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Playing The Free-Trade Gambit

<CS:BOLD>NEW YORK -- In the high-stakes game of international trade, the U.S. has often used the textile and apparel industry, and, specifically, concessions on opening its markets to imports, as a key negotiating chip.<BR><BR>This has been evident in...

NEW YORK — In the high-stakes game of international trade, the U.S. has often used the textile and apparel industry, and, specifically, concessions on opening its markets to imports, as a key negotiating chip.

This has been evident in the political maneuvering since Sept. 11, with the Bush administration making the war on terrorism and the military campaign in Afghanistan the top priority in international relations and using textiles and apparel as a trump card. Many of the nations who have cooperated with the U.S. — most notably Pakistan, but also Turkey and Bangladesh — have lined up to seek concessions on textile and apparel exports here in a quid pro quo for wartime alliances.

Pakistan, in particular, has made textiles a high priority, saying that its trade with the U.S. has been put in jeopardy by the military campaign, with buyers reluctant to commit future orders out of fear that shipments will be disrupted.

To many, the reason these industries are so often the talk of trade parleys is obvious: Garment manufacturing is one of the first industries in which a developing nation can make its mark and can be a key way for nations to earn the foreign currency they need to buy the high tech luxuries that are a part of everyday life in the First World.

But much more contentious is the question of whether the U.S.’s moves to open its markets to imports amounts to pounding a stake into the heart of an industry or simply facing economic reality.

Over the past few months, as industry heavyweights such as Burlington Industries and Malden Mills have fallen into bankruptcy, and stalwarts like Guilford Mills and Dan River have cut hundreds of workers from their payrolls in an effort to return to profitability, that question has become more urgent.

When it filed for bankruptcy in November, Greensboro, N.C.-based Burlington pointed its finger squarely at the government, claiming that Washington had not done enough to ensure fair trade.

“Imports have been growing for many years, but since 1999, the volume of imported apparel has grown at five times the rate of consumption, squeezing out U.S.-made products,” chairman and chief executive officer George Henderson said at the time. “This flood of textile and apparel imports includes not only products subsidized by foreign governments, but billions of dollars of goods that are imported illegally. Our government, with the exception of support from elected officials in our region, has made no effective response to these unfair trade practices.”

For their part, importers charge that the U.S. hasn’t lowered trade barriers enough. While World Trade Organization members will phase out quotas on textile and apparel products in 2005, importers point out the U.S. will continue to charge duties on imported products, which for apparel and textile products average 17 percent and go as high as 33 percent, substantially higher than for other industrial products.

Last month, in a pair of moves that seemed to indicate how dire the situation is becoming for domestic mills, several major textile groups stepped forward to demand that the U.S. not agree to speed up the phaseout of quotas among WTO members and push harder to open markets overseas — particularly India — to textile and apparel imports.

The American Textile Manufacturers Institute joined forces with its counterparts in the European Union, Mexico, Canada and Turkey to push a unified lobbying agenda. The Northern Textile Alliance sent a letter to 159 congressmen asking them to require that goods qualifying for duty- and quota-free entry into the U.S. under the terms of the 2000 Caribbean Basin Trade Partnership Act be dyed and finished in the U.S. The group said the Bush administration promised it would support that requirement if Congress passes Trade Promotion Authority, which would allow the President more latitude in negotiating trade agreements.

Developing countries, led by India, have been calling for major industrialized powers to accelerate the 10-year phaseout of apparel and textile quotas among the 144 member nations of the WTO, which are set to expire on Dec. 31, 2004. That timetable was agreed to at the Uruguay Round of global trade talks in 1994.

The group of countries, which also includes Pakistan and Bangladesh, nearly derailed attempts to launch a new round of global trade talks in Doha, Qatar, last November. But they yielded to the U.S. and E.U. at the 11th hour.

Even those who are fighting to protect the domestic textile industry from surges of imports acknowledge it’s easy to understand why developing nations push for access to the U.S., the largest consumer market in the world.

“When you look at developing countries, their biggest industries have generally been textiles or, more often, clothing,” said Carlos Moore, executive vice president of the Washington-based ATMI. “They’ve been able to produce huge quantities of textiles and clothing for export, and there are not many other value-added products that they do that with. That’s a natural part of development.

“Clothing is so labor-intensive that a country can be relatively underdeveloped and not have many other exports except raw materials and yet have a clothing industry. That causes a lot of disruption among the developed world. Maybe that’s the root of the problem, as you look back over time.”

