U.S. Trade Representative (USTR) Katherine Tai on Tuesday announced the initiation of an official Section 301 investigation into Nicaragua’s acts, policies and practices related to labor rights, human rights and the rule of law.
Should the country be found liable for violations that threaten or restrict U.S. commerce, it could be hit with punitive duties or lose access to its free-trade-agreement benefits.
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According to Tai, USTR has fielded a number of credible reports from U.S. government agencies—along with the United Nations Office of the High Commissioner for Human Rights, the Inter-American Commission on Human Rights, the International Labor Organization and the UN Group of Human Rights Experts on Nicaragua—which have illuminated rampant human rights abuses and labor violations by President Daniel Ortega and Vice President Rosario Murillo’s administration.
Among the unlawful actions are politically motivated arrests and imprisonments, religious persecution and repression, extrajudicial killings, violence against marginalized peoples, forced labor, human trafficking, property seizures and other “cruel” and “degrading” treatment of Nicaraguans.
“Unfortunately, numerous reports suggest the Government of Nicaragua is engaging in repressive acts that harm Nicaragua’s own workers and people, undermine fair competition, and destabilize our region,” Tai said. “The Biden-Harris Administration is firmly committed to a worker-centered trade policy to ensure our trade partnerships drive a race to the top for all workers and people.”
The Nicaraguan government’s actions exacerbate worker exploitation and “diminish economic growth and trade opportunities,” USTR wrote in a notice this week, noting that the Ortega-Murillo regime has ignored the concerns voiced by the U.S. government regarding alleged forced labor and human rights abuses.
If in the course of its investigation USTR concludes that Nicaragua’s conduct has indeed violated U.S. rights under Section 301 of the Trade Act—or, if it violates the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), of which it is a part—there are several enforcement measures it could pursue.
According to Elise Shibles, who leads the Textiles and Apparel Practice and Forced Labor Practice at Sandler, Travis & Rosenberg, P.A., USTR could choose to impose new tariffs or restrictions on Nicaraguan imports to the U.S., it could suspend or withdraw concessions under CAFTA-DR, or it could enter into an agreement of another kind that would address the conduct in question. Under Section 301 law, any retaliatory measures taken by the U.S. must have an impact on Nicaraguan goods and services that is equivalent to the burden the country’s behavior has placed on U.S. commerce.
Violations of labor laws and environmental standards by trade partners have the effect of undermining U.S. producers that are subject to compliance and enforcement, creating an unfair and imbalanced relationship.
In the event that USTR decides to move forward with punitive duties, it would need to assess the value of the harm done to U.S. businesses by looking at trade volumes and other criteria before settling on a tariff rate, Shibles said.
USTR could impose these new duties without suspending Nicaragua from CAFTA-DR.
“Goods would still be eligible for CAFTA-DR duty-free treatment as the base rate but an additional tariff would be imposed as a separate rate,” she said. “We’ve seen this for some USMCA or CAFTA-DR goods that qualify for the trade preference, but under a different analysis are considered products of China for marking purposes and for purposes of 301 tariffs.”
Suspending Nicaragua’s CAFTA-DR status would create reverberations across the trade agreement’s membership. “A suspension would likely mean that Nicaragua inputs would not count toward qualifying CAFTA-DR goods made in other countries,” Shibles added. “So not only would this impact goods made in Nicaragua, but also goods made in other CAFTA-DR countries and relying on Nicaragua inputs to meet the CAFTA-DR rules,” like trousers made in the Dominican Republic using fabric milled in Nicaragua, for example.
Shibles believes Nicaragua will indeed be penalized, and that trade action against the country has ample support. “We believe it’s likely that either Nicaragua will be suspended from CAFTA-DR or tariffs will be imposed,” she said. “There has been a great deal of talk inside the Beltway about the actions occurring in Nicaragua and discussion of whether it is feasible to kick Nicaragua out of CAFTA-DR.”
