California Apparel News

What do crane trucks, eyeglasses frames, frozen sweet corn and women’s blue jeans have in common?

Nothing, unless you are a European customs official. These are the four unlucky U.S. products that have been slapped with extra tariffs by the European Union in retribution for a U.S. law that breaks international trading rules. Women’s blue jeans, including those made in the Los Angeles area, are perhaps the unluckiest of them all, having been singled out for a whopping 26 percent tariff penalty—on top of the existing 12 percent duty—that was imposed with little notice earlier this month.

The trouble all began about 13 years ago when Congress passed a law known as the Byrd Amendment, which allows a handful of U.S. companies to get cash payouts from duties the United States assess on subsidized and unfairly priced imported goods, including ball bearings and steel. The legislation was passed without any congressional hearings nor any debate in the Senate or House. As is often the case with such midnight legislating, it was quickly learned that the Byrd Amendment was full of problems, not the least of which was that these cash handouts put the United States in violation of the very trade commitments that it was trying to uphold. Moreover, because there were no strings attached to these windfall payments, they led to no measurable benefit for the U.S. economy.

Although it eventually repealed this law, Congress left in place some residual subsidies as part of a political deal. Last year those subsidies amounted to direct payouts from the U.S. Treasury of about $120 million to U.S. companies.

While none of the unfairly traded products involved pants, or any other article of clothing, Los Angeles–area blue-jeans makers were caught up in this mess because the European Union is allowed to retaliate by assessing an extra tariff against any U.S. exporters in an amount equivalent to the total cash payout made by the U.S. government. And because the U.S. government continues to make these payouts, the European Union gets to keep on retaliating.

The extra tariffs were greeted by the industry with shock and dismay. By effectively shutting down one of the top markets of the U.S. jeans industry, this action punches a hole in efforts to promote U.S. manufacturing and exports. Companies are now weighing their options on how they can compete given this new tariff. Over the longer term, many of these options would involve moving manufacturing and eliminating jobs from the United States.

Washington should weigh its options, too. We have two immediate suggestions:

First, the Obama administration should insist that these duties be removed before the much-hyped Trans-Atlantic Trade and Investment Partnership—the U.S.-Europe trade agreement the president announced in his State of the Union speech—is negotiated. It is a lack of good faith for the European Union government to take such an action on the eve of trade talks, and we should make sure that these discussions do not occur while this punitive tariff is still in effect.

Second, Congress needs to complete the job it started, but did not finish, when it repealed the Byrd Amendment back in 2005. In an era of budget deficits, tax increases and sequesters, it is galling to learn that the hundreds of millions of federal funds are paid out every year under a scheme that has been declared illegal under international trade norms and recognized as such by our own government. A full repeal of the Byrd Amendment is urgently needed now.

Made-in-LA jeans are one of the success stories of U.S. apparel manufacturing in recent years. Let’s hope swift action on the part of the administration and Congress can keep it that way for years to come. l

Kevin M. Burke is the president and CEO of the American Apparel & Footwear Association.