U.S./international textile trade

The top five challenges and opportunities facing the industry in 2021. 

by Nate Bolin

The list of trade issues facing Washington policymakers in 2021 is long and growing. Indeed, from the ongoing U.S.–China trade dispute, to new trade and investment rules for U.S. manufacturers, importers and exporters, there seems to be no end to the number and complexity of these issues.

How they will be addressed will impact a range of industries that will be critical to the U.S. economy for years to come. The advanced textiles industry is no exception. With member companies driving innovation in the materials that are essential to healthcare, advanced technologies and national security, the industry is likely to feel this impact more than most. So, what can you and your company do to prepare?  This article sets forth five of the most important issues to watch and provides tips on how to best position yourself in the months ahead.

“Buy American” initiatives

The U.S. government is one of the most important players in the U.S. economy, accounting for approximately $600 billion in spending each year, a figure larger than the entire GDP of many major advanced economies. How that money is spent has an enormous effect on U.S. trade, competitiveness and national security.

As part of an effort to promote U.S. manufacturing and investment in U.S. businesses, President Biden made the rules governing federal contracting a priority issue in the first 100 days of his administration. In these efforts, the President has turned first to provisions of the “Buy American Act,” a law that dates back to 1933, which allows the U.S. government to give preference to U.S.-made goods in federal contracts. 

On January 25^th, 2021 President Biden signed an Executive Order that makes changes to how the Buy American Act is implemented. This includes:

• Raising domestic content requirements for end products and construction materials.
• Changing how domestic products can qualify for preferential treatment. 
• Increasing price preferences for domestic end products and construction materials. The degree to which foreign products are subsidized or benefit from other unfair trade practices will also now be considered in assessing price differences.
• Narrowing exemptions for foreign items that are triggered when a domestic alternative is not available, or the foreign item is a “commercial off-the-shelf” (COTS) item.
• Mandating that waivers of Buy American Act requirements must be approved by a new “Made in America” office.
• Ordering federal agencies to use the Manufacturing Extension Partnership to seek out domestic suppliers, including small- and medium-sized companies, to produce goods and materials for federal procurement.

The federal body that administers U.S. procurement rules (i.e., the Federal Acquisition Regulations (FAR) Council) must develop new regulations to implement these changes by July 24, 2021.  

The Executive Order represents just the tip of the iceberg concerning changes that are likely to impact U.S. procurement and trade flows this year. Indeed, according to the website GovTrack, as of the date of this article nearly 50 bills have already been introduced in the current Congress to expand or modify federal contracting rules or provide new funds for investment in U.S. contractors—including in areas such as PPE that directly concern companies in the advanced textiles industry. 

Advanced textiles companies that supply products to the federal government, or that are looking to expand in that area should make sure they understand both the existing FAR rules and the new proposals coming out of Washington. Investing in advice from a government contracts specialist can mean the difference between sales lost or won, and it can help companies to avoid the many traps for the unwary that government contracting rules can sometimes present. 

At the same time, companies should consider engaging with policymakers to make sure their views are heard. As they formulate the new rules of the road, policymakers will benefit from this feedback to help ensure that new rules achieve their intended objectives.

Supply chain security–and scrutiny

The COVID-19 pandemic and on-going trade dispute with China have focused attention in Washington on the supply chains that are so critical to U.S. national and economic security, which has prompted a flurry of new initiatives. For example, in February, President Biden ordered a review of supply chains in advanced materials and PPE that is expected to result in executive branch initiatives to promote these industries. Congress is also considering new funding, trade regulations and tax incentives to promote investment in these industries.

U.S. regulators are also increasingly focused on enforcing trade rules that restrict imports due to human rights, national security and other concerns. For example, due to concerns about human rights for the Uighur minority in China, as well as recently implemented economic sanctions, U.S. Customs and Border Protection is closely scrutinizing imports to detect products made by forced labor, including products made with cotton and other inputs from the Xinjiang region of China that is home to the Uighurs. 

Meanwhile, new Commerce Department rules on information and communications technologies and services will go into effect on March 22, 2021, potentially requiring new licenses to import technology, such as advanced wearable products from China, which are considered sensitive from a U.S. national security perspective. New legislation is also under consideration in Congress to further restrict—or at a minimum require government review and approval—new investments overseas that involve the transfer or sharing of sensitive technology, including technology central to the advanced textile industry. U.S. national security regulations that went into effect in 2020 already mandate government reviews of some outbound investments that may transfer a U.S. business, or its intellectual property and other assets, to an overseas company or joint venture.

Given these developments, it has never been more important to know your supply chain and carefully consider the location of new product development and manufacturing facilities and investments. Companies in the advanced textiles industry should know not only their direct suppliers, but their suppliers’ suppliers, investors and business partners. 