“The text of the agreement allows a country to withdraw of its own volition and no longer participate in the trade bloc,” she added. “But the text doesn’t provide a specific mechanism for pushing out a country. This action could get that result by a different means.”
“Nicaragua cannot simply be kicked out of CAFTA-DR unilaterally by one of the parties to the agreement, so we will be watching to see what kind of action USTR might propose for a [free trade agreement] partner country at the end of this investigation,” echoed Josh Teitelbaum, senior counsel for international trade policy at Washington, D.C. law firm Akin-Gump.
According to the lawyer, this Section 301 investigation “marks and important novel use” of the law “to try to counteract not just discriminatory or unfair economic practices but now also failures to protect labor and human rights.”
“If successful, this new tool could be precedent setting and used by future administrations to address similar issues in other countries,” he added.
There’s unlikely to be a quick resolution to the matter, though the Biden Administration is pushing for it. USTR plans to hold a public hearing next month. “With the holidays, this will be a tight turnaround time for many companies to have their voice heard,” Teitelbaum said.
“The law requires a process that will take us well into next year, so the question of whether tariffs on apparel imports are ultimately implemented is up to the incoming Trump Administration, which we know from their first term is not reluctant to use Section 301 where it wants to,” he added.
American trade groups say they want to see USTR take an even-handed approach to any action against Nicaragua. The country, along with the entire CAFTA-DR co-production chain, represents an alternative to China sourcing.
“While we share many of the Administration’s concerns on the Ortega regime, we urge the U.S. Government to proceed cautiously as it considers further action,” said Steve Lamar, president and CEO of the American Apparel and Footwear Association (AAFA). “Many workers and communities in Nicaragua, the U.S., and the region depend on predictable trade and investment in a highly interwoven regional supply chain, and could themselves be harmed by any action taken under this investigation.”
National Council of Textile Organizations (NCTO) president and CEO Kim Glas, too, said that while the organization “strongly condemns” the actions of the Ortega-Murillo regime as laid out by USTR, the U.S. should be circumspect in administering counter measures.
“While we acknowledge that there should be consequences for violations of these principles by the Ortego-Murillo regime, we ask that any response by the Biden administration be carefully calibrated,” she said. “The U.S. trading relationship with Nicaragua does not exist in a vacuum given the interconnected nature of the U.S.-Central American textile and apparel supply chain.”
According to NCTO, U.S. textile manufacturers exported nearly $350 million in textile and apparel products directly to Nicaragua in 2023 alone, making the country the third largest U.S. export destination of the CAFTA-DR countries. Many in the American textile sector also export yarns and fabrics to countries like Honduras and Guatemala for finishing before they’re shipped to Nicaragua for final assembly.
Nicaragua, along with the Northern Triangle countries of Guatemala, Honduras, and El Salvador, plays an integral role in making apparel for the U.S. market. Trade between these countries is valued at $1.1 billion. Meanwhile, the inter-regional trade of textile inputs between the U.S., Nicaragua and the rest of the CAFTA-DR region is valued at about $1.5 billion.
“Nicaragua is part of the U.S.-CAFTA-DR agreement, and these partner countries are part of a critically intertwined regional textile and apparel production chain supporting hundreds of thousands of jobs and economic development in this sector,” Glas said.
The NCTO lead believes any U.S. actions against Nicaragua “should be leveled at those directly responsible for the abuses and not in a manner that harms working people.” The textile and apparel sector is the largest employer of women in the country.
She also argued that placing Section 301 duties on Nicaraguan exports would boost China’s competitive position over the CAFTA-DR region, potentially destroying cost benefits created by the free trade agreement.
“Destabilizing the U.S.-CAFTA-DR production platform would have serious implications for U.S. and regional workers, migration, economic development, and pending and future investment,” Glas said.
USTR is slated to hold a public hearing regarding the investigation on Jan 16. Comments and requests to appear at the hearing must be submitted by Jan. 8, with rebuttal comments following the hearing due by Jan. 23.
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Publish date : 2024-12-12 03:00:00
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