Byline: Jim Ostroff

WASHINGTON--El Salvadoran textile negotiators are slated to meet with their U.S. counterparts today over the U.S. plan to set quotas on Caribbean-made underwear, a controversy that threatens to become the first test of the new World Trade Organization.
Sources said El Salvador's negotiators, who broke off talks with the U.S. two weeks ago, believe they must listen to any new American offer on underwear quotas to demonstrate they made good-faith efforts to settle the dispute, before challenging the U.S. in the WTO.
The new talks come one week after El Salvadoran officials were said to be preparing to go before the organization's Textile Monitoring Board to challenge a March call for consultations to establish quota on underwear imported from El Salvador, Costa Rica, Honduras, the Dominican Republic, Colombia, Turkey and Thailand. Currently, there is no quota on underwear imported from these countries.
The U.S. claims the imports of cotton and man-made fiber underwear are disrupting the domestic market. The four Caribbean Basin Initiative nations had protested the call was unwarranted, arguing that most of the underwear in question was assembled there under the 807 program from fabric cut in the U.S. This contention is backed by six U.S. underwear manufacturers, who also say they use U.S. fabrics for more than 90 percent of this 807 product. Furthermore, the makers argue that in any event, underwear assembled in U.S.-owned CBI facilities cannot be hurting these same companies.
Rita Hayes, chairman of the Committee for the Implementation of Textile Agreements, has said there is no way to know how much U.S. fabric is used in 807 underwear imports. With the consultation calls, Hayes, a deputy assistant Commerce secretary for textiles and apparel, and Jennifer Hillman, the chief U.S. textile negotiator, are aiming to convert most 807 underwear imports from the four CBI nations to 807(A).
Under 807, apparel assembled offshore from fabric cut in the U.S. receives tariff breaks. Under 807(A), the fabric used in the product must be not only cut in the U.S. but made there as well. In return, the imports receive virtually unlimited quota, if there is quota in place. This quota provision is known as guaranteed access levels, or GALS.
In seeking the conversion of underwear manufacturing, Hayes said it will create more U.S. textile industry jobs. Makers who oppose using 807(A), even though they say they use mostly U.S. fabrics, contend it requires too much burdensome paperwork that only adds to costs.
To entice El Salvador back to the negotiating table, sources said, the U.S. has made vague pledges to also offer El Salvador quotas substantially above current trade levels for underwear made of fabric neither cut nor made in the U.S.
Sources said El Salvadoran negotiators would consider the U.S. proposals but are prepared to walk if the U.S. does not make substantial concessions. These talks begin at a crucial time since starting this week, the U.S. could unilaterally impose these quotas under WTO rules. However, this action would trigger an automatic review by WTO's textile dispute panel.
Opponents of the call contend the U.S. wants to avoid this review at all costs since, they claim, the call would be overturned because it was based on textile concerns and not apparel market disruption.
"The U.S. has created a real disaster for itself by making these calls without understanding the needs of these CBI countries and domestic manufacturers. Many of these U.S. manufacturers supported the U.S. in the call but realize now that without much higher quotas their own operations--some of which are only recent startups in the Caribbean--could be at a disadvantage with local firms, who have the past performance records to get most of the quota," said a source familiar with the negotiations.
"So now the U.S., which made the call supposedly to protect domestic manufacturers, could end up protecting their foreign competitors who don't use U.S. fabrics by having to offer much higher quotas to extricate itself from the situation," the source added.
Calls to El Salvador's embassy here for comment were not returned.
--Fairchild News Service

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