Trade and tariffs have been top-of-mind for the sourcing community, alongside pressing supply chain concerns like forced labor. Regardless of who wins the next U.S. presidential election, these key topics are likely to remain at the forefront of policy discussions.
Ted Murphy is a partner at Sidley Austin, LLP in its global arbitration, trade and advocacy practice, counseling companies and trade associations on international trade policy and customer compliance issues. Sourcing Journal spoke with him about where the industry is headed, and how it will navigate these challenges in the months ahead.
Sourcing Journal: Tell me about your advisory role on the International Trade Advisory Committee (ITAC). What were the key issues then, and are they still relevant today?
Ted Murphy: I was fortunate to be appointed to serve on the International Trade Advisory Committee on Customs Matters and Trade Facilitation (ITAC 14) for 2 terms (2010 to 2014 and 2014 to 2018). ITAC is comprised of representatives from the trade community, and its purpose is to advise the Secretary of Commerce and the U.S. Trade Representative (USTR) on issues related to customs matters and trade facilitation.
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From an international trade and customs perspective, the world has changed dramatically. When I served, that was the tail end of the previous paradigm in trade—a 20-plus year period of ever increasing trade liberalization. In the mid-2010’s, we started to shift to a period of increasing economic nationalism. So, the emphasis has certainly shifted over time.
SJ: There has been much effort worldwide to fight forced labor, but countries can still do more. What else needs to be done to root out forced labor in supply chains, and can this problem ever be resolved?
TM: This is a difficult issue, and one that governments and companies have been spending a lot of time, effort, and resources trying to address. Right now, at least in the United States, it is treated as an enforcement issue and the trade community is treated like they are part of the problem, rather than like they are part of the solution.
For example, right now, the U.S. government shares very little information with the trade community related to forced-labor concerns. No serious company wants anything to do with forced labor. If the U.S. government has concerns about a particular component or a particular supplier, it should share that information with the trade community as soon as it can so companies can make informed decisions.
Governments should treat the trade community as partners (rather than violators). Doing so will be a much more effective and efficient way to address forced labor concerns.
SJ: In the U.S., de minimis reform has been a topic of discussion before Congress since last June with the introduction of the Import Security and Fairness Act, and much of that discussion in fashion has centered on Shein and Temu. Do you think Congress will crack down on de minimis trade this year or will this be pushed back until after the upcoming presidential election?
TM: It is difficult to predict whether Congress will actually be able to pass any legislation this session or not. With that said, I believe there is a chance that some sort of trade legislation emerges this session (likely after the November election). If it does, I believe that measures related to de minimis will be included.
SJ: Your practice includes advising clients on customs compliance issues. What are the top three compliance matters that you see on a regular basis, and is there a central theme behind their recurrence?
TM: Right now, there are primarily two issues:
- Dealing with the effects of the U.S.-China trade war
- Forced labor compliance
The first issue involves advising clients with regard to changes to supply chains to ensure that articles produced abroad are not subject to the Section 301 duties upon importation into the United States. It also includes representing clients before U.S. Customs and Border Protection (CBP), the Office of the USTR and other agencies involved in trade regulation.
The second issue involves advising clients on how to implement effective compliance programs to minimize forced labor risk. It also includes representing clients before CBP and other agencies involved in the issue.
SJ: In May, the Biden Administration increased tariffs on Chinese goods that include finished textiles and apparel imports, which some trade groups view as a tax on American shoppers. Do you foresee the removal of Section 301 tariffs on fashion goods? Is there a better option to deal with the China problem instead of just relying on economic sanctions such as increased tariffs?
TM: Once tariffs are imposed, they get harder to remove the longer they are in effect. So, I do not see a time in the near future when the Section 301 tariffs are removed.
As for whether the Section 301 tariffs are taxes on consumers, that is one way to look at it. Tariffs are a tax (a tax on imports) that is often passed on to the end-users (just like other costs). So, factually, the statement is correct.
Stepping back, however, there is another perspective that says the prior baseline tariff rate was the wrong rate—too low to protect a domestic textile and footwear industry from competition from significantly lower cost jurisdictions. So, if the U.S. government decides that it wants to help ensure that the United States has a viable domestic industry in a given area (whether semiconductors or apparel), the tariff rate needs to be set at an appropriate level. In such a case, that may mean adjusting the rate higher to achieve that goal.
SJ: Could “Made in the USA” labeling requirements become a significant concern for fashion retailers and brands down the road, particularly as smaller companies are looking at local production or assembly?
TM: I can say that enforcement of the FTC regulations and guidelines around U.S.-origin claims has been increasing. As U.S.-origin claims are not legally required in the United States, companies that voluntarily make such claims must take steps to ensure compliance with the FTC regulations and guidelines.