The U.S.-China Economic and Security Review Commission released its annual report to Congress Tuesday, covering a wide range of topics and issuing key findings, policy recommendations and executive summaries.

Several questions were raised during the briefing on pressing issues, including the surge of fentanyl shipments from China, the de minimis loophole and the Uyghur Forced Labor Prevention Act (UFLPA).

During the meeting, Commissioners fielded questions on the upcoming Asia-Pacific Economic Cooperation (APEC) summit in San Francisco where fentanyl is on the agenda.

Commission Chairman Carolyn Bartholomew stressed that enforcement mechanisms are key in tracking and stopping the flow of fentanyl and other narcotics that are being shipped directly to U.S. consumers at alarming rates.

She said fentanyl precursors are measurable and quantifiable and pledged to continue scrutinizing whether progress is being made by the Chinese to enforce the law and reduce the tsunami of fentanyl reaching the U.S. market.

Vice Chairman Alex Wong said the commission’s research, which culminated in a 2021 Issue Brief titled “Illicit Fentanyl from China: An Evolving Global Operation,” highlighted the increase in fentanyl precursor movement in recent years from China through third countries and ultimately into the U.S.

“I want to highlight that that increase occurred in the post-pandemic period. Now, you will all remember that during this period we saw a number of supply chains across commodities and finished goods out of China being very strained and experiencing a lot of delays,” Wong said. “The only supply chain that was not only not strained but seemed to increase and increase its efficiency and speed was the movement of fentanyl precursors out of China.”

Wong also said the Chinese government often says it is unable to enforce the law and track producers and shippers of fentanyl precursors.

“They would say to me, ‘We don’t have as much power as you think.’ And I would always say well you have more power than you say, particularly when we are talking about a government that strives very hard to enhance its ability to surveil and track and exert precise pressure on individuals throughout its 1.3 billion population,” Wong added. “So, they can do more on fentanyl. My hope is that discussions tomorrow and our continued pressure on the Chinese results in action. It really is a major detriment to our society health-wise and our social fabric that needs more attention.”

Commissioners Kim Glas and Mike Wessel voiced alarm about the Section 321 de minimis mechanism, which is a legal provision in U.S. trade law that has unintentionally acted as a gateway to an explosion in e-commerce shipments that come in largely uninspected and duty free, endangering American consumers and undermining U.S. manufacturers.

Commissioner Mike Wessel raised the de minimis issue as it relates to fentanyl, facilitating packages into the U.S. with little to no inspection.

“Fentanyl is being transited that way as well. De minimis is a vector not only for products emanating from the Xinjiang region, whether it’s textile or other products; there have been a number of studies across a number of supply chains—solar, aluminum, car parts, but fentanyl is also coming in through the de minimis loophole,” Wessel said. The administration has the legal power to act. There needs to be something done.”

See Wessel’s remarks here:

Commissioner Jacob Helberg said it was “laughable” that the Chinese government has said it does not have the power to crack down on the illicit trade.

“Clearly, if they want to put an end to this fentanyl trade, they could probably do it overnight,” he added.

“Last year in 2022, 110,000 Americans died from fentanyl overdoses in this country. It has ravaged and completely hollowed entire communities across this country. You are seeing it rightfully become an incredibly salient political issue in this current presidential election cycle,” he said.

Commissioner Glas voiced concern about the lack of Customs enforcement of products made with slave labor, fentanyl and other dangerous products that enter the U.S. market through the de minimis loophole, largely uninspected and duty free.

“To put it into context, last year the U.S. imported $184 billion worth of textiles and apparel and only $35 million was detained for inspection (by U.S. Customs and Border Protection).

Glas stressed that with 20 percent of the world’s cotton grown in Xinjiang, China, where the use of forced labor has been widely documented, and 80 percent of cotton products made in China containing Xinjiang cotton, a large volume of the tainted apparel is making its way into the U.S. uninspected.

“One of the things our research paper did was look at Shein and Temu and the growing influence of these Chinese e-commerce websites, and the national security risk and consumer security risks these kinds of platforms [pose],” Glas said. “The fact is that the U.S. government under its current trade policy rewards these platforms when they directly ship these products to the U.S.”

See Glas’ remarks here:

Glas noted that de minimis was created 100 years ago for tourists who were bringing back sweaters or other souvenirs and not having to pay a tariff.

