NCTO Advisory to the Trade — February 14, 2019
Made in USA Claims

Made in USA Claims 

Background

The current resurgence in US manufacturing arises from a growing realization that it makes sense — commercially and ethically — for the products Americans consume to be made in America. However, many start-up businesses have jumped onto the US manufacturing band wagon without understanding the legal requirements for making an unqualified “Made in USA” claim.

Most textile articles, including apparel and home textiles are governed by the Textile Fiber Product Identification Act or the Wool Products Labeling Act. These Acts, administered by the Federal Trade Commission, set forth specific requirements regarding Made in USA claims. In the case of an apparel or home textile article covered by the Acts, it is not enough to product the finished article in the US. If you make, for example a shirt, or a bedspread, in the US, you cannot make an unqualified “Made in USA” claim unless the fabric was also made in the US. Likewise, a sweater knitted in the US cannot be labeled simply “Made in USA” unless the yarn was also spun in the US. Apparel and home textiles assembled in the US of imported yarn or fabric must be labeled “Made in USA of Imported Yarn” or “Made in USA of Imported Fabric.” This is referred to as a qualified Made in USA claim.

We applaud manufacturers who opt to manufacture consumer textile products in the US.  When apparel and home textile products are made in the US they are more likely to contain US-made yarn and fabric than similar items made in other countries. However, it is important that US producers of consumer textiles understand that if they do not use US yarn or fabric, and then go on to make an unqualified made in USA claim, they are committing consumer fraud and could be subject to FTC enforcement actions, including fines.

In addition to protecting American consumers, the Textile and Wool Labeling Acts are intended to create an incentive for US producers of consumer textile products to source their yarns and fabrics domestically. If you are a US producer of yarn or fabric and you believe that a potential customer, a US producer of consumer textile articles, is bypassing you by using imported yarns or fabrics, while still trying to benefit from an unqualified Made in USA claim, NCTO can raise those concerns with the FTC on your behalf.

What’s Covered by the Made in USA Rule?

Nearly all apparel and home textiles are covered. The list is very long. In fact, it is easier to state what is not covered, as follows:

  • Upholstery or mattress stuffing that is not reused. If the stuffing is reused, the label must say so.
  • Outer coverings of upholstered furniture, mattresses and box springs.
  • Linings, interlinings, filling or padding used for structural purposes. If used for warmth, though, the fiber must be disclosed. In addition, if you state the fiber content of linings, interlinings, filling or padding, the products are not exempt.
  • Stiffenings, trimmings, facings or interfacings.
  • Backings of carpets or rugs and pads or cushions for use under carpets, rugs or other floor coverings.
  • Sewing and handicraft threads.
  • Bandages, surgical dressings and other products subject to the federal Food, Drug and Cosmetic Act.
  • Waste materials not used in a textile product.
  • Shoes, overshoes, boots, slippers and all outer footwear. But socks and hosiery are covered; slippers made of wool are covered under The Wool Rules.
  • Headwear, including hats, caps or anything worn exclusively on the head. Wool hats are covered under The Wool Rules.
  • Textiles used in handbags or luggage, brushes, lampshades, toys, feminine hygiene products, adhesive tapes and adhesive sheets, cleaning cloths impregnated with chemicals, or diapers.
  • Also note, this discussion relates solely to articles covered by the Textile and Wool Rules. Other consumer products are covered by an entirely different standard for Made in USA claims.

One step removed rule

The FTC, in guidance to the trade has stated: “In deciding whether to mark a product as made in the U.S. either in whole or in part, a manufacturer also must consider the origin of materials that are one step removed from the particular manufacturing process. For example, a yarn manufacturer must identify imported fiber. A manufacturer of knitted garments must identify imported yarn. A manufacturer of apparel made from cloth must identify imported fabric.”

NCTO Advisory to the Trade — February 7, 2019
U.S. Section 301 Tariffs on Goods of Chinese Origin

U.S. Section 301 Tariffs on Goods of Chinese Origin

Background

On August 14, 2017, the President issued a Memorandum instructing the Trade Representative to determine whether to investigate under Section 301 of the Trade Act of 1974 laws, policies, practices, or actions of the Government of China that may be unreasonable or discriminatory and that may be harming American intellectual property rights, innovation, or technology development.

