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AAFA: GSP Will Move Fast If Tax Bill Passes Senate

The American Apparel and Footwear Association's vice president for trade and customs policy is hearing that a higher competitive needs limitation will be part of a Generalized System of Preferences benefits program renewal.

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The CNL disallows GSP tariff benefits when a country becomes a major exporter of a particular product, because the idea is that the country's industry has become so competitive, it no longer needs the tariff break.

In 2020, the last year the program was in effect, the threshold for a CNL was either that more than 50% of the exports of the product from all GSP beneficiaries came from one country, or that any country sold more than $195 million worth of the product in the year. That dollar amount rises by $5 million a year. A bipartisan bill introduced last year (see 2312080016) would hike the dollar amount to $600 million, and increase the limit by 5% annually.

Beth Hughes, the AAFA VP, said that "if it’s not included in their bill, it will be offered as an amendment."

The GSP program has been gone for more than three years, and Hughes said she thinks the latest hurdle is the Senate's stalling on a tax bill designed by Senate Finance Committee Chairman Ron Wyden, D-Ore., and House Ways and Means Chairman Jason Smith, R-Mo., a bill that makes the child tax credit more generous to low-income workers; accelerates deductions for research and development, interest expenses and investments in equipment for businesses; and enhances the low-income housing tax credit. That bill passed the House 357-70.

"Hopefully that gets done and Chairman Jason Smith can turn his attention to trade," she said in an interview March 15. If the Senate passes the tax bill, "we’ll see it come very quickly on GSP and move fast," she predicted.

Hughes testified earlier in the week at an International Trade Commission hearing that's part of an investigation on why India, Bangladesh, Pakistan, Cambodia and Indonesia are competitive apparel exporters in the U.S. market (see 2403110069).

China and Vietnam export more apparel to the U.S. than the countries that the Office of the U.S. Trade Representative asked the ITC to examine; Honduras and Mexico export more than Pakistan, though the Mexican market share is steadily dropping.

Hughes said those in the apparel industry were asking themselves about the investigation: "Does this have anything to do with GSP? Does this have anything to do with IPEF? Are they thinking about other trade frameworks or trade agreements?"

If any apparel lines were ever to be included in GSP, Hughes said, that could present opportunities for importers. She said the coverage would have to be designed carefully, so that it wouldn't hurt African Growth and Opportunity Act countries, and it couldn't include apparel made in the Western Hemisphere.

"We do have a wide swath of members that still manufacture in the United States," Hughes said, even as 97% of apparel is imported. "It’s something we want to keep and maintain."

She added that even with specific and targeted apparel lines, it could lead to fabric and yarn mill investment in qualifying countries, so that cut and sew operations aren't buying so many inputs from China.

During the hearing where Hughes testified, the National Council of Textile Organizations said that trade cheating from the five Asian countries that are the subject of the competitiveness report is devastating the Central American garment industry.

While the proportion of apparel that is imported from Asia has declined a little over the last 13 years -- going from almost 74% to not quite 72% -- the Western Hemisphere hasn't been the beneficiary of the shift. The proportion that comes from the Western Hemisphere was 17% in both 2010 and 2023, according to a recent analysis by University of Delaware Professor Sheng Lu.

Lu said slightly more than 19% of apparel claimed duty-free benefits from USMCA, AGOA, Haitian programs or the Dominican Republic-Central America Free Trade Agreement, or CAFTA-DR, up 1.5 percentage points from 2022. About 45% of the duty-free imports were from CAFTA, and nearly 20% from USMCA.

Hughes testified that CAFTA manufacturers are limited by the yarn forward rule, giving the example that spandex is not available in enough quantity to make the stretchy leisure blends that are popular in stores.

According to Lu, 65% of apparel from CAFTA countries followed yarn-forward rules, and 2.6% used short-supply exceptions. About 30% were not able to benefit from the tariff breaks. The proportion that met the yarn-forward rule increased by 4 percentage points from 2022 to 2023.

Hughes said the Commerce Department has added two fabrics to the short supply list so far this year. "I do believe they do recognize that CAFTA-DR has not reached its full potential, and there are things they can do to help create a healthier … supply chain in this region," she said.

Hughes said that in order to get an input added to the short supply list, a due diligence investigation has to be done, and usually companies have to hire a lawyer to undertake it -- it can cost in the low five figures, she said.

"The process is still very difficult and burdensome and costly," she said.