But e-commerce has changed the system and the rules of the game.

“In 2015, 150 million de minimis packages came in. Now, we are on track for 1 billion packages of individually wrapped boxes. You do not have to provide information on the country origin. What is in the box? Is it safe? Does it meet Consumer Product Safety Commission regulations? Is it an illegal product? Is it a forced labor product? None of that is ever labeled. No box says ‘fentanyl.’ No box says, ‘forced labor product.’”

She said if the administration closed the de minimis loophole today, the goods would be transported by freight through normal entry process and be part of a larger Customs inspection strategy.

See her remarks here:

To view the entire Commission briefing, please see the link here.

Videos created by: Rebecca Tantillo

NCTO Chairman Norman Chapman, who is president and CEO of Inman Mills, recently outlined a wide range of policy issues the organization is engaged in this year to maintain the domestic textile industry’s competitiveness, expand its investments and exports, and strengthen customs enforcement of illegal trade practices.

Speaking at a Southern Textile Association’s conference on Aug. 23 in Belmont, N.C., Chapman explained the important role NCTO plays in representing the industry’s voice in Washington.

“Good representation in Washington is critical for our long-term survival as an industry,” Chapman told the audience. “As I have heard [Parkdale Mills Chairman and CEO] Andy Warlick say many times, ‘If you’re not at the table, you’re on the menu.’ It’s important to not be on the menu. I’ve been in Washington quite a bit lately. I can assure you that we’re not on the menu. We’re absolutely at the table and we’re well represented on both sides of the aisle.”

Chapman said the industry “performed remarkably well during the pandemic and got a lot of people’s attention in Washington. So, we are in a position to play a little more offense, but we do spend a lot of our time defending the industry.”

Onshoring and Nearshoring Textile and Apparel Manufacturing—Maintaining Strong Textile Rules in CAFTA-DR

NCTO has engaged heavily in promoting the importance of the co-production chain with Central America and other Western Hemisphere trade partners.

Central to growth and investment in the region is maintaining strong rules of origin in the United States-Dominican Republic Central America Free Trade Agreement (CAFTA-DR), which has facilitated$15.1 billion in two-way trade and supports a co-production chain supporting more than 1 million workers in the U.S. and Central America.

As nearshoring and onshoring trends continue to gain momentum, some $2 billion of textile and apparel investment has gone into Central America and the U.S. over the past 18 months.

NCTO hosted or participated in numerous congressional and administration visits to CAFTA-DR and U.S. textile facilities over the last 18 months, and conducted over 30 joint congressional meetings in February with regional partners.

During his presentation at the STA conference, Chapman discussed the importance of this region and the strong rules of origin in free trade agreements that help facilitate trade and support U.S. and regional textile and apparel industries.

“The yarn-forward rule is at the heart of our free trade agreements and prevents non-signatory countries from being able to get a free ride,” he said.

A study conducted by Werner International found that it is “reasonable and achievable to double the trade out of CAFTA-DR to the U.S. in the coming years.” It would equate to additional investments totaling $6 billion, creating 180,000 jobs in the U.S. textile industry and 2.17 million jobs in the CAFTA-DR region creating even more resilient supply chains, according to the study.

But Chapman warned that some importers have been trying to “rewrite the rules” and dismantle CAFTA-DR, calling for expansion of the short supply provision in the agreement, which would ultimately  give China a back door to a free trade deal it is not a party to and displace existing production and investment in the region and the U.S. Thanks to the work of NCTO, the administration and a significant bipartisan group of lawmakers have continued to voice support for maintaining strong textile rules.

“Fortunately, today, the Biden administration has acknowledged the value of the yarn-forward rule and indicated they do not intend to undermine the rule or change the process of short supply,” Chapman said. “And NCTO is also working on a win-win proposal exploring unique policy solutions around taxation.”

China 301 Tariffs

Chapman also outlined the importance of maintaining the Section 301 China penalty tariffs on finished apparel and textiles, outlining when they were first implemented by the Trump administration and subsequently continued by the Biden administration.

“Virtually everything from China has a 301penalty tariff on it,” Chapman noted, explaining that the tariffs are linked to intellectual property theft by the Chinese government.

