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Contentious Debate on Textile Tariffs

WASHINGTON — The concept of tariff elimination always divides.<br><br>It was no different Tuesday when the Bush administration unveiled its proposal to slash all tariffs on apparel and textiles in the Western Hemisphere within five...

WASHINGTON — The concept of tariff elimination always divides.

This story first appeared in the February 12, 2003 issue of WWD.  Subscribe Today.

It was no different Tuesday when the Bush administration unveiled its proposal to slash all tariffs on apparel and textiles in the Western Hemisphere within five years.

Reaction ranged from disappointment in one textile industry camp to guarded optimism in importer and retailing circles.

The Brazilian Ambassador to the U.S. also weighed in with a mixed reaction.

U.S. officials hope to use the new market access proposals to jump-start the Free Trade Area of the Americas pact, which aims to create a hemispheric trade zone among 34 nations.

However, the proposals hinge on all 34 countries agreeing to lower their tariffs on industrial and agricultural goods, government procurement, services and investment to the same level at the same time.

That could mean a tough fight, especially since many of the poorer countries maintain high tariffs as well as high non-tariff barriers.

Negotiations over agriculture and rules of origin for apparel and textiles are also expected to be difficult.

Tuesday’s proposal also takes into account the size and levels of development of economies and would give poorer countries access to the U.S. market sooner while allowing them to open their markets more slowly to U.S. exports.

Brazil, which is co-chair with the U.S. in the FTAA negotiations, and many of the other Latin American countries are expected to follow suit with tariff reduction proposals of their own by the Saturday deadline.

Rubens Barbosa, the Brazilian Ambassador to the U.S., predicted the U.S. proposal would receive mixed reviews among some of the other participating countries.

“Some countries will think this is a very positive proposal and other countries will have doubts, especially the Mercosur [which includes Paraguay, Brazil, Uruguay and Argentina] countries,” he said.

Barbosa claimed Mercosur countries might feel some “discrimination” in the special treatment the U.S. proposed giving poorer countries, particularly in the area of agricultural products.

He also noted the proposed five-year phaseout of textiles and apparel might be too long for some countries hoping to gain access to the U.S. market sooner than later.

“In the case of textiles, the industry in Brazil is prepared to have a much more daring proposal than this one,” Barbosa said.

Whether or not the U.S. proposal can withstand another two years of FTAA negotiations is uncertain. Even the target implementation date of 2005 is uncertain.

The Bush administration is still optimistic, however.

“First, in the goods sector the U.S. is proposing to eliminate all tariffs by 2015,” said U.S. Trade Representative Robert Zoellick at a press conference Tuesday. “For textiles and apparel, we’ll be even bolder.”

Zoellick said it is crucial to improve the efficiencies between the U.S. and Latin American textile and apparel industries because China is expected to be a “fierce” competitor in 2005, once all quotas are removed among the 145 countries of the World Trade Organization.

“Our apparel and textile quotas come off in 2004,” he said. “Part of the reason we are trying to move on this is to create a more integrated Americas market in the apparel and textile industries and, in our case, also with cotton producers so as to help the efficiencies of the Americas to compete with the rest of the world.”

Importers were somewhat positive about the U.S. proposal on apparel and textiles.

“Certainly, we’re supportive of proposing going to zero in textile tariffs as quickly as possible,” said Julia Hughes, international vice president of the U.S. Association of Importers of Textiles and Apparel. “There is no reason to drag it out, particularly when most U.S. imports from Latin America are already duty free.”

She said the next big issue importers will pursue is a flexible rule of origin that allows the use of inputs from any member FTAA country and still qualifies for duty-free treatment.

But that could prove to be a thorny fight on Capitol Hill, according to Steve Pfister, senior vice president of government relations at the National Retail Federation.

“The U.S. laid out a bold and sweeping proposal and certainly we welcome that,” Pfister said. “But there is going to be a heated and protracted debate over this [among lawmakers in the textile caucus] unless significant concessions on rules of origin are given [to the textile industry, which seeks very strict rules of origin].”

The flagging domestic textile industry is still reeling from a recent U.S. proposal to drop all tariffs on apparel and textiles among 145 WTO nations by 2015. Under that proposal, some tariffs on apparel and textiles would be eliminated as early as 2010.

Another challenge facing the domestic industry is the elimination of quotas on apparel among the 145 WTO nations by 2005. Despite these challenges, the domestic textile industry is split on trade liberalization under the FTAA.

The American Textile Manufacturers Institute, seeking to increase exports in the region, will support the negotiations if three conditions are met, according to Charles Bremer, vice president of international trade at the ATMI.

He said the association will push the administration to negotiate yarn-forward rules of origin, complete reciprocity in tariff phaseout schedules and the elimination of nontariff barriers, which is a tall order.

“We would like to sell products to South America without running into high tariffs and outrageous nontariff barriers such as pre-inspection schemes and prior deposit schemes,” said Bremer.

He noted that his members are interested in exporting more U.S. textiles to Brazil, Argentina, Venezuela and Colombia.

The U.S. actually has a textile surplus with Mexico, which Bremer said could be achieved with South American countries if the other conditions are met.

The American Textile Trade Action Coalition, a mill/labor lobby group, does not support the U.S. proposal, according to Augustine Tantillo, Washington coordinator of ATTAC.

“There could be some very serious repercussions with this proposal because you are talking about Brazil presumably being part of the mix and the country has enormous yarn, fabric and apparel capacity, which has the potential of adversely affecting the [U.S.] domestic industry,” Tantillo said. “If you are talking about eliminating duties on Brazilian textile and apparel production, we may not have to worry about China.”

Tantillo said the “cumulative” effect of eliminating quotas at the end of 2004 and slashing tariffs to zero in various trade negotiations will be devastating if the U.S. does not insist on lowering nontariff barriers, which block U.S. textile exports.

“We are seeing radical proposals like this being thrown on the table because there are many problem areas with Brazil,” said Tantillo. “[Bush] is trying to increase momentum for the talks, but textiles and apparel are an enormous concession.”