WASHINGTON — Congressional paralysis on vital tariff-suspension legislation is upending the U.S. textile, apparel and footwear industries with no relief in sight.
This story first appeared in the May 11, 2010 issue of WWD. Subscribe Today.
Congress let legislation expire at the end of the year that suspended duties on millions of dollars worth of certain imported components used to make apparel, footwear, yarns and fabrics. As a result, yarn spinners, textile firms, footwear brands and retailers have had to pay tens of thousands of dollars in duties since Jan. 1 and companies have had to scurry to either find alternative components and redevelop entire production lines or absorb the costs and face slimmer profit margins this year.
“My guys are gutting it out under what is already a very difficult market environment,” said Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition. “They need this bill to pass and to pass quickly because they can’t continue to operate under that pricing structure.”
Tantillo said there have been signs of hope in discussions on the Hill toward advancing the legislation this year, but industry lobbyists have been skeptical lawmakers will find a path forward, particularly after the House Republican Conference issued a moratorium last month on all earmarks and included the duty suspension measure, known as the Miscellaneous Tariff Bill, in the edict. Many hope lawmakers will act before the Memorial Day break.
The House introduced a bill in late December that would renew the expiring tariff suspensions for three years on more than 600 imported products, but no counterpart emerged in the Senate. The bill, which must be renewed by Congress periodically, is meant to help domestic manufacturers compete by giving them tariff breaks on components such as yarns, fibers and footwear that are no longer made in the U.S. and must be imported.
Companies across the spectrum have had to make alternative plans over the past four months and are absorbing losses.
“One of our member companies said if this does not get fixed, it will be an annual cost of over $150,000,” said David Trumbull, vice president of international trade at the National Textile Association, consisting of knitters that use man-made fiber yarns. “Another company said they have already paid in the tens of thousands of dollars.”
Trumbull said most textile companies are simply absorbing the costs because contracts were made and prices were set months ago.
“It’s coming right off their bottom line now,” he said. “For the time being, they have no other option than to absorb the costs and pray that this will get fixed and done retroactively.”
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. Chesnutt, who purchases 25 million pounds of acrylic fiber a year at an average price of $1.50 a pound, is now facing a 7.5 percent duty on about two-thirds of the total he imports and a 4.3 percent tariff on the other third.
“It’s a huge cost,” Chesnutt said. “It’s been exacerbated by the fact that acrylic prices are exploding and there is a worldwide shortage. We’ve got some producers who can’t get enough raw materials to run their plants in Europe.”
Chesnutt said he has been working with customers to substitute acrylic fiber for some other fiber, like polyester or rayon.
“There is no easy answer right now,” Chesnutt said.
The footwear industry has also been impacted by the new duties.
With duties spiking by as much as 37.5 percent on hiking boots, many footwear companies are redesigning the boots to move them into lower tariff categories, said Nate Herman, vice president of international trade for the American Apparel & Footwear Association.
Herman said about 15 to 20 footwear firms have been impacted in their hiking boots styles and many are redesigning hiking boots from textile uppers to leather uppers to get lower duty rates.
“Leather is more expensive and the other issue is waterproof, but if the tariff goes from 37.5 percent to between 8.5 to 10 percent, it makes up for the extra cost of the leather,” Herman said. “The issue though is it is a whole different look when you add leather and you have to try to find a way to thread that needle because they created a whole market for textile upper hiking boots and now you have to work around that.
“Even the companies that prepared and bought a lot of inventory have burned through that inventory and have to come up with alternatives,” Herman added. “Nobody thought this would happen.”