NCTO’s objectives include supporting the continuance of the penalty tariffs on finished textile and apparel products, while allowing for exclusions on manufacturing inputs and machinery not available elsewhere. In addition, the organization supports letting the remaining exclusions for finished personal protective equipment (PPE) products expire, given the capacity of U.S. producers and that of our free trade agreement partners.

The U.S. Trade Representative’s office is currently undergoing a statutory 4-year review process.

Last summer, representatives of domestic industries benefitting from the trade actions requested a continuation of the tariffs, launching a next phase of review.

NCTO and the U.S. Industrial and Narrow Fabrics Institute (USINFI) filed a joint formal submission

to the U.S. Trade Representative’s office in January, outlining how the 301 tariffs on finished apparel and textiles counteract China’s unfair trade advantage and give U.S. manufacturers a chance to compete.

“Obviously, we would like to keep these tariffs in place,” Chapman said, while letting exceptions for PPE imports expire. “The textile industry made a tremendous amount of PPE during the pandemic that reverted back to China very quickly afterwards,” he added.

NCTO textile leaders also recently met with U.S. Trade Representative, Ambassador Katherine Tai, in Washington whom Chapman noted has been “very supportive of our industry.”

“She also toured some of our facilities down here and her support will be critical in our fight to keep the 301 tariffs,” Chapman said.

Enforcement of the UFLPA

Customs enforcement of the Uyghur Forced Labor Prevention Act (UFLPA), which bans the importation of products made with forced labor in Xinjiang, China, is also a major focus area for NCTO.

China has been illegally forcing Uyghur ethnic minority population in Xinjiang to harvest cotton and produce cotton apparel in China’s Xinjiang Uygur Autonomous Region (XUAR), according to countless news reports and investigations by human rights organizations. The Chinese government, according to numerous reports and investigative news reports, have detailed nearly 1 million Uyghurs, in Xinjiang, where they have been subjected to torture, forced labor, religious restrictions and even forced sterilization.

Chapman also noted that 20% of the world’s cotton is grown in Xinjiang while 85% of China’s cotton is grown in the region,

NCTO continues to engage with U.S. Customs and Border Protection (CBP) officials, other administration officials and key allies on Capitol Hill to press for more enforcement of this critical legislation.

Closing the De Minimis Loophole

Another major focus area for NCTO is closing a legal loophole in U.S. trade law, known as Section 321 de minimis waivers.

De minimis shipments, which have exploded in recent years with the growth of e-commerce, are undermining efforts to hold China accountable and the nation’s ability to enforce the Uyghur Forced Labor Prevention Act (UFLPA).

The de minimis trade loophole is being aggressively used by e-commerce companies and mass marketers.  It allows goods valued at $800 or less per person to arrive at our doorsteps duty-free each day through e-commerce.  U.S. officials estimate approximately 2.7 million de minimis packages enter the U.S. market each day that otherwise would be subject to tariffs, penalty tariffs, taxes and customs inspection. In addition, de minimis shipments are being utilized to facilitate Xinjiang forced labor apparel into our closets.

“All countries have different de minimis values. China’s de minimis value is $7. Unfortunately, [certain} Chinese companies have mined our trade laws and use this de minimis law to import their product from China into the U.S., completely duty free,” Chapman said.

“The unfortunate thing is we don’t know what’s in them. They completely bypass customs. They are self-declared on value and [inspected] through random sampling,” he added.

Further, over 50% of these shipments contain apparel products.

“So, this has literally become a free trade agreement for China. As I mentioned, there are 301 penalty tariffs. They don’t pay the penalty tariffs. They’re duties on textiles that come into the U.S. They don’t pay duty. This is widely recognized as a problem in Washington, but there’s a real fight on our hands,” Chapman said.

Legislative Priorities

On the legislative front, Chapman outlined several other top areas of engagement, including efforts to push Congress to reauthorize the Miscellaneous Tariff Bill (MTB), which is legislation that temporarily suspends or reduces import tariffs on manufacturing inputs that are unavailable domestically. Textile manufacturers benefit from duty breaks on inputs such as acrylic and rayon fibers and various chemicals that are not produced in the U.S. The MTB bill lapsed at the end of 2020 and Congress has thus far not advanced legislation to reauthorize it.

NCTO is also engaged in working with Congress to pass the FY 2024 National Defense Authorization Act (NDAA), which includes an economic impact assessment and language to strengthen the Berry Amendment by covering additional purchases of home furnishing items.

