WASHINGTON — Mexico, Argentina and Brazil have erected or expanded trade barriers against U.S. apparel, footwear and textiles and the roadblocks are threatening to have a major impact on the American industry, according to an annual report on trade barriers released by the U.S. Trade Representative’s office on Monday.
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A trade barrier erected by Mexico in which the government’s tax authority has begun subjecting U.S. companies to audits, requiring them to verify the origin of their inputs dating back as far as 2007, could cost companies millions of dollars, the report said.
“In some cases, [Mexico’s tax authority] has reportedly denied the exporters claim of NAFTA preference even after the submission of documentation demonstrating that the products meet the agreement’s rules of origin,” the report said. “The fines and penalties in such cases can be very high (in excess of $10 million), and there are substantial costs associated with complying with the audit and even greater legal costs for appealing the rulings.”
Cass Johnson, president of the National Council of Textile Organizations, said textile producers that exported $4 billion in fabric and yarns to Mexico, have been spending “an enormous amount of money” to comply with the audits, hiring lawyers in Mexico and gathering years’ worth of data.
“They say they want all of a company’s records for the past two years — production, sales invoices, employment numbers, shipping documents,” Johnson said. “It’s a huge list. So companies that have never had any record of fraud can suddenly be asked within a 30-day time period to produce thousands of documents and send them down to Mexico City under threat of very heavy fines and penalties.”
Johnson said the Mexican government pledged to announce revisions to the audit requirements by March, but has not yet done so.
“Argentina, Brazil and other key markets continue targeting our industry with damaging and costly policies that erode the competitiveness of U.S. companies and undermine their ability to employ U.S. workers,” said Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association.
The two South American countries have implemented and recently expanded nonautomatic importing licenses that are impacting the fashion industry and making it difficult to sell products in those countries.
Import restrictions imposed by Argentina, in particular, have had a major impact on U.S. apparel and footwear brands and textile producers that face wait periods of six months or longer to get approval of licenses. Some companies are denied import licenses altogether without explanation.
The U.S., European Union and 12 other World Trade Organization members on Friday turned up the pressure on Argentina to end its import restrictions affecting an estimated $1.7 billion worth of apparel, footwear and textiles.