While conditions in factories overseas are often criticized as unpleasant, trade officials from developing nations argue that apparel jobs can be better than local alternatives, like farming or mining. Many developing nations look to the U.S.’s large market as the most obvious target market for a developing manufacturing industry.

Not only is market access something that developing nations desperately want, observers contend it’s something the government can easily give them.

“The textile quota is legal tender for the State Department, and it always has been,” said Jock Nash, the Washington lobbyist for Milliken & Co. “It’s an off-budget item. It’s a type of foreign aid that doesn’t show on the annual budget. They’ve been giving it away for years.”

U.S. government officials countered they have not rushed to give away market access and point to the long fight to resist any acceleration of the quota phaseout. However, U.S. Trade Representative Robert Zoellick has agreed to put apparel and textile duties and antidumping rules on review during a new round of trade talks that began this month and are set to end in 2005. Come 2005, these measures will be the U.S.’s only way to regulate its textile trade with WTO nations, including China.

Donald Foote, director of the agreements division of the Commerce Department’s Office of Textiles & Apparel, stressed the U.S. does not “readily give away textile and apparel concessions.”

But he acknowledged the administration can and does make trade concessions when they serve a higher goal.

“The U.S. is tight in terms of giving concessions,” he said, “but on the other hand, when overall economic policy dictates, the U.S. can be generous.”

As for Pakistan, the outcome remains to be seen, but so far, the country’s shipments to the U.S. have not declined. For the first 11 months of 2001 — the most recent Commerce Department data available — apparel and textile imports from Pakistan were up 5.8 percent to $1.81 billion. Pakistan’s representatives contend those orders had been placed before Sept. 11 and have asked the administration for a temporary suspension of all duties and quotas through 2004.

“There is an urgency for some relief package to get U.S. buyers back,” said a source close to the Pakistani Embassy, who declined to be identified.

He claimed spring and summer orders from U.S. buyers are down 70 percent, due to the disruptions and increased insurance and freight costs associated with the war in Afghanistan.

“We are not looking for a quick fix,” he said. “It’s something that adds to [Pakistan’s] capacity to be self-sustaining.”

To date, the Bush administration has extended some modest concessions, but the benefits fall far short of what Pakistan is seeking.

Turkey, which imported $1.8 billion in textiles and apparel to the U.S. for the first 11 months of 2001, has also taken its place in line for apparel and textile relief.

Turkish officials are seeking everything from a quota increase in key import categories to a preferential trade agreement.

Ron Sorini, who was chief textile negotiator during the first Bush’s administration and is now president of trade negotiations and legislative affairs at the law firm Sandler, Travis and Rosenberg, said it generally takes major events like a war to bring on major trade concessions.

“It’s been the exception rather than the rule to provide additional concessions,” he said. “Even a free-trade administration is cognizant of the political realities and importance of textiles to key states and congressional districts.”

This is not the first conflict to affect textile and apparel trade rules.

In the late Nineties, Macedonia asked the Clinton administration to drop all apparel import quotas in return for its willingness to accommodate refugees from the Yugoslavian province of Kosovo during the war in the Balkans.

The administration’s response fell short of the request. The U.S. granted an 807 program to Macedonia, which lowers duties and waives quotas for apparel sewn of fabric manufactured and cut in the U.S. Quotas were also waived if U.S. wool fabric was used in wool apparel.

Turkey was given duty breaks during the Gulf War in exchange for allowing the U.S. to use its air landing strips. The U.S. doubled Turkey’s apparel and textile quotas over the course of three years, according to Foote of the Commerce Department.

After World War II, when the U.S. helped Japan to rebuild, one of the industries it focused on was textiles, and that nation became a major player in textile and apparel production by the Sixties. But Japan’s economy has moved on, and today there are many similarities between successful Japanese and American mills, including a focus on high tech niche products that can command a high selling price.

Some in the textile industry argue that wars should serve as a reminder of the importance of industrial self-sufficiency — and ask rhetorically how the U.S. would be able to put uniforms on its soldiers if the textile and apparel industry in this country were to collapse.

Others acknowledged that doesn’t seem to be a prime political consideration.

“The steel industry gets more protection than textiles today,” said Jim Gutman, president of New York converter Pressman Gutman, which over the past five years has transformed itself from a domestic resource to an importer. “My textile colleagues may want to shoot me for this, but the steel industry is perceived by the political powers to be critical for national defense. If there was a war, you have to have some steel industry to produce tanks and guns. But for textiles, you could buy the gray goods from Pakistan. The perception is that textiles are not an industry that is essential to national defense.”

