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Trade & Tariffs

MTB, TPP, KORUS: Congress weighs alphabet soup of tariff bills affecting outdoor industry

Three tariff bills affecting the outdoor industry have made their way through the U.S. Congress this year. SNEWS has the latest updates and what it means to your business.

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Three tariff bills affecting the outdoor industry have been making their way through the U.S. Congress this year.

The tariff decisions could result significant savings for manufacturers, retailers and consumers alike. Here’s an update on where legislation stands:

Miscellaneous Tariff Bill (MTB)

The MTB is a large package of smaller tariff bills (this time around, it’s more than 2,000 bills) that Congress routinely passes to temporarily suspend or reduce import products that are not made in the United States. This includes some imports of components or inputs for products that are eventually assembled or finished in the United States.

The Outdoor Industry Association has utilized the MTB in the past to save outdoor companies and their customers more than $30 million, said OIA Director of Trade Policy Alex Boian. The last MTB round reduced nearly 40-percent footwear tariffs to zero, helping spur a reduction in costs and an explosion of new products and innovation in the sector, he told SNEWS.

But the latest MTB has been stalled on Capitol Hill as some lawmakers view the duty suspensions (money that would go into the government’s coffers) as earmarks for those companies with increased access to lobbyists and politicians. They’re withholding their votes and pushing for reform within the MTB process.

Republican Senator Jim DeMint of South Carolina and Democrat Senator Claire McCaskill of Missouri have proposed a bill that would allow companies seeking tariff waivers to directly apply through the U.S. International Trade Commission, instead of the current process of seeking members of Congress, either directly or through lobbyists, to introduce the bills.

The current bills are up for public comment in the House and Senate until June 22, 2012.

OIA has requested for the introduction of 28 bills — 20 new, and eight renewals — (click here to download the detailed list), mostly involving footwear, along with some sleeping bags, packs and travel bags.

Trans-Pacific Partnership (TPP)

Earlier this year, OIA issued a letter of support for the Trans-Pacific Partnership, a proposed trade agreement to reduce tariffs between the United States and certain Asia Pacific and South American countries.

The countries involved in the trade agreement include Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. Japan, Canada and Mexico are also trying to join the agreement.

“The submission recommends that the vast majority of outdoor products should be given duty-free access and governed under simple flexible rules with minimum administrative burden,” Boian said. “But it also identifies outdoor products that are manufactured in the United States and requests maximum protection for those items.”

The recommended extra protection includes items such as hydration systems, camping pads, water-resistant backpacks, certain footwear, camping stoves and snowshoes to name a few. For those products, OIA is lobbying that U.S. trade representatives apply 10- to 15-year U.S. tariff phase-outs to “provide a transition period for our members to transition to new global realities.”

There is some debate over “rules of origin” and “yarn-forward” rules. These aspects of the bill don’t eliminate or reduce tariffs on products that began their manufacturing in countries outside the TPP (even if that third country has free-trade agreement with the U.S.) or that are made with fabrics that originated outside the TPP.

In other words, TPP doesn’t apply if a manufacturer ships in materials from China, assembles the product in a TPP country and then ships it to the United States.

The next negotiating round of the TPP will take place in San Diego, Calif., from July 2-10, 2012.

United States – Korea Free Trade Agreement (KORUS)

One trade bill that did go into effect this year was the U.S. – Korea Free Trade Agreement, or KORUS. Effective, March 15, 2012, the bill provides duty-free trade between the two countries for most imports and exports. In other words, products made in South Korea will be cheaper to U.S. consumers, and U.S.-made products will be cheaper to South Korean consumers, the latter opening up opportunities for U.S.-based outdoor companies to sell more of their products in South Korea.

Outdoor footwear will be one of the largest benefactors of the agreement, according to the Outdoor Industry Association. The category previously faced tariffs ranging from 8.5 to 37.5 percent. Most footwear manufactured in one of the two countries (in this case, the uppers and soles may come from third-party countries, but they must be assembled in South Korea or the United States) can quality for the duty-free status. There are some exceptions for certain waterproof shoes, which would still face varying tariffs, unless 55 percent of the value of the final footwear product is sourced from one of the two countries.

One outdoor footwear company in particular to benefit from the trade deal is South Korea’s TrekSta, which announced soon afterward that it would shift much of its production of footwear bound for the United States from China to South Korea to take advantage of the eliminated tariffs.

For apparel trade between the two countries, the picture is a little more muddied with certain yarn-forward rules. So, as explained above, not only must the products be made in either the United States or South Korea, but they also must have their fabrics sourced from one of the two countries. The bill will help with exports of U.S.-made outdoor products, which in the past faced tariffs that averaged between 8 and 13 percent for apparel.

KORUS also affects outdoor equipment, including most medical products, tents, head gear, umbrellas, fuel containers, sleeping bags, ski equipment and snow shoes getting duty-free access. The products must be manufactured in one of the two countries, and are some exceptions within camping stoves, sleeping bags and tents requiring certain percentages of their content to be sourced within the two countries. Camping pads, portable camping stoves and bottles and flasks have longer-term tariff phase-outs of 5-10 years.

–David Clucas