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Mongolia Third Neighbor Trade Act Could Diversify Cashmere Sourcing for U.S.

Following the Trump administration’s declaration of raising tariffs by 10 percent on $300 billion of Chinese goods come Sept. 1—not including the $250 billion subjected to the existing 25 percent tariff—exports from China to the United States rose according to the General Administration of Customs earlier this week.

As the United States trade war with China escalates, businesses in this country’s apparel industry are learning to either diversify sourcing along the supply chain or navigate through higher tariffs on goods imported into this country. While these professionals must make decisions that will be in the best interest of their companies’ bottom line, shifting partnerships out of China could be challenging.

“All these [U.S.] companies already have relationships with Chinese suppliers, and they are probably good relationships, which is the reason China is our greatest trading partner,” explained Deanna Clark-Esposito, founder of New York City’s Clark-Esposito Law Firm, P.C.

With a large amount of finished cashmere products arriving into the United States from China, there is room to consider alternative sourcing options for these goods. To offer more diverse avenues for sourcing, Florida Representative Ted Yoho (R-FL-3) introduced in April H.R. 2219, also known as the Mongolia Third Neighbor Trade Act. If passed, the legislation would afford a five-year duty-free exemption for certain types of products, such as cashmere, imported from Mongolia into the United states.

Yoho revealed that Mongolia’s cashmere production is equivalent to approximately 45 to 50 percent of the world’s supply, yet 85 percent of this product is exported from China. With the potential passage of this legislation, the job market in the United States could grow with more positions in manufacturing cashmere goods from raw Mongolian wool.

“There are going to be more jobs created here from this,” he said. “There is no real cashmere industry in this country.”

The legislation would also benefit job growth in Mongolia. By affording duty-free status to Mongolia for certain products until Dec. 31, 2025, an opportunity arises to forge a stronger relationship through trade and job creation of potentially 50,000 positions—many for women—in that country.

“This will diversify raw product that could be brought into this country,” he said. “Instead of the finished product being produced in Mongolia, it could be brought here for our textile industry. It would be positive for jobs, our market and the cashmere industry.”

With bicameral support, the next step for the bill is to go through a hearing or pass on the floor of the House, which would lead to it being brought to the Senate. Supporters would like to have the legislation passed by the end of 2019. For the apparel industry, this is viewed by some as an opportunity to bypass China’s finished cashmere products and work directly with Mongolia for raw materials to produce goods here.

“The supply chain runs through China; therefore, Mongolia is very dependent on what happens with China,” said Steve Lamar, executive vice president of the American Apparel & Footwear Association. “We are in the middle of a trade war with China, so taxing the China supply chain is taxing the Mongolia supply chain.”

Some apparel companies that rely on China for its sweater products hail the legislation as a move in the right direction to ease the challenges in sourcing for cashmere. Los Angeles premium apparel brand Vince is a major source of cashmere products for the United States luxury-apparel market.

“A very large portion of our business is centered on cashmere,” said Mark Engebretson, executive vice president of operations for the company. “Recent events with China show anything that is China made is risky and continues to be risky until we have a deal made. Our ability to diversify in cashmere is extremely limited. The argument can be made that Mongolia is the only other place [to source cashmere].”

While Engebretson is a supporter of the legislation, he does have his reservations. Despite hopes that imports of Mongolia’s cashmere could occur six months following a potential passage of the legislation, the country must prepare in terms of capacity to accommodate demand from the United States.

“We’ll need time to prepare them for the U.S. market with the quality levels, restrictions and compliance, but the base is there,” explained Engebretson. It’s a really interesting opportunity that I haven’t seen in a long time.”

To quell these concerns from potential partners in the United States, Mongolia’s officials are exploring ways to prove that it will be ready for demand from the United States.

“The Mongolian government is providing various subsidized programs, including a mobile ‘bathing’ of livestock and ‘sources tracking,’ among many others,” explained Erdenebat Tseveendorj, economic and industrial policy adviser to the Mongolian president. “A few international and local nonprofits are working to educate herders to improve livestock health, breeding and cashmere quality.”

Photos courtesy of Gobi