MEDELLIN, Colombia — Beleaguered Colombian apparel and textile firms hoping the U.S.-Colombia Free Trade Agreement will lift them from a seven-year slump are pinning their hopes on two trump cards: geography and innovation.
Manufacturers interviewed here said they harbor no illusions that the pact will level the playing field with Asian competitors. But they do expect the trade deal — which went into effect May 15, eliminating tariffs on most binational trade, including fibers, fabrics and apparel — will open just-in-time market niches, lower the cost of U.S. cotton imports and bring certainty to long-term planning.
For Medellin-based apparel maker Grupo Crystal, the pact will facilitate its private-label offerings to customers like Dillard’s, Target, Nordstrom and Macy’s. Owner Luis Fernando Restrepo said he’ll be offering a two-week turnaround on collections of Crystal’s socks and underwear.
“Fashion quick response is the only way we can compete with Asia,” said Restrepo, who is investing $15 million this year in Lonati knitting machines to increase productivity and speed deliveries to U.S. clients. “And reliability — I want you to sleep like a baby when you source from Crystal.”
Bogota-based yarn maker Miratex has never exported to the U.S., but the company hopes to crack the market with environmentally friendly fabrics made with threads that include eucalyptus, soy, bamboo and seaweed fiber. It sees a big U.S. potential for “green” products that it can sell through third-party apparel makers.
“We’ve become a boutique shop because it’s the only way to stay alive,” said vice president Edmond Mishaan, the Boston College-educated scion of family-owned Miratex.
He’s even hired a yarn designer to come up with exotic products. “If we hadn’t, we’d have gone the way of Rhode Island’s textile industry: disappeared,” he said.
Battered like many Colombian companies by Asian imports, the end of the global quota system, the worldwide economic slowdown and stronger national currency, Miratex has laid off half of the 2,000 workers it had on its payroll in 2005.
Restrepo and Mishaan are typical of the decimated ranks of Colombian apparel and textile manufacturers who see free trade as a mixed bag. On the positive side, the long-negotiated deal made permanent the customs exemptions that Colombian exporters of thread, fabric and apparel have enjoyed over the past two decades through the Andean Trade Promotion and Drug Eradication Act, a U.S. law that aimed to stimulate Colombian exports other than cocaine, marijuana and heroin.
“The problem with ATPDEA was it had to be renewed every year and it always went right down to the wire, keeping us and our buyers in limbo,” Restrepo said. “So now there is certainty.”
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The agreement should also stimulate Colombian imports of U.S. cotton by knocking down the 10 percent duty here. U.S. cotton already is woven into 90 percent of all cotton thread and fabric made here, noted Maria del Mar Palau, an official with ANDI, Colombia’s largest business advocacy association.
But even duty-free exports can’t compete on price with Chinese goods, producers here admit. So any long-term trade benefit will depend on firms’ ability to leverage Colombian creativity and proximity to the U.S. market to rapidly deliver fashionable products, said Gary Hufbauer, a trade expert with Washington-based Peterson Institute for International Economics.
The industry could use a boost. According to government figures, Colombia’s textile and apparel exports to the U.S. slid to $238.7 million last year, less than half the shipments in 2005 when things began to go south for the industry.
“We’re just hoping to reverse the dynamic,” said Carlos Botero, president of Inexmoda, a Medellin-based trade group, adding that the sector ran a trade deficit last year after exports outpaced imports by a five-to-one margin in 2004.
U.S. exports of fibers, fabrics and apparel to Colombia totaled $266 million over the last calendar year, according to the government statistics agency. ATPDEA’s trade benefits were not reciprocal, but the trade deal eliminates the 18.3 percent average tariffs that U.S. exporters were paying to ship to Colombia.
Colombian manufacturers understand that free trade flows both ways. With the eased entry of U.S. brands, a challenging domestic market that has been flooded in recent years with licit and illicit goods from China will likely become even tougher.
Attracted to Colombia’s expanding economy and rising household incomes, U.S. retailers Gap and Victoria’s Secret have said since the FTA took effect that they are interested in opening stores in Colombia.
Victoria’s Secret would compete with Crystal’s highly successful Punto Blanco intimate wear chain.
“Free trade will be like any marriage,” said Henry Cortes Pena, who heads Tejidos Galia, a Bogota-based apparel company whose payroll has dropped to 100 employees from 300 in 2005. “It will turn out to be a marvel or an absolute nightmare.”