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US hosiery sector wants flexible rule of origin in TPP
Sep '12
U.S. manufacturers of socks and hosiery represented by The Hosiery Association (THA) this week made public their demand that the Obama administration revise its position in the Trans-Pacific Partnership (TPP) talks by tabling a rule of origin that would allow certain socks and hosiery made in the U.S. to qualify for TPP tariff benefits even if they use yarns from outside the TPP region.

In a one-page position paper handed out during a Sept. 9 stakeholder event at the 14th round of talks here, THA urged the Office of the U.S. Trade Representative to put forward what it calls a "knit to shape" rule for certain socks and hosiery products. This would mean that if the socks or hosiery are made into a final product in a TPP country, they would qualify for tariff benefits, regardless of where the yarn was produced, an industry source said.

This proposal would therefore allow U.S. hosiery makers to source acrylic, wool and elastomeric yarns from outside the TPP region and still obtain tariff benefits for the final socks and hosiery. The only exception to this proposed rule would be for yarns made of cotton and/or polyester, which would still be required to be made in the region in order for the final product to be eligible for TPP benefits, according to industry sources.
THA floated this proposal to USTR, but has not yet received a response, one source said. Overall, this proposal from THA would create a rule that is more flexible than the strict yarn-forward rule of origin that the U.S. has tabled in the TPP talks. A yarn-forward rule would require that all inputs, starting with the yarn, come from the TPP region in order for a final product to qualify for TPP benefits.
According to the THA paper, a more flexible rule is needed because the U.S. hosiery industry currently sources its yarns from all over the world. Therefore, if the TPP includes the strict yarn-forward rule, a majority of U.S. hosiery products would not be eligible for TPP tariff benefits.
Industry sources argued that this would impair the ability of U.S. hosiery makers to access new markets like Vietnam and Malaysia, which are expected to lower their tariffs for qualifying apparel items. One source pointed out that socks and hosiery are one of the few apparel items still produced in the U.S., and argued that the Obama administration should be promoting U.S. exports of these products instead of potentially impairing them.
The THA proposal is a direct response to the yarn-forward rule of origin for apparel that USTR has tabled in the TPP talks, which THA argues is even more restrictive than yarn-forward rules the U.S. has included in past free trade agreements. Unlike past U.S. FTAs, the U.S. yarn-forward proposal in TPP eliminates two major exceptions that had been widely used by U.S. sock and hosiery makers.
The first was for gimped yarn, a stretchy type of yarn used in hosiery, while the second was for nylon yarn from Israel. Under previous U.S. FTAs, U.S. sock and hosiery makers were able to source these two yarns from outside the region and still get FTA benefits, but they would not be able to do so under the current U.S. proposal in TPP.

When the U.S. hosiery industry realized it would not benefit from these exceptions in TPP, it took a closer look at its sourcing patterns and decided to make the broader demand for a knit-to-shape rule, according to industry sources.

Under the knit-to-shape rule proposed by THA, elastomeric, or stretchy yarns, would be among the yarns that could be sourced from outside the TPP region. In its paper, THA argued that it is especially important that this exception to the yarn-forward rule apply to elastomeric yarns in light of the fact that the number of U.S. elastomeric yarn producers is expected to dwindle to just one by the end of next month.

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