ITC Considers Tariff and Non-Tariff Barriers in Evaluating Economic Impact of Potential EU Deal

Apparel trade groups testifying at the Dec. 18 International Trade Commission hearing on a potential EU-U.S. trade deal said they see room for departures from past trade deal approaches. Steve Lamar, executive vice president of the American Apparel and Footwear Association, and Julie Hughes, president of the U.S. Fashion Industry Association, received many questions about how they'd like the deal to be shaped. Both said they want immediate and reciprocal elimination of high duties on textiles, footwear and apparel, though Lamar noted there are some domestic sensitivities. The ITC asked him to elaborate and Lamar said there are some domestic producers of protective boots and of athletic shoes, and those producers would like their Harmonized Tariff Schedule codes to have gradual phase-outs of tariffs or keep their tariffs. Lamar said the exact number of lines has shifted over the years, from 17, to 19, to 23, but it's a small proportion of all footwear -- he said about 120 lines can have immediate tariff removal.

The ITC asked Hughes and Lamar if their two associations are in complete alignment on trade. Hughes said her group is silent about the Berry Amendment, just because it's not a priority for her members. Lamar explained that 98 percent of apparel is imported, and much of what is produced domestically is uniforms, primarily for the military, government and the U.S. Postal Service. But in response to a follow-up question on domestic production, he said there are a few prestige brands that make garments here -- Brooks Brothers shirts, for example, and Hart Schaffner Marx, which makes suits.

Both said that rules of origin should be very different in an EU-U.S. agreement than they have been in past agreements with lower-wage countries. Hughes said the majority of what's imported from Europe is textiles, not apparel, and if tariffs were lowered on those fabrics, U.S. apparel makers might expand production. She questioned whether dropping tariffs on EU apparel to zero would hurt U.S. garment production at all, given that European garments are one half of one percent of imports.

Hughes also shared with the ITC data from a Congressional Research Service report that said of all domestic textile production, only 9 percent ends up in garments. About 40 percent is in home and floor coverings -- curtains, carpets and the like. And the rest is technical fabrics, which can be used in medical or industrial uses, such as car seats. Hughes said she was surprised that the proportion of domestic fabric that ends up in garments is so low, but that's even more of a reason to end the yarn-forward rule.

The ITC asked whether Europe uses a yarn-forward rule in its trade deals, and Lamar said no, it uses a fabric-forward rule. He said he'd like the deal to have a much more flexible rule of origin in textiles and apparel, and suggested that Mexican-sewn garments made with U.S. fabric should qualify for duty-free export to Europe. He said using accumulation in this way would provide more business opportunities for U.S. mills.

The commission asked whether going to zero on tariffs in apparel and textiles would fix the issue of tariff inversion -- for instance, that the tariff on imported wool is higher than on imported suits. (Italian wool is favored by some U.S. suitmakers). Lamar said yes, that would end distortions of many years.

Others testifying asked that tariffs in their industries be given very slow phase-outs -- even over 20 or 30 years. Eric Astrachan, executive director of the Tile Council of North America, complained that European governments support uneconomical production of ceramic tile, and that if tariffs were lowered, his companies would be hurt.

Most witnesses -- including from autos, chemicals and grain producers -- said that European regulation is a non-trade barrier that's expensive or even impossible to overcome. Matt Blunt, president of the American Automotive Policy Council, said that because Europe doesn't recognize American safety and environmental standards, a company could have to spend up to $10 million per model to get a car certified to European standards. Blunt said that does happen -- he said the Ford Mustang is the top-selling sports car in Germany -- but if standards were harmonized, more American models could be sold. Blunt said two-way trade in autos and auto parts between the EU and the U.S. is 11 percent of all trade between them.

But Astrachan said that European standards for tile aren't as strong as American standards, and that allows European factories to cut corners and save money. He complained that European tiles are more breakable, don't have water absorption testing and don't have the same sort of rules on size uniformity.

William Foley, CEO of Libbey Inc., one of three remaining glass tableware companies in the U.S., said his industry had a 10-year tariff phase-out in the Trans-Pacific Partnership, and he'd like an even longer phase-out if possible. Foley said that the number of jobs in glassware has fallen 63 percent since 1997, and if tariffs were eliminated, it could be the end of U.S. production. Germany was the second-largest source of glassware imports in 2017, and France and Italy ranked fifth and sixth, he said. Imports from all EU countries was 26 percent of glassware imports, he said.