By  on June 19, 2009

WASHINGTON — U.S. textile executives who at one time supported the controversial Central American Free Trade Agreement told a House panel Thursday that four years of massive amounts of fraud and inadequate Customs enforcement in the region are crippling their businesses.

A subcommittee of the House Small Business Committee, chaired by Rep. Heath Shuler (D., N.C.), heard the first panel of witnesses but later canceled the second panel with the textile executives due to time constraints. The panel said it would review written testimony and communicate via e-mail.

Textile executives are calling on Congress and the Obama administration to overhaul the textile enforcement division of U.S. Customs & Border Protection and crack down on what they claim are soaring levels of fraud in Central America and other trade preference areas.

The alleged fraud in Central America has left a bitter taste with the half of the textile industry that supported CAFTA after receiving assurances from the Bush administration in 2005 that there would be strong Customs enforcement.

Dan Nation, president of Parkdale Mills Inc., the largest yarn spinner in the U.S., and D. Harding Stowe, chief executive officer of R.L. Stowe Mills, which shuttered in January, said foreign companies are circumventing the strict rules of origin under CAFTA and the North American Free Trade Agreement. They said companies are producing yarn in countries like China or Pakistan, shipping it to the U.S. and falsifying affidavits of certification as “Made in the U.S.” to gain duty free benefits on apparel made in Central America or Mexico with the yarn that is then imported to the U.S.

Stowe, whose third generation textile company hosted President George W. Bush at his factory in 2005 during a pro-CAFTA tour to reassure workers the trade agreement would not hurt their jobs, said in his written testimony that “the lack of Customs enforcement was an important factor in our decision to close the business.”

“CAFTA is good for the U.S. textile industry,” said Nation, who estimates 1,200 jobs were eliminated due to fraud and inadequate enforcement, which undercut Parkdale’s business. “It is an important part of it, but it has to be [enforced] the way it was designed. What has happened now are companies like Harding’s and mine are playing by the rules and the cheaters are winning.”

Nation also pointed to government data in 2008 that showed twice as much combed cotton yarn was being exported from the U.S. as was actually being produced.

In written testimony, Loren Yager, director of international affairs and trade at the General Accountability Office, said Customs has made some improvements in textile trade enforcement but “trade enforcement issues continue to present long-term challenges with significant revenue implications for the U.S. government.”

Dan Baldwin, assistant commissioner of Customs, who testified before the hearing was cut short, acknowledged several types of textiles fraud currently exist and defended his agency’s focus on enforcement.

“We recognize the vital importance of the textile industry to this country,” said Baldwin. “We will continue to focus a substantial amount of our trade enforcement resources in this priority area to help protect our domestic industry and its vital role as an employer in our economy.”

He said 68,000 importers shipped $105 billion of textiles and apparel and textiles to the U.S. and paid over $11 billion in duties (42 percent of the overall total collected) in 2008. Of that $105 billion, Baldwin said about 19 percent claimed trade preferences and of that 19 percent, Customs found over 35 percent were ineligible for the claimed preference.

Baldwin, seeking to counter industry allegations, said the agency hired an additional 72 textile import specialists mandated by Congress and currently employs 329 textile import specialists, up from 264 in 2006.

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