Port in a storm

The alert launched by US leather associations on the possible negative consequences of the import of leather handbags proposed by the Trump presidency has transformed a negative scenario for the leather business into a positive.

The question is summarised in these terms by Gustavo Gonzalez-Quijano, general secretary of Cotance, the European association representing the tanning industry.

“This is a very concrete and practical example of international cooperation between US and EU representations,” he says. “I hope that this example can represent a starting point to ask the WTO for a general agreement against protectionism in the trade of rawhide and wet-blue.”

In the document published by US Hide, Skin and Leather Association (USHSLA) and Leather Industries of America (LIA), which highlights the negative comments on the proposal to tax leather goods, the final specification reads, “The comments were supported by EU partner organisations representing hides and skins importers, leather tanners, and leather goods and handbag manufacturers.”

The organisations mentioned are: Cotance; Syndicat General des Cuirs et Peaux, representing the French hides and skins collectors and traders industry; Unione Nazionale Industria Conciaria, representing the Italian Tanners; and UK Leather.

Beyond the positive aspect, there is basically a negative scenario for international relations and the same for the US economy. The new move by the Trump administration – the result of a policy officially designed to support domestic manufacturing with respect to imported goods but that in this case derives from issues related to the aerospace world with the Boeing crisis and the attack on European support to Airbus – inserts leather into the matter of contention and aims to hit the most important category for US imports, leather bags, which had a customs value of $917 million in 2018.

But the fact is that, in the considered business, the US has nothing to protect because there is no longer a national luxury economy tied to leather – to the point that, even if the proposal were to pass and become effective duty, Europeans don’t consider the possibility of responding in the same way because, notes Gonzalez-Quijano: “It would be a ridiculous action. And that is why we preferred to make our voice heard by talking directly with LIA and USHSLA”.

Moreover, the US associations in their criticism cite “the significant, adverse consequences for the US hides, skins and leather industry from taking such an action”. This is because the international trade in leather is a source of revenue for the US economy, which exports 95% of its production as rawhide or wet-blue and if the first destination for many years is China, the main importer of wet-blue is Europe – and in particular Italy.

The associations state in their document, “The US industry has worked diligently over many decades to position itself as the preferred supplier of raw materials to the EU manufacturers of these products. To place tariffs on this supply chain now, in particular, would effectively unravel decades of market development work by the US hides, skins and leather industry, and would further strain the industry at a time when it faces significant challenges, including declining prices, retaliatory tariffs in other key markets and reduced overall global leather demand”.

Negative outlook

In fact, the current scenario for the raw material is profoundly depressive. According to the values reported by Hidenet.com, the quotations for heavy native steers, one of the most exported selections, are stationed in May 2019 at just over $30 per piece – and within a year they have decreased by 50% – while in 2017 they were treated just under $80.

Even worse for branded cows, in line with what is happening internationally for lower grades and cheaper selections, the official price is $5 per piece compared with more than $40 in 2017. Putting a duty in this condition would only create additional difficulties for an already fatigued industry.

In 2018, US wet-blue exports to the EU totalled more than $180 million, with Italy alone accounting for $178 million in export value. Moreover, since 2014, the EU has remained a top five value and top six volume market for US bovine fresh/wet-salted hides exports.

However, those directly involved are the leather goods manufacturers, and in particular the Italians. It is true that the most prestigious brands in the leather handbags sector are French, and produce both in Italy and in France, but it is equally true that companies like LVMH, Kering and Chanel tend to manage their problems directly, having the power and specific weight to do it, while Italians are more active on the production front, smaller on average, and therefore need to make their choral voices heard.

Danny D’Alessandro, CEO and general manager of Assopellettieri, the Italian leather goods association and organiser of Mipel fair, says, “Assopellettieri will request the intervention of the Italian Government, on the one hand, to ask for protection and coverage in favour of the many Italian producers that could be affected by this measure, and on the other to become the spokesman of the instances at European level, in the awareness that if the EU does not decide to take the field, the consequences of the toll policy may not be adequately countered by the individual member countries.”

Assopellettieri also points out that among the 10 most exported Italian products in the US, there are leather bags (customs code HTS 4202.21.90), a sector that, according to the Italian Embassy’s elaborations, has contributed to the increase in the past four years of exports to the US with constant growth.

$917 million
The value in 2018 of leather handbag imports to the EU under consideration for retaliatory US tariff measures.
USDA

60%
Raw materials such as cattle hides and wet-blues typically account for around this value of a finished leather item.
USHSLA

All eyes on New York

Italian tanning association UNIC highlights how the only customs code included in the proposal for import duties on European goods and tied to leather is the one linked to bags. There is no footwear, there are no finished leathers, while some problems could concern the textile industry.

However, from Milan (Unic’s headquarters) comes the specification that the arguments of protectionism and duties won’t find space in the programme of the next World Leather Congress to be held in the US, in New York City, on 16 July, of which Unic and Lineapelle are among the main supporters as Lineapelle New York will be held in the two days following, on 17 and 18 July.

In fact, the WLC approach will be less technical and sectorial because, Unic’s deputy director, Luca Boltri, says, “Our task is therefore to offer the correct information on the characteristics of the leather, the tanning cycle, the sustainability and the circularity that characterise it.”

Call of duty

As for the dreaded duty, all that remains is to wait for the decisions from Washington, which has also faced criticism from Nike, Adidas, Under Armor and many others around the duties applied to footwear imported from China, which according to estimates by Footwear Distributors and Retailers of America, would cost US consumers more than $7 billion a year.

In essence, the moves announced by Trump are finding more enemies than supporters.

“We all hope that the Trump administration reconsiders the inclusion of the customs entry concerning leather bags, and is likely to do so,” says Gonzalez-Quijano. “In that case, trade war would no longer affect us. If it were not so, we would have to wait for one of the parties to apply the retaliation and it does not seem to me that the present moment contemplates these solutions.”

Cotance’s general manager underlines that the “real” relations between Europe and the US are particularly good, as evidenced by collaboration with fur industry representatives on the feared prohibition of the sale of fur garments by the municipality of New York, which, if approved, would have struck even sheepskin and rabbit leather garments.