LACK OF PARITY CLOUDS CARIBBEAN
Byline: Jim Ostroff
WASHINGTON — The recent bruising and unsuccessful battle to give Caribbean Basin apparel makers free trade parity with Mexico is over, but how damaging the defeat will be for the Caribbean remains to be seen.
The controversy came to a head this past summer in hand-to-hand congressional lobbying, as an attempt in the House to include Caribbean parity in the big balanced budget bill was defeated. Some domestic textile and apparel interests fought the bill, but others saw it as an important element in keeping more production from slipping away to Asia. Many U.S. apparel makers have long established sourcing connections in the Caribbean.
Contending parity now doesn’t stand a chance for serious consideration until after the 1998 mid-term elections, some say there could well be a movement to cut back on sourcing in the Caribbean and set up new assembly operations in Mexico. Some firms in Miami, where fabric-cutting and other operations geared to Caribbean apparel production have become a key industry, say they have been feeling significant impact from Mexican competition (see related story, page 20). For many others, however — big firms using the Caribbean for production and trade analysts — the issue of parity has been overdramatized; even without all the trade benefits Mexico has, the Caribbean on numerous counts remains a competitive apparel producer for the U.S., they say.
For example, Edward Emma, president and chief operating officer, Jockey International, said, “Sure, parity would benefit us with its duty elimination, but even without it, we intend to continue our strong presence in the Caribbean Basin.”
According to Emma, Mexico’s no-duty advantage is offset by wage rates in many Caribbean nations that are 60 to 70 percent of Mexico’s.
“Just as important,” he said, “our plants in Jamaica and Costa Rica, and our new one in Honduras, give us excellent quality, consistency and fast turnaround times.” Emma noted that the Caribbean status quo does not impose undue hardship on firms such as Jockey, since the U.S. for the most part maintains Guaranteed Access Levels — virtually unlimited quotas — on underwear, T-shirts and other apparel imports made in the region from fabrics made and cut in the U.S., under the 807(A) program.
Parity would have eliminated all quotas and duties for apparel made from U.S. fabric cut there, or in the U.S. It also would have created limited quotas for imports of Caribbean apparel made from non-U.S. fabric that was cut and assembled in the region. Many U.S.-based makers had argued they needed parity with the free trade perks given to Mexico under the North American Free Trade Agreement to remain competitive with Mexican and Asian apparel.
Norