Retailers harvest victory in farm bill

JCPenney , Macy’s and Nike are among the companies that could save tens of millions of dollars owing to an obscure trade provision quietly tucked into the farm bill.

Sen. Max Baucus (D-Mont.), Rep. Charles Rangel (D-N.Y.) and other key lawmakers added the measure at the end of a long farm bill conference. It was not subject to any hearings and was not considered in committee.

{mosads}The change, which is opposed by lobbyists for some domestic textile manufacturers, attempts to stall a customs rules change planned by the U.S. Customs and Border Protection (CBP) agency. When it was announced earlier this year, the change drew deep opposition from apparel importers and department stores that would have owed much higher duties on imported products under the new rule.

The farm bill language would not prevent CBP from implementing the change, but it does require the agency to study the change in order to determine how much more revenue it would collect and how companies would be affected. It also includes non-binding Sense of Congress language that the change should not be implemented until 2011.

Congressional aides and some lobbyists declared this a major victory, but others noted that it does not ensure that importers and department stores are safe from a rules change that could bite into their profits.

“We still don’t know exactly what’s going to happen,” said Brenda Jacobs, trade counsel to the United States Association of Importers of Textiles and Apparel . “It doesn’t say, ‘Don’t do it.’ I would have much preferred them to say ‘Don’t do it.’ ”

The language affects the so-called first sale rule, in which CBP assesses duties on the value of imports at their first sale. In the clothing trade, this sale often takes place outside the U.S., such as when a U.S. company buys clothes from a foreign company to ship to the U.S.

CBP wants to change its rules so that it would assess the value of imports on their sale in the U.S. Goods are generally sold for more money at this later sales point, so this would increase the duties paid by Hanesbrands, Under Armour and scores of other companies.

It is difficult to estimate how much additional revenue CBP would have collected or how much more specific companies would pay if the change goes through. David Cohen, who represents the First Sale Coalition, which includes dozens of retailers and importers,  estimated it could save each of the coalition’s larger importers $5 million to $10 million in annual duties.

He was among those declaring victory on Tuesday.

“It is a clear victory in that it sends a message to [CBP] that it cannot make this decision unilaterally without the consent of the courts or Congress,” said Cohen, a lobbyist at Sandler, Travis & Rosenberg .

Jacobs, however, said it’s a far from perfect solution. She also faulted Congress for not holding a hearing into the issue, and said importers’ costs could go up since they will be responsible for providing data to CBP that will be used for the study mandated by Congress.

The language was included in a large trade package spearheaded by Rangel that affects imports from Haiti, all of which was included in the farm bill. The House could vote on the farm bill as early as Wednesday, while the Senate hopes to complete the bill before the Memorial Day recess.

The First Sale Coalition has already spent $200,000 in just under two months lobbying against the CBP change, according to disclosure documents filed with the Senate. The coalition was formed shortly after the CBP’s January notice of the proposed change.

Retailers including Target and Best Buy also have done their own lobbying, Senate records show.

CBP’s proposed change has drawn bipartisan opposition in the House, where 51 members wrote Department of Homeland Security Secretary Michael Chertoff in an April 18 letter to ask that the CBP proposal be “immediately withdrawn.” CBP is a part of Homeland Security.

A few days later, Sen. Charles Schumer (D-N.Y.) weighed in with a stinging April 23 letter to Chertoff and Treasury Secretary Henry Paulson. He wrote that roughly 127,000 jobs at JCPenney, Macy’s and David’s Bridal could be affected in his state.

Most countries assess the value of goods at a final sale rather than at a first sale, and CBP may be trying to match its work with that of similar authorities around the world.

Some representatives of the U.S. textile industry, which has withered for years as imports have increased, support the CBP rule change.  

“We support the change because we believe the first sale rule is … virtually impossible to administer,” said Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition (AMTAC). “It also negates the net effect of the duty and might lead to undercounting of U.S. imports.”   

He criticized farm bill conferees for adding language affecting CBP late in conference, leaving little time to debate the change.

“In regard to the first sale provision, we are very concerned because we thought the new ethics rules were supposed to stop this. No hearings, no bills were introduced,” said Tantillo. His organization’s members include textile, furniture and paper producers in the U.S.

A CBP spokeswoman said the change would make the U.S. consistent with other World Trade Organization members.

Lobbyists for retailers and importers, however, fault CBP for not consulting with Congress or the private sector before issuing the rule change.