 5.2% compound annual growth rate (CAGR). This was notably higher than the 3.2% CAGR of total US apparel exports to the world over the same period. Likewise, the value of US apparel imports from the UK also grew from $72.1m in 2010 to $117.8m in 2019, or a 5.6% CAGR. In comparison, the CAGR of total US apparel imports over that period was only 1.8%.

For a more detailed insight, click on the following link: What might a US-UK trade deal mean for apparel?

US Section 301 investigation against Vietnam

The Office of the US Trade Representative (USTR) announced two new Section 301 investigations on Vietnam regarding the country's import and use of timber that is reported "illegally harvested or traded" and Vietnam's "undervaluation of its currency."  Many US fashion companies are concerned the investigation may result in new US punitive tariffs on imports from Vietnam, which could cover apparel items. Comments on the investigation can be submitted to USTR by 12 November 2020.

Many US fashion companies are seeking to increase their apparel sourcing from Vietnam to reduce their exposure to China. The value of US apparel imports from Vietnam increased by 131% between 2010 and 2019, much higher than the 17% world average. Vietnam's share of the US apparel import market has also soared from only 4.0% in 2005 to 16.8% in 2019 (and 20.2% from Jan to August 2020).

EUROPEAN UNION

EU-US Airbus-Boeing WTO trade dispute

On 26 October 2020, the World Trade Organization (WTO) Dispute Settlement Body officially authorised the European Union (EU) to take countermeasures against the United States by increasing its import duties on US products worth up to US$4bn. While the EU and the US are currently negotiating for a solution, EU tariff action is not impossible in the near future.

In April 2019, the EU had identified around US$20bn worth of US imports on which it could impose additional tariffs. The list includes several textile products, such as handbags and travel bags, cotton and cotton waste:

HS codeProducts
52010090Briefcases, school satchels and similar; handbags; articles normally carried in pocket or handbag) cotton, neither carded nor combed (excl. rendered absorbent or bleached)
52029100Garnetted stock of cotton
52029900Cotton waste (excl. yarn waste, thread waste and garnetted stock)
52030000Cotton, carded or combed
52010090Briefcases, school satchels and similar; handbags; articles normally carried in pocket or handbag) cotton, neither carded nor combed (excl. rendered absorbent or bleached)

Meanwhile, the European Commission, the European Parliament, and the European Council on 28 October 2020 reached a political agreement on reinforcing the EU's Enforcement Regulation. The new enforcement law will allow EU members to impose retaliatory tariffs against a trading partner without authorisation from the WTO. Some trade insiders have also warned that US-EU trade tensions might escalate next year. 

EU-Australia Free Trade Agreement

From 14 to 25 September 2020, the European Union (EU) and Australia conducted their 8th round of negotiations on a comprehensive bilateral free trade agreement. The talks covered technical barriers to trade, sustainable development, goods, services, public procurement, rules of origin, and intellectual property rights including geographical indications.

The EU-Australia Free Trade Agreement discussions were launched in 2018 with the goal of enhancing the bilateral trade relationship of the two partners. Australia currently ranks as the 19th-largest trade in goods partner of the EU, while the EU is Australia's third-largest trading partner after China and Japan, and before the United States.

The next virtual negotiation round is scheduled from 30 November to 11 December 2020.

JAPAN

UK-Japan Free Trade Agreement

On 22 October 2020, Japan and the United Kingdom officially signed the UK-Japan Comprehensive Economic Partnership Agreement (CEPA), which will enter into force on 1 January 2021.  

According to the pact, Japan and the UK will eliminate tariffs on all apparel items (HS Chapters 61 and 62) traded between the two countries once the CEPA enters into force – that is, there will be no tariff phaseout schedule for apparel items.

Compared with other free trade agreements enacted in Japan, it also adopts more liberal rules of origin for apparel items to qualify for the preferential duty treatment. Eligible products can meet one of the following two rules of origin to enjoy the benefits:

  • "Fabric-forward" rules of origin, which means that fibres and yarns may be produced anywhere, but each component starting with the fabric used to make the garments must be formed within the free trade area. This rule is sometimes called "double transformation," as it requires that weaving or knitting of the fabric, and assembly of the final apparel garments, must all occur within the free trade area.
  • "Value-added" rules of origin, meaning apparel items qualified for preferential duty treatment under the free trade agreement (FTA) shall contain non-originating material no more than 50% measured by EXW (i.e., the value of the apparel item when leaving the facility where it was produced) or 45% measured by FOB (i.e., the value of the apparel item when loaded to the ships).

In 2019, the UK exported around US$94m apparel to Japan, whereas Japan exported US$42m apparel to the UK. A good proportion of these apparel products are in the luxury segment of the market.