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Colombia FTA Presents Export Opportunities

Pact replaces a U.S. preference program that gave unilateral benefits to Colombian apparel exporters with two-way duty-free market access.

WASHINGTON — Brands and retailers making apparel in Colombia are facing some transition challenges as the U.S.-Colombia Free Trade Agreement is set to take effect today, while textile and apparel exporters are poised to gain new market opening opportunities.

This story first appeared in the May 15, 2012 issue of WWD.  Subscribe Today.

The bilateral free-trade deal will supplant a U.S. preference program that gave unilateral benefits to Colombian apparel exporters but no reciprocity to U.S. exporters. U.S. trade officials have been touting the pact as another measure that will help reach President Obama’s goal of doubling exports by the end of 2014.

An analysis by the U.S. International Trade Commission estimates the FTA will lead to an increase in U.S. GDP of $2.5 billion. Overall, U.S. goods exports to Colombia in 2011 were $14 billion. Apparel and textile exports to Colombia rose 29.4 percent to $168.7 million for the year ending Feb. 29, according to the Commerce Department’s Office for Textiles and Apparel.

Kim Glas, deputy assistant secretary for textiles and apparel at Commerce, said she believes the U.S.-Colombia FTA “will open new market access opportunities for our domestic textile and apparel producers” and “help expand our exports in the very near term because it provides immediate duty-free access for all qualifying apparel and textile goods.”

John Leonard, director of textile and apparel policy and programs at U.S. Customs & Border Protection, said, “This now opens up and brings down barriers for shipments from the U.S. into Colombia. That is a real big change….It creates that whole reason for doing free-trade agreements in the first place.”

Glas said U.S. textile and apparel exporters currently pay an average duty of 18.3 percent when shipping to Colombia, which will essentially be eliminated as the agreement takes effect, which “gives a great advantage to U.S. exporters of yarn, fabrics and apparel.” U.S. apparel and textile exporters paid an estimated $23.8 million in duties on their products shipped to Colombia from 2008 through 2011, Glas noted.

On the import side, industry officials said some kinks need to be worked out before Colombia is a viable sourcing platform. Apparel and textile imports from Colombia have been on the decline, negatively impacted by the end of quotas in 2005, the recession in 2008-2009 and several near or actual lapses in the trade-preference program over the years due to delays in Congressional approval, which caused disruptions in sourcing, Glas said.

For the year ending Feb. 29, apparel and textile imports from Colombia fell 20 percent to 54.4 million SME and were valued at $259 million, according to OTEXA. Apparel shipments accounted for 38.1 million SME, with a value of $220 million, while textile shipments accounted for 16.3 million square meter equivalents, with a value of $39 million.

While the permanency that the bilateral trade agreement brings is seen as a big positive, some loss in benefits in the changeover between the preference program and free-trade agreement on certain inputs could prove troublesome, industry officials said.

Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association, said he is concerned there is no transition period that allows for the entry of goods in the pipeline to come in under the trade preference program after today. Burke said importers had that opportunity when the Peru FTA went into effect.

“When you deal with the amount of product our members deal with, you have a nine-month window of time to get the product created to the time it hits the shelf,” Burke said. “If you made it under one program and a new one comes in, we would hope [Customs] honors the benefits of the old program for some time.”

Burke said his members are also facing challenges because under the preference program, apparel makers could use sewing thread sourced anywhere in the world, but under the FTA, they must use thread made in either the U.S. or Colombia. Under the preference program, U.S. firms making thread in El Salvador, for example, could ship it to Colombia and still qualify for duty-free benefits. Under the FTA, that is not allowed.

“We have been talking to USTR about this, and I don’t know if any resolution is coming forward,” Burke said. “We expressed our concern that our…members who supply this product [thread] are going to be negatively impacted. Our hope is we can work out differences on rules of origin so as not to penalize those who provide thread in that country.”

Leonard of Customs said: “We don’t foresee any major issues in order to qualify under the [FTA]. The rule is consistent with other FTAs, and I wouldn’t think that producers or importers will have to make a massive adjustment in order to qualify.”

Burke said the “upside” to the FTA is that it makes the benefits permanent and not subject to periodic Congressional approval, and it links the U.S. to one of its largest allies in the region.

Julia Hughes, president of the U.S. Association of Importers of Textiles and Apparel, said Colombia is now a minor apparel player, ranked 29th among all suppliers, but the FTA will help boost the country’s trade.

“I have been meeting with companies and sourcing executives, and their compliance teams feel much more comfortable sourcing when an agreement is permanent, because they know they can make a commitment and the benefits are not going to go away,” Hughes said.

The biggest apparel imports by volume from Colombia are men’s and boys’ cotton trousers and cotton underwear.

Hughes said USA-ITA plans to work diligently to urge U.S. trade officials to begin discussions on cumulation, which could allow apparel makers to use inputs made by other countries in the region. The pact contains a provision directing the two countries to enter into discussions within 60 days of implementation to expand the benefits to other countries for regional integration.