The revised US-South Korea Free Trade Agreement (KORUS) came into effect on 1 January 2019

The revised US-South Korea Free Trade Agreement (KORUS) came into effect on 1 January 2019

The latest monthly round-up of updates to key free trade agreements and trade preference programmes involving the US, EU and Japan covers developments in December 2018 and January 2019. Trade agreements, rules of origin, tariffs and schedules are all covered in depth in the re:source by just-style strategic planning tool.

UNITED STATES

US-South Korea Free Trade Agreement (KORUS)

After being signed on 24 September 2018, the revised US-South Korea Free Trade Agreement (KORUS) came into effect on 1 January 2019. Pushed by President Trump, the US and South Korea renegotiated some specific provisions regarding industrial sectors such as auto and auto parts. The revised trade pact also strengthens customs enforcement and improves the transparency mechanism in trade remedy measures. 

However, little has changed for the textile and apparel sector. While the Korean government asked for the addition of a few textile products to the short supply list, including viscose rayon staple fibres (HTS550410 and HTS550700), certain rayon filament yarns (HTS540339), and cashmere yarn (HTS5108), the US government is currently reviewing the request. If approved, Korean apparel exporters will be able to source these textile materials from anywhere in the world and still enjoy the KORUS preferential duty benefits.

US-Japan Free Trade Agreement (USJTA)

On 21 December 2018, the Office of the US Trade Representative (USTR) released the negotiating objectives of the proposed US-Japan Free Trade Agreement (USJTA). Overall, USJTA aims to address both tariff and non-tariff barriers to achieve fairer and more balanced trade between the two countries.

Regarding the textile and apparel sector, USTR says it will "secure duty-free access for US textile and apparel products and seek to improve competitive opportunities for exports of US textile and apparel products while taking into account US import sensitivities" during the negotiation. USJTA will also "establish origin procedures for the certification and verification of rules of origin that promote strong enforcement, including with respect to textiles." According to the 2015 Trade Promotion Authority Act, USTR can start USJTA negotiations after 21 January 2019.

US-EU Free Trade Agreement

On 11 January 2019, the Office of the US Trade Representative (USTR) released negotiating objectives for the proposed US-EU Free Trade Agreement. Overall, the agreement aims to address both tariff and non-tariff barriers and to achieve fairer, more balanced trade between the two sides. Specifically, regarding textiles and apparel, USTR says it will "secure duty-free access for US textile and apparel products and seek to improve competitive opportunities for exports of US textile and apparel products while taking into account US import sensitivities" during the negotiation. The proposed US-EU free trade agreement also will "establish origin procedures for the certification and verification of rules of origin that promote strong enforcement, including with respect to textiles." According to the 2015 Trade Promotion Authority Act, USTR can start negotiations after 11 February 2019.

Between 2013 and 2016, the US and EU were also engaged in talks on a comprehensive free trade agreement – the Trans-Atlantic Trade and Investment Partnership (T-TIP) – with the goal of unlocking market access opportunities for businesses on both sides of the Atlantic through the elimination of trade and investment barriers as well as enhanced regulatory coherence. While the T-TIP negotiation has been stalled since 2017, the Trump Administration has never officially announced its withdrawal from the agreement.

EUROPEAN UNION

EU-Japan Economic Partnership Agreement

The EU-Japan Economic Partnership Agreement will become effective 1 February 2019. The agreement was reached on 8 December 2017 and officially signed on 17 July 2018. For both the EU and Japan, this is the biggest bilateral trade agreement ever negotiated by the two parties. The Economic Partnership Agreement will remove the vast majority of the EUR1bn of duties paid annually by EU companies exporting to Japan, as well as some long-standing regulatory barriers. The agreement will also open up the Japanese market of 127m consumers to key EU exports and will increase EU export opportunities in sectors such as high-end apparel and technical textiles.

The tariffs on textiles and apparel traded between Japan and EU will be fully abolished on day one. The value of EU apparel (HS Chapters 61 and 62) imports from Japan totalled US$49.5m in 2017. 