Export controls

This year is also unlikely to see any slowdown in new U.S. export control and enforcement. Many technologies used or produced by this industry have long been subject to export licensing requirements. These include advanced fibers, sophisticated production equipment, fabrics for extreme environments and military applications, and advanced composites, among others. 

Changes to U.S. export control laws that began last year have further restricted the export or transfer of these technologies, especially to customers in China, Hong Kong, Russia and Venezuela. In many cases, products that could once be exported freely to these countries now require a license, particularly to major companies in China and Russia that the U.S. has designated as “military end users” or has listed on the U.S. “Entity List.”

Broad bipartisan support for these initiatives means that there is unlikely to be any significant rollback or change of course this year. Indeed, we may see further restrictions imposed as the Biden Administration and Congress examine whether and how best to use export controls to strengthen U.S. manufacturing and supply chains in critical industries.

Companies in the advanced textile industry who export from the U.S., or that utilize U.S. technologies in their products and R & D, should closely monitor these changing requirements and invest in compliance—including close scrutiny of their customers and supply chains. Companies should recognize that many projects that previously could occur in China or Russia without a license may now require careful licensing review and may need to be paused or put on hold until a license can be obtained.  

Trade agreements

2021 will be a busy year for trade agreements, although we are unlikely to see significant new agreements before the end of the year. Close to home, the U.S., Canada, and Mexico continue the hard work of implementing the U.S.-Canada-Mexico Agreement (USMCA), the successor to NAFTA. Among the issues that may impact the advanced textiles industry under USMCA are changes to rules of origin for duty preferences and new environmental and labor chapters.

At the beginning of March, the U.S., European Union (EU), and U.K. announced that they were suspending tariffs imposed in response to the ongoing dispute over subsidies for civil aircraft production. This announcement may signal a renewed opportunity for further U.S.-EU-U.K. cooperation on trade issues, including potentially a new U.S.-U.K. trade agreement and reduction in U.S.-EU trade tensions.

Finally, while the prospects of an end to the U.S.-China trade dispute and a lifting of Section 301 tariffs on imports of Chinese products seems remote at present, the Biden Administration has signaled that it intends to engage with China where possible and to review existing tariffs to ensure they appropriately balance U.S. trade interests while minimizing adverse impacts on U.S. companies and workers. How fast or how far these initiatives can go remains to be seen, but companies with interests in these markets have an important role to play and should ensure that their views are known to policy makers and Congress.

Antidumping and countervailing duties

Laws generally known as the U.S. “trade remedy” laws allow companies with production facilities in the U.S. to petition the U.S. government to impose duties on imports of merchandise that are found to be unfairly subsidized or sold at less than fair value, causing injury to a U.S. industry. Such “antidumping and countervailing duty” or “AD/CVD” laws have been used with increased frequency in recent years. Indeed, there have been over 160 successful AD/CVD cases since 2018 alone. In many instances, the AD/CVD duties imposed have been higher than 150 percent of the value of the imported merchandise.

Recently, the advanced textile industry has experienced several of these cases. For example, AD/CVD orders have been imposed on imports of advanced geogrid, amorphous silica fabric, and polyester staple fiber. Those cases have already had a significant impact on U.S. manufacturers of those products, leading to a sharp reduction in imports from countries subject to the orders (notably China) and allowing impacted U.S. companies to recover or even expand their own production and sales. 

It is unlikely that there will be any slowdown in AD/CVD case activity this year. Indeed, 17 new AD/CVD orders have gone into effect just since January 1, 2021, and over 20 additional cases are under consideration. 

Moreover, the trade remedy laws are playing an even more important role as the Biden Administration and Congress look to strengthen U.S. manufacturing. For example, key Congressional stakeholders including Senator Casey (D-PA) are reportedly considering new legislation that would enhance the ability of the U.S. government to “self-initiate” AD/CVD cases where foreign subsidies, dumping or other market distortions are reducing investment in U.S. development and manufacturing of critical technologies and products. 

As leaders in many of the priority technologies that Congress and President Biden have highlighted as essential to U.S. national and supply chain security, for example, PPE, advanced materials and aerospace, companies in the advanced textile industry will undoubtedly be impacted by these and similar proposals.

The bottom line is that 2021 will see many critical trade policy decisions and new trade laws that will shape the direction of the advanced textiles industry for years to come. Companies that engage with policymakers and closely monitor these developments will be well positioned to minimize any adverse impacts and take advantage of the new opportunities that our ever-evolving trade laws present.

Nate Bolin is a partner with the law firm of DLA Piper LLP based in Washington, D.C., and is a noted authority on U.S. antidumping and countervailing duty laws, export controls, and related areas of national security and international trade laws.