However, some might point out that a possible import ban based on national security could jeopardize the ability to receive needed merchandise. There was even a rumor following the anthrax incidents this fall that the Customs Service was going to inspect all containers entering the country. This never occurred, but brings to light the extreme possibility of a widespread import ban.

While the practicality of importing uniforms may be a matter of debate — a decision last year to buy Army berets from China kicked up a political storm in Washington — the continued opening of the U.S. market to imported textiles has taken a heavy toll on jobs in the sector.

In 2001, the U.S. textile industry lost 67,000 jobs, bringing its total payroll to 443,000, according to the Labor Department. The department projected there were 16.91 billion Americans working in the whole manufacturing sector as of last month, down from 18.25 billion a year earlier.

To Milliken’s Nash, that is an alarming change and a recipe for social turmoil.

“We lost 1.3 million manufacturing jobs in the last 12 months,” he said. “It means our recovery might be a jobless recovery — and those jobs are gone forever — and that 1.3 million families have just been dropped out of the middle class.”

Nash’s boss, Roger Milliken, has decried the job loss, noting in a fall speech that the loss of Spain’s manufacturing base in the 17th century led to its demise as a dominant world power and wondering what similar changes bode for the U.S.

“We are consuming a billion dollars more in manufactured goods each day than we produce,” Milliken said. “These facts are a prescription for social, political and economic unrest.”

Nash contended that the U.S. is losing more than it gains as its manufacturing base deteriorates.

“For what benefit? Lower prices for the consumer?” he asked rhetorically. “If that were the ultimate good, I think it would have been mentioned somewhere in the Constitution, and I don’t think that’s in the Bill of Rights.”

Karl Spilhaus, president of the Northern Textile Alliance, also worried that the government underestimates the disruptive effect that job losses have on the economy and American society.

“Some of the decision makers in the government tend to look at us all as kind of fungible, interchangeable units of some sort,” he said. “They’re not that close to the tangible aspects of what it is they’re trading away. They’re just looking at the value in their minds and the minds of the people they’re negotiating with.”

He added that textile mills “contribute good jobs, and good jobs for people that might otherwise be in a tough situation, either because of where they’re located or their educational level or something of that nature.”

Still, others contend that the decline of textile manufacturing in the U.S. is an inevitable result of economics. High standards of living and high wages are not compatible with textile manufacturing, they said.

“The textile industry is one of those footloose industries that doesn’t have to be any particular place. It does its own thing with respect to seeking the lowest-cost labor,” said Richard Stanford, a professor of economics at Furman University of Greenville, S.C., and the author of a May 2000 paper titled, “Let the Textile Industry Go!”

“The history of the textile industry is that it moved from an early concentration around Birmingham, England, to New England and the South and then to the East Asian coastline and then on to the mainland in East Asia, Korea and China, and now on to India, Pakistan and Africa,” he said. “The textile industry moves, and none of us are going to keep it from moving.”

To those who argue that the government is killing the industry by opening the way to more imports, Stanford asserts just the opposite — that trade protections have allowed it to survive beyond its natural life span.

“All this language about ‘leveling the playing field’ is an implicit admission that we don’t any longer have a competitive advantage in production,” he said. “I don’t think it’s government policy that caused it to move, but I do think politicians tried to keep it where it is. It’s time for us to quit doing that.”

He said that, as the textile industry has pulled out of South Carolina, a wider array of new manufacturing companies has moved in, including automakers and power-tool manufacturers, creating jobs and a more diversified economy.

Some observers argue that an overreliance on exporting to the U.S. is hurting innovation in the apparel trade and say that a desire to earn U.S. dollars, profitably or not, leads some foreign governments to encourage their companies to sell at break-even or unprofitable prices. Others contend there is a need for more developing nations to open their markets to imports, pointing out that if India dropped its barriers to imports, high prices might keep U.S. companies from selling there, but that China would have another market for its output.

“Everyone is trying to use exports as a growth engine, but the markets can’t handle it,” said William Hawkins, a senior fellow at the U.S. Business & Industrial Council, a think tank focused on the negative impact of globalization on the U.S. manufacturing base. “This makes the issue of deciding who we trade with more powerful as a foreign policy tool.”

However much textile policy is used as a negotiating tool, Gutman said the industry cannot solely blame politicians for its decline.

“We sacrifice the least important industry, from a national perspective. As a textile man, I find this terrible,” he said. “As a realist, I understand that our industry can’t survive foreign competition, at least in the state it has existed over the last five years. It’s inevitable that this is going to happen. I don’t think there was any way, even if concessions hadn’t been made, that textiles wouldn’t be facing what it’s facing today.”