WASHINGTON — It’s been more than a month since Congress let legislation expire that suspended duties on millions of dollars worth of certain textiles, apparel components and footwear, and the industry is feeling the pain.
Yarn spinners, fabric firms, footwear brands and retailers have had to fork over tens of thousands of dollars in duties since Jan. 1, which could potentially lead to price increases or the unavailability of some styles. There has been no signal yet from the House or Senate that it will act on renewing the temporary duty breaks, or if the tariffs will be reimbursed retroactively, which has many executives nervous about the fallout from rising production costs.
Lobbyists have said lawmakers could potentially act on a bill by the end of March. The House introduced a miscellaneous tariff bill in late December that would renew the expiring tariff suspension for three years on more than 600 imported products, but the Senate has not yet introduced a bill.
David Trumbull, vice president of international trade at the National Textile Association, said the majority of his 100 members are being affected by the duty increases.
“My guys are knitters who use man-made fiber yarns and they say the raw material is a third of their cost,” said Trumbull. “At this point, there will be some cost to what they have to absorb because the prices in their contracts were locked in [months ago] and it is eating into their profit margins.”
Trumbull said companies can only “do that so long” before the impact forces them to change their business plans. He said the prospect of a potential, not guaranteed, refund is “not real comforting under these business conditions where you are barely surviving anyway.”
Scott Grey, sales manager of Jagger Brothers Inc., a family owned, 110-year-old worsted yarn producer in Springvale, Maine, said, “It’s impacting what little manufacturing we have in the United States — big time and painfully.”
Grey said the company has struggled during the economic downturn but recently picked up solid business and rehired some workers it had laid off. The increase in duty costs on imported rayon and acrylic fibers — 5 percent on each imported product — has begun to hurt the company’s bottom line.
“It increases our raw materials costs by 5 percent and if our raw materials costs are 50 percent of the cost of our yarn, you can do the math,” said Grey. “We work on a 3-to-5 percent profit margin and we will lose half of our profits to our friends in the federal government because we are paying duties on raw materials.”
That is what the Miscellaneous Tariff Bill was intended to prevent.
The so-called duty suspensions, which must be renewed periodically by Congress, are meant to help domestic manufacturers compete by giving them tariff breaks on components such as certain yarns, fibers and footwear that are no longer made in the U.S. and must be imported.
Lawmakers granted three-year duty suspensions on an estimated 500 imported categories in 2006, but those breaks expired on Dec. 31 and U.S. companies have been paying duties on the imports entering the country since then. The list of products affected by the reimposition of duties is diverse, stretching from a wide variety of yarns, including combed cashmere and camel hair, to rayon and acrylic fibers, to finished footwear.
Jim Chesnutt, president and chief executive officer of National Spinning Co., imports several acrylic fiber categories, and has been a beneficiary of the MTB process for years. Acrylic fiber production is nonexistent in the U.S. A proponent of having the duties removed permanently, Chesnutt now faces higher acrylic costs because the temporary duties were not renewed by Congress.
“How much will this hurt us? I don’t know,” Chesnutt said. “We have some fiber that is between $1.30 and $1.50 per pound and when you add 7 percent [in duties] on top of it, that is a lot of money. We’re disadvantaged by 10 cents a pound when we walk in the door every morning. Our business is half what it was 10 years ago, in terms of pounds, sales and employment. That’s not all because of this duty. The underlying reason, of course, is trade policy in this country, and this duty just adds to it. It’s death by a thousand cuts.”
Last month, the textile industry lost 1,800 jobs to employ 243,200 people, down from about 700,000 in 1990, according to the Bureau of Labor Statistics.
Footwear brands and retailers are also trying to find ways to absorb costs or avoid them altogether by putting production on hold.
“The bottom line is if this is not resolved soon or there is not an obvious indication that it will be resolved this spring, there will be real damage across the board, from textiles to footwear,” said Nate Herman, senior director of international trade for the American Apparel & Footwear Association. “Footwear companies are holding off on pricing decisions for fall now but they have to price three to six months ahead of time and that is why they need to know soon because it will ripple through the supply chain.”
Sonya Linger, international customs compliance manager for Rocky Brands Inc., a work and outdoor footwear company based in Nelsonville, Ohio, said 100 styles of the company’s footwear received duty breaks and could potentially be impacted by the duty increases.
She said Rocky Brands is currently “buying time” and holding off on ordering several of the styles to avoid paying the duties. The two categories being affected are men’s and women’s leather, below-the-ankle work shoes and textile waterproof outdoor shoes.
The wholesale cost of the waterproof outdoor shoes is $35 to $40. Before the duty break expired, Rocky paid a 12.8 percent tariff on the shoes. Now, the company will have to pay a 37.5 percent duty, or about $15 a shoe.
“We really haven’t had many shipments come in because typically it is a slower period for us,” said Linger. “But here in a couple of months, it will start picking up and at that time if the trade bill has not been passed, it will definitely affect us more.”