Equally as important is passage of a new farm bill.

The farm bill is up for a 5-year renewal this year and Congress is currently considering the legislation.

Various cotton and textile programs are contained in the farm bill that are important to NCTO as well as to the National Cotton Council (NCC).

They include renewal of: the Economic Adjustment Assistance for Textile Manufacturers program (EAATM), Pima Cotton Trust Fund and Wool Manufacturers Trust Fund.

“This is very important legislation for us to get wrapped up,” Chapman said.

On the communications and press front, NCTO President and CEO Kim Glas penned two important and insightful op-eds, outlining how Section 301 tariffs and the U.S.-Dominic Republic (CAFTA-DR) agreement are helping the U.S. textile industry, a key American manufacturing sector, compete.

In the first piece, Kim wrote a joint op-ed with CECATEC-RD Executive Director Patricia Figueroa that showcases perspectives from both the U.S. and Central American textile and apparel industries on the state of nearshoring in Central America and focuses on the region and our co-production chain as a strong sourcing alternative to Asia, even in a down market.

Read the op-ed here: Why Central Ameria Makes Sense–Even in a Down Market

The second opinion piece, titled “Keep China in Check: Don’t let Section 301 Tariffs Expire,” published by The Hill, outlines how the Section 301 tariffs on finished apparel and textile products has created a more level playing field against unfair trade practices, such as forced labor in China.

It is a timely opinion piece, in light of the U.S. Trade Representative Office’s pending four-year review and decision that will weigh heavily on the U.S. textile industry.

Please see a link to the op-ed on The Hill’s website here: Keep China in check: Don’t let Section 301 tariffs expire.

 

NCTO President and CEO Kim Glas joined David Smith, Executive Vice President of Milliken & Company’s Textile Division and Bob Antoshak, partner at Gherzi Textile Organization, in a timely panel discussion on the trends driving nearshoring and onshoring of textile and apparel production last month.

The panel discussion, titled the “ABC’s of Nearshoring,” was held at Texworld in New York City on July 19.

The dynamic discussion touched on several key trade issues impacting the industry, including the yarn forward rule of origin in CAFTA-DR and USMCA, Section 301 tariffs and the Section 321 de minimis loophole. It also highlighted the significant investment—$2 billion in the CAFTA region in the past 18 months—and how companies can capitalize on moving production close to home.

In her opening remarks, NCTO’s Kim Glas pointed to several trends showcasing that nearshoring continues to build momentum, though apparel and textile trade is currently in a slump globally.

“It’s here to stay and it’s going to grow in the future,” Glas said, pointing to the $2 billion in new investment in both the U.S. and Central America, “as brands and retailers continue to look at ways to diversify their supply chains.”

Glas also said 2022 was a banner year for two-way textile and apparel trade with Central America, which hit $15 billion. Notably, 81 percent of U.S. exports of spun yarns go to the CAFTA-DR countries.

That is why she said she is “bullish on the future,” despite the recent dip in trade. She said the co-production chain employing more than 1.1 million workers collectively is predicated on the yarn forward rule of origin in free trade agreements such as CAFTA-DR.

Rules of origin help drive investment in yarn and fabric production. COVID created a shift in many people’s minds and drove companies to recalibrate their supply chains to diversify out of China and move production closer to market, she added.

Milliken’s David Smith stressed that the region has the capacity and capability to meet brands’ and retailers’ needs.

“Chances are the U.S. and the regional textile industry has the capabilities and the capacity to meet your needs. And if there are any gaps, I think you’ll find a listening ear and a willingness to work with you to eliminate those voids,” as reported by Sourcing Journal. “The industry is investing and growing the perception that we have limited yarn capacity or weaving capacity in the region. And when I say in the region, I’m including in the U.S.”

And he noted that just doubling apparel and textile exports from Central America, which has a U.S. import market share below 10 percent, would translate into $6 billion in investment and generate 187,000 new textile and apparel jobs in the U.S. and 2.2 million jobs in Central America.

“All we are looking for is a willing partner,” Smith said.

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President Biden’s historic visit to Auburn Manufacturing on Friday elevated our industry’s profile and reinforced its competitiveness and economic contribution in regional and national media headlines and news video clips across the country.

