Nicaragua TPL Likely to Run its Course, as December Expiration Looms

The TPLs are exemptions to yarn forward rules of origin in the U.S.-Central America Free Trade Agreement (CAFTA). They permit some apparel and textiles manufactured in Nicaragua to enter the U.S. duty free regardless of where the yarn and fabric inputs are sourced. One hundred million square meter equivalent units are permitted in the broad TPL, and 1.5 million SMEs of some wool sport coats (here). The TPL also allows 50 million SMEs of woven trousers to enter the U.S. duty free, as long as Nicaragua meets matching criteria that incorporates into productions fabric made in the U.S. from U.S. yarn, observers say (here).

Many members of Congress are still focused on renewal in the near-term, despite the weak outlook, said Julia Hughes, president of the U.S. Fashion Industry Association. “From meeting with folks on the Hill just last week, a lot of the staff are saying they’re ready … they’re prepared if there is a window for action,” she said. “Sometimes things on the Hill are crazy and it looks like nothing comes together, but then suddenly floor time becomes available and, if members are pushing a bill, things pass that you never predicted.”

Free trade proponents continue to target Trade Promotion Authority as the flagship item of an omnibus bill that could also shepherd several other trade bills through. But since lawmakers in both chambers introduced the most recent version of TPA in January, the legislation has generated a lot of criticism, particularly from Democrats (see 14091112). Hughes said it's increasingly clear lawmakers will be unable to pass that bill during the lame duck session, and therefore all other trade bills will also fall to the wayside unless another vehicle emerges. Renewal legislation for the Generalized System of Preferences, which expired in 2013, may offer a flagship item for a smaller package during lame duck, she said.

There does not, however, seem to be a strong support for a quick GSP renewal, even though users of the GSP program are complaining about irreversible losses (see 14091713). GSP has been traditionally attached to a larger trade bill. The Miscellaneous Tariff Bill also expired at the end of 2012, but is still mired in a dispute over earmarks.

The Senate has produced two Nicaragua TPL renewal bills since early 2013, although one of those would significantly scale back the preferences. Sen. Dianne Feinstein, D-Calif., introduced legislation (here) in June 2013 that would extend the entire program for 10 years, though the bill has not moved since. Feinstein is still committed to advancing the bill, but is also trying to find a vehicle to carry it through Congress, said a Democratic Senate aide close to the debate. Sen. Kay Hagan, D-N.C., also introduced an amendment to reauthorize the Nicaragua TPL on a tax extender measure in May, but that bill lost steam (see 14051620). The amendment replicated a bill she introduced in December 2013 (here). Hagan’s bill would eliminate the duty-free access to the U.S. market for Nicaraguan apparel regardless of the origin of the yarn and fabric inputs. It would also limit the use of the matching element of the TPL. Her office didn't respond for comment.

Senate Finance Committee Chairman Ron Wyden, D-Ore., wants to help move Hagan’s bill forward, he said in an Oct. 15 statement. She faces a tough reelection bid in North Carolina this November, and her loss may remove that bill from the debate. Wyden also wants to consider Feinstein’s bill, and doesn’t prefer either bill outright, said a committee spokesman. The Finance Committee has jurisdiction over trade bills.

The most likely bill to pass in the foreseeable future is the Hagan bill or a variation of it, said one private sector source close to the debate. "There's no way Feinstein's bill passes because it costs too much and domestic industry opposes it," said the source. "The Feinstein bill needs $30 million in offsets, and that would be very difficult in this budgetary environment. So when you combine that with the opposition from the domestic industry, there's really no chance it passes."

The U.S. apparel import industry is partial to Feinstein’s flat renewal, but also just wants a conversation about the TPL on Capitol Hill, said Executive Vice President at the American Apparel & Footwear Association Steve Lamar. Hagan’s "bill focuses on one piece of the TPL. But it’s important that she’s contributed to the debate, and Feinstein also,” said Lamar. “One of the things we’ve been encouraging members of Congress to do is to weigh in on the debate, after they hear from their constituents. I would imagine that when the discussion on renewal will be fully underway when a vehicle is available.” Many supporters of the status quo Nicaragua TPL tout a recent study by Duke University that suggests more than a thousand U.S. jobs will be jeopardy if the TPL expires (here).

U.S. importers have failed, however, to rally the level of support on Capitol Hill that is necessary to move renewal legislation forward, said an industry executive. “We’re not building the sufficient case that is needed, and I think that’s the problem,” said the representative. “This division, which was never resolved between Hagan and Feinstein, may have hung up movement. The [Hagan amendment] was quickly quashed, and that prompted the domestic textile community to come out against renewal in general.”

Renewal of the TPL has virtually no chance of passing before it expires and interest in renewal has so “significantly waned” that a TPA omnibus bill might even move ahead without Nicaragua TPL because of the controversy surrounding it, said the executive. The Hagan bill would prevent the majority of apparel importers from using the TPL, the representative said.

The importing community and domestic textile producers sparred on this issue in two of op-eds in the Sourcing Journal in late September. After Lamar published an opinion article (here) that praised the Nicaragua TPL and urged its renewal, National Council of Textile Organizations President Auggie Tantillo followed up several days later with an op-ed (here) that questioned the importance and benefits of the TPL. “When studying the region from the perspective of textile investment, it can also be argued that the TPL has actually hurt Nicaragua’s overall economy,” said Tantillo. “Nicaragua lags behind other CAFTA-DR countries in terms of yarn and fabric manufacturing investment. Apart from Nicaragua, the CAFTA-DR region has seen tremendous growth in fabric formation investment, bolstering the view that yarn forward rules promote the growth of a brick-and-mortar integrated industry, rather than just cut and sew jobs.” Tantillo called the non-matching portion of the TPL “highly damaging,” and said the import industry’s lack of support for the Hagan bill “has been deafening.” NCTO did not give further comment for this article.

The Hagan bill would establish a certificate system in the matching component of the TPL akin to the Dominican Republic Earned Import Allowance Program in CAFTA, a preference program that Hughes said has mostly been a failure. Both U.S. and Dominican Republic stakeholders agree that the program has serious structural problems, the International Trade Commission said in a July 2014 report (here). Use of the program has declined three years in a row, the ITC said.