TPP Poised to Slash Footwear Duties by $450 Million in Year One, Says FDRA President
The Trans-Pacific Partnership is likely to cut duties on U.S. footwear imports by $450 million in the first year of implementation, Footwear Distributors and Retailers of America President Matt Priest said in a Nov. 9 call with reporters. The Harmonized Tariff Schedule contains 120 eight-digit footwear tariff lines, and 102 of those lines will be duty-free on entry into force of the pact, said Priest. U.S. negotiators agreed to keep tariffs on a range of “sensitive” products, but all footwear duties will phase out over a 12-year period, he said.
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Tariffs on several waterproof products will be phased-out over the full 12-year period. Those waterproof products, such as tariff lines 6401.92.90, 6401.99.10 and 6401.99.60, will begin staged reductions on Jan. 1 of year 9 of the pact. The tariffs, which fall under the US4 category outlined in the chapter notes (here) for TPP’s market access chapter, will phase out in four equal annual stages. Those three tariff lines currently have a 37.5 percent general base rate duty.
Tariffs on other footwear products, such as those that qualify under tariff line 6402.99,90, will fall 40 percent upon entry into force. That reduction category, US1, then directs a 5 percent reduction to the base rate at outset of years four and five. The rates will then fall to zero in year 12. Priest said the cuts will critically boost U.S. industry and consumers. “This is all kind of rough numbers because we don’t know what imports will be but if things remain on the next years, which they won’t, we’re looking at a possibility of $6 billion dollars in savings. For us, this is a no brainer,” he said. Priest touted significant recent and expected growth in the footwear import industry.
The rules of origin section of the TPP text (here) outlines separate options for footwear imports to qualify under the pact’s duty elimination or reduction preferences. A change certain headings within Chapter 64 will qualify, with certain exceptions, so long as there is a regional value content of not less than “45 percent under the build-up method” or “55 percent under the build-down method.”
The footwear industry is more likely to use the rule of origin that simply allows a change to a good of certain headings in Chapter 64 to qualify with a change from another chapter, Priest said. “If you bring in materials outside of Vietnam, so if you bring them from China into Vietnam, the rolls of leather, the rolls of [polyurethane] … then there will be no regional value content rules,” said Priest. “My anticipation is that most of our members will be in a position to use the first rule of origin. It’s less onerous. There’s less bookkeeping. There’s less dots to connect from a supply chain perspective.” He called the rules “pretty flexible.”
Despite ongoing reliance on China, Priest said the market access terms and rules of origin will boost U.S. imports from Vietnam. We’re already seeing a shift based on a variety of different factors,” he said. “China is becoming more expensive even though it’s our number one supplier of footwear at about 77 percent of volume. It’s more expensive. There’s labor shortage. So there’s already other variables outside of trade and duties that are driving sourcing into Vietnam.” FDRA is aiming to send 10,000 letters to Capitol Hill over the coming year to press the footwear industry’s support for TPP as Congress moves toward legislative action, said Priest.