EU-Eastern and Southern Africa States Agreement   

According to a meeting between EU and Eastern and Southern Africa (ESA) nations on 22 January 2019, Comoros is expected to become a new member of the EU-Eastern and Southern Africa States Agreement following its approval by the EU Commission in mid-2019.

The six countries in the ESA region (Comoros, Madagascar, Mauritius, the Seychelles, Zambia, and Zimbabwe) concluded an interim Economic Partnership Agreement with the EU at the end of 2007. In August 2009, four countries signed the agreement (Madagascar, Mauritius, Seychelles and Zimbabwe) and it has been provisionally applied since 14 May 2012. Comoros signed the agreement in July 2017.

In general, the agreement provides qualified apparel from Eastern and Southern Africa states with duty-free export to the EU. The agreement also adopts a liberal "single transformation" rule of origin for apparel products, meaning clothing companies established in the ESA states can source fabrics anywhere in the world, transform them and then export to the EU free of both duties and quotas.

European Union-Mercosur Free Trade Agreement

EU and Mercosur member states (including Argentina, Brazil, Paraguay, and Uruguay) conducted a new round of negotiations on the proposed European Union-Mercosur Free Trade Agreement from 10-13 December 2018 in Uruguay. 

During the talks, both sides reconfirmed the strong political commitment to reach an agreement. However, key outstanding issues remain such as market access in Mercosur for cars and car parts, machinery, dairy, maritime services and adequate protection of EU geographical indications. The next round of negotiations is expected in the first quarter of 2019.

Cambodia's Eligibility for Everything but Arms (EBA) scheme

According to industry sources, the European Commission has asked EU national governments to approve the suspension of Cambodia's eligibility for the EU Everything But Arms (EBA) scheme by the end of January 2019. However, no official statement has been made by EU. 

On 5 October 2018, European Union (EU) Trade Commissioner Cecilia Malmström announced the EU had launched the formal process to withdraw the benefits from Cambodia – kicking off a year-long process that could lead to the removal of duty-free access to Europe for apparel, footwear, and travel goods from Cambodia. This would mean exports from Cambodia move to the most-favoured-nation tariff rate set by the EU. However, Cambodia could be given about 6 months to rectify any violations. Cambodia is a major apparel supplier to the EU, which in 2017 imported $1,021m in apparel from Cambodia (4% of total EU clothing imports). 

EU-Jordan Association Agreement

On 13 December 2018, the European Union and Jordan adopted a decision to extend and widen a trade scheme under the EU-Jordan Association Agreement to make it easier for Jordanian companies employing Syrian refugees to export to the EU. Specifically, between 4 December 2018 and 31 December 2030, apparel products that meet the following conditions will also qualifiy for the duty-free treatment under the agreement:

1: The garments were cut and sewn in the territory of Jordan; AND

2: The total workforce at each facility (that cuts and sews the garments) located in the territory of Jordan contains at least 15% Syrian refugees.

JAPAN

Japan-Turkey Economic Partnership Agreement (EPA)

The twelfth round of negotiations for the Japan-Turkey Economic Partnership Agreement (EPA) was held 18-21 December 2018 in Ankara, Turkey. Discussions covered areas including trade in goods, trade in services, investment, sanitary and phytosanitary measures (SPS), rules of origin, technical barriers to trade (TBT), intellectual property, e-commerce, government procurement, customs procedures and trade facilitation, among others. The EPA negotiation was launched in 2014 as an outcome of the Japan-Turkey summit. Japan is Turkey's most important partner in the Asia-Pacific region.

Japan-China-Republic of Korea Free Trade Agreement

The fourteenth round of negotiations for the Japan-China-Republic of Korea Free Trade Agreement was held 6-7 December 2018 in Beijing, China. Discussions in this round focused on trade in goods, trade in services, and trade related investment. The three countries agreed to accelerate the negotiation of the agreement in 2019 – and are working towards holding the fifteenth round of talks in Japan.