AMI CEO Kathie Leonard introduced President Biden and outlined the challenges her company has faced over the years, including inflation, unfair import competition and a once-in-a generation pandemic that nearly derailed her company. But a major battle she won against Chinese companies dumping silica fabric on the U.S. market, combined with federal policies aimed at bolstering U.S. manufacturing have led to a new era of revitalization and growth.

“We started in Mechanic Falls with two people (I was one of them) and have expanded exponentially over time. We are now in two places…and we now have over 50 people and we are track to increase our workforce by another 30 percent,” Leonard said.

“Growing a business, especially exponentially isn’t easy. We experienced many challenges over the years. First of all, the interest rate; it was 14 percent when we started building our first building. That’s pretty high. Secondly, China’s dumping of silica fabric, one of our major products, stole 30 percent of our domestic industry by 2016 and that forced us to file an antidumping case against China, and it was successful but very expensive.

Then, COVID hit just as we were recovering from what we’d been through the last several years. That was a really difficult time for all of us.

Leonard credited several policies, including the American Rescue Plan, and a focus on American manufacturing as catalysts that helped keep Auburn afloat and reignite the U.S. economy.

“So, we’re now back. We’re growing our workforce again. We are entering new markets and we’re upgrading our plants and equipment. While our tagline is ‘Innovation on Fire,’ we were on the brink of flaming out for a while. It really is now Innovation Reignited.”

To see a video clip highlighting key points from remarks by President Biden and Auburn’s Kathie Leonard please clip on the box or link below:

NCTO President and CEO Kim Glas was also in attendance at this historic presidential visit at Auburn Manufacturing and had a chance to meet briefly with President Biden. She said she talked about the importance of his visit to Auburn and to the whole U.S. textile industry. She also emphasized the resilience and competitiveness of our industry and stressed that with the help of his administration promoting policies to spur more onshoring and nearshoring, the industry will continue to be an important and vital contributor to the U.S. economy.

In his remarks, President Biden outlined the challenges manufacturing industries, such as textiles and paper, have faced over the past two decades, particularly in Maine, where Auburn Manufacturing is located.

He said past administrations and other economic policies led to the offshoring of manufacturing that “hollowed out” the U.S. manufacturing sector. “What did most of these guys do?  They decided to send the jobs overseas where the labor was cheaper and bring the product made back to the United States more expensive.  Entire towns and communities got hollowed out not just here in Maine, but all across America.  This is not just for Maine, this is all of America.  Small towns and medium-sized towns all across America factories got shut down,” Biden said.

President Biden pointed to a few examples of companies bearing the brunt of offshoring in Auburn and Lewiston, Maine.

“Let me remind you of a few examples: Auburn and Lewiston, right next door, used to be home to some of the country’s largest textile mills.  Bates Manufacturing was the largest employer in Maine with thousands of employees supplying the country with high-quality cloth and quilts,” he said.

Bates Manufacturing survived the Civil War, the Great Depression, and two World Wars.  But in the 1990s, American textile production moved overseas, and Bates closed up shop.  And by the way, my state used to be a gigantic producer of textile, the DuPont Company.”

He also highlighted similar examples of the impact on Maine’s iconic paper industry, which lost 8,000 jobs over the past two decades, he said.

“Take the Verso mill in Bucksport.  Founded in [1929].  [It] provided generations of good jobs and up to 40 percent — 47 percent of the town’s tax revenue.  A decade ago, it closed down, devastating the town, like so many thousands of towns all across America,” Biden noted.

Between 1990 and 2010, Maine lost nearly 45,000 manufacturing jobs, he said.

“And like we saw across the country, once-thriving cities and towns became shadows of what they used to be.  And when these towns were hollowed out, something else was lost as well.  And I come from Northeast Pennsylvania; I know about shutting down towns.  Pride — people lost their pride.

Folks, this is what trickle-down economics looks like.  But now we’re turning things around.”

Biden pointed to Kathie Leonard’s Auburn Manufacturing as a success story as he stood in the center of her state-of-the art facility surrounded by her employees and other invited guests.

“Like here at Auburn Manufacturing, now, you heard Kathie talk about starting this company 40 years ago making advanced textiles that are fire and heat resistant.  They weathered decades of economic storms.  Now with the help of the American Rescue Plan, they’re having their biggest export year ever.  The company is growing, and their products are made in America.”

You can view a full transcript of President Biden’s remarks here.

To listen to the full White House Clip of the event please click here.