The sourcing sector has been abuzz with trade talk this year, with agreements like the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (T-TIP) under ongoing negotiation, Africa taking off as a new, low-cost manufacturing region, and proposed changes to first sale sending buyers into a frenzy.
First sale may be fine for now, but issues related to international trade have largely remained stagnant this year—new trade legislation has not been passed and existing trade bills have not been renewed, so much remains to be settled in the new year.
Here’s a look at this year’s top moments in trade and what to watch out for in 2015.
WTO to Implement Trade Facilitation Agreement
The World Trade Organization (WTO) recently took steps to enable the full implementation of the formerly looming Trade Facilitation Agreement (TFA). The trade agreement will standardize customs rules, reduce trade barriers and eliminate border transaction costs, helping to keep apparel and footwear costs at bay, and will be the first multilateral trade agreement in the WTO’s 20-year history.
U.S. Trade Representative Ambassador Michael Froman welcomed the decision, saying, “The Trade Facilitation Agreement has the potential to fundamentally reform global customs practices and substantially reduce the costs and time associated with goods crossing borders. It’s a perfect example of how breaking down barriers to trade can unlock new opportunities for developed and developing countries alike, and it’s a particularly important win for small- and medium-sized businesses in all countries.”
For a time, it seemed the agreement wouldn’t be realized as it was put into question in July when a handful of WTO member countries, including India, blocked adoption of the Protocol of Amendment for the TFA, but that impasse has since been resolved.
TPP Talks Truck On
The Trans-Pacific Partnership (TPP) has reportedly been “close to conclusion” for most of this year, and at the latest round of talks in Washington, D.C. earlier this month, negotiators met to discuss outstanding issues like intellectual property and establish fair business competition. President Obama seeks to reach a broad agreement early in the new year.
TPP is a proposed trade agreement between the United States, Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Negotiations have been underway since 2010, and though controversial as many feel advantages will be greater for some nations over others, the goal of TPP is to enhance trade and investment among the 12 partner countries and promote economic growth and development. TPP would unite nearly 40 percent of world GDP and 30 percent of global trade.
In June, the Office of the U.S. Trade Representative released a document outlining the United States’ goals including: Elimination of tariffs and commercially meaningful market access for U.S. products exported to TPP countries, Elimination of tariffs on textile and apparel exports to TPP countries, a yarn forward rule of origin, which requires that textile and apparel products be made using U.S. or other TPP country yarns and fabrics to qualify for TPP benefits, and A carefully crafted short supply list, which would allow fabrics, yarns and fibers that are not commercially available in the U.S. or other TPP countries to be sourced from non-TPP countries and used in the production of apparel in the TPP region without losing duty preference.
Last week [Dec. 10], Cal Cohen, president of the Emergency Committee for American Trade said in an article for The Hill, that it is time to move TPP “across the goal line.” He added, “The United States can’t afford to sit on the sidelines while other countries are scoring trade deals that give preferential access for their workers and companies.”
AGOA Renewal a No-Go
The much discussed African Growth and Opportunity Act (AGOA) is slated to expire Sept. 30, 2015, but in spite of multiple meetings over the course of this year, the act was not renewed.
AGOA allows sub-Saharan African countries duty-free access to the U.S. market, provided they abide by the law, support human rights, promote poverty reduction and do not engage in corrupt activities. Of the 49 nations that qualify for AGOA, 25 have the effective visa system in place to ensure country of origin and guard against trans-shipment, and of those, only nine countries are taking advantage of the preference program, including Benin, Lesotho, Liberia, Tanzania, Ethiopia and Madagascar, which just regained its AGOA eligibility in June.
Apparel and retail organizations have been consistently calling for immediate, long-term (at least 15 years) renewal of the act, but so far to no avail.
Following discussions at the U.S.-Africa Leaders Summit in August, U.S. Fashion Industry Association (USFIA) president Julia K. Hughes said, “In our recent benchmarking study, fashion executives told us that they want to continue sourcing from the AGOA region, and even place more orders. But without duty-free treatment, sourcing apparel from the region is cost-prohibitive for many fashion brands and retailers, and since they plan their sourcing six to twelve months in advance, many are already considering leaving the region altogether.”
Africa’s Largest Free Trade Area Set to Launch
Africa has been on the forefront of manufacturers’ minds as the continent arises as a viable sourcing option, and countries, stakeholders and brands have been making moves to support the region’s growth.
At a Tripartite Sectoral Committee meeting in Burundi in October, ministers agreed to launch Africa’s largest free trade area to boost business opportunities and attract foreign direct investment in the region.
The Tripartite Free Trade Area (FTA), which includes 26 member states from the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC), will account for 58 percent of the continent’s gross domestic product (GDP). The agreement is ultimately expected to improve the continent’s global competitiveness.
U.S. and Brazil End Decade-Long Cotton Dispute
The World Trade Organization (WTO) ruled in favor of Brazil in the country’s decade-long dispute with the U.S. over cotton subsidies.
Since 2005, Brazil has argued that the subsidies provided to U.S. cotton growers by the U.S. government were a violation of global trade rules. On Wednesday, the WTO ordered the U.S. to make a final contribution of $300 million to the Brazil Cotton Institute. In exchange, Brazil will not further proceedings in the dispute and has agreed not to pursue new WTO actions against U.S. cotton support programs while the current U.S. Farm Bill is in force.
Agriculture secretary Tom Vilsack said, “Through this negotiated solution, the United States and Brazil can finally put this dispute behind us.” He added, “Without this agreement, American businesses, including agricultural businesses and producers, could have faced countermeasures in the way of increased tariffs totaling hundreds of millions of dollars every year. This removes that threat and ensures American cotton farmers will have effective risk management tools.”
First Sale Rule to Remain Unchanged for Now
U.S. Customs and Border Protection (CBP) has reportedly opted not to make changes to the First Sale Rule which would have made it more difficult for importers to save costs on customs duties under the program. The apparent halt on changes comes after the proposed revisions drew opposition from trade sector stakeholders.
The First Sale Rule stipulates that the entered value for qualifying transactions can be based on the purchase price between the middleman and the factory, rather than the between the middleman and the importer.
In July, CBP proposed changes to the existing Informed Compliance Publication that could have presented obstacles for importers using the rule as substantiating a first sale claim under those changes would have required an exhaustive list of documents to prove eligibility. CBP could likely have requested access to financials like charts of account, general ledgers and tax returns for all parties in a first sale transaction.
Russia Calls for Free Trade Zone Between EU, EEU
Russia has had a tumultuous year, with sanctions imposed by Western nations over its annexation of the Ukranian region of Crimea causing its economy to suffer. The U.S. terminated Russia’s privileges under the Generalized System of Preferences (GSP) in October.
In what many believed to be a reaction to the sanctions, Russia issued a restriction, which began Sept. 1 on some foreign-made light industry goods, including clothing, in a move the country said was made to support Russian manufacturers and improve the quality of materials and components being delivered for state needs.
The general turmoil caused some brands like New Look to abandon business there, though others, like Benetton planned expansion despite the economic unrest.
Now Russia is pushing for a free trade zone between the European Union and the nascent Eurasion Economic Union, whose members will include Russia, Belarus, Kazakhstan and Armenia when the bloc comes into force on Jan. 1, 2015. Russian foreign minister Sergei Lavrov, said it is time to start the dialogue between the EU and the EEU, noting that the EU is Russia’s major collective partner and that the country wouldn’t “shoot itself in the foot” by opting to not cooperate.
“Our economy is of course damaged by the sanctions,” Lavrov added in reference to the imposed Western sanctions. “But so are the economies of the countries which had introduced them.”