NCTO supports the ongoing Trump administration’s Section 301 case against China’s intellectual property abuses, testifying on and submitting written comments documenting the damaging effects of China’s IP theft on U.S. textile manufacturers. In doing so, NCTO advised placing tariffs on finished products, such as apparel and home furnishings, which would bring greater benefit to the North American textile supply chain. NCTO was also successful in removing products such as rayon fibers and most textile machinery, while continuing to push for an exclusion process for items not available domestically.

The United States and China are currently in high-level negotiations to determine if a settlement can be reached to resolve the 301 IPR case.  March 1, 2019 is the target date set by the Trump administration to reach a negotiated settlement.

So far three tranches of tariffs have been imposed. Below, in reverse chronological order, are the three tranches.

Tranche Three

On September 17, 2018, (just 12 days after the close of the September 6, 2018, comment period, and just two days after the transcript of the hearing was made available on regulations.com) USTR announced the final Tranche Three list of 5,745 full or partial lines of the original 6,031 tariff lines as the final Tranche Three list with 10% additional tariff to be imposed starting September 24, 2018. They fully or partially removed 297 tariff lines from the original proposed list. Included among the products removed from the proposed list are certain consumer electronics products such as smart watches and Bluetooth devices; certain chemical inputs for manufactured goods, textiles and agriculture; certain health and safety products such as bicycle helmets, and child safety furniture such as car seats and playpens.

Starting January 1, 2019, the level of the additional tariff was to increase to 25%. On December 3, 2018, the President announced that the tariffs would not increase on January 1st and stay at 10% while the U.S. and China negotiated. If no agreement is reached, they will go to 25% on March 2, 2019.

Tranche Three is of special interest to NCTO member because, unlike the earlier lists, it included textiles. The entirety of Chapters 50 through 60 of the tariff schedule was proposed, and eighteen 8-digit tariff lines in the textile chapters were removed from the finalized list that went into effect. That means that virtually all textile fibers, yarns, fabrics, and carpets were included in this action.

NCTO applauds the Trump Administration for including textile articles from China that are unfairly traded in contravention of China’s WTO commitments. However, there has been some unintended collateral damage. For a very limited number of early-stage processing textile inputs China is the sole source. Some of these textile inputs are ones for which NCTO members successfully petitioned for duty suspension, under the Miscellaneous Tariff Bill, only to find the duty suspension offset by the Section 301 tariffs. It is also important to note that apparel and most other textile products (Chapters 61 through 63 of the tariff schedule), which NCTO advocated should be on the list, are not subject to Section 301 tariffs. Reports of apparel retailers or consumers being affected directly by these tariffs are fake news.

Tranche Two

On August 8, 2018, USTR announced a list containing 279 of the original 284 tariff lines that were on a proposed list subject to 25% additional tariffs. These went into effect August 23. For companies with articles on that list there was an opportunity to file for an exclusion. So far no Tranche Two exclusion requests have been processed, due the backlog of Tranche One exclusion requests.

Tranche One

On April 3, 2018, USTR released a proposal to place an additional 25% import duty on products covered by 1,333 tariff classifications. Interested persons filed approximately 3,200 written submissions. In addition, USTR and the Section 301 Committee convened a three-day public hearing. The result was that 515 items were removed from the list. For companies with inputs on this list there was an opportunity to file for exclusions. The very large number of exclusion requests filed, 10,828, has meant that processing exclusions is taking a long time. As of January 30, 2019, 999 had been granted and 2,498 had been denied. Of the remaining request, 2,179 are at “Stage 3,” meaning they have passed the Initial Substantive Review of whether the exclusion request should be granted, and now USTR is consulting with Customs to determine whether an exclusion would be administrable. It can reasonably be assumed that many of the requests that have made it through to Stage 3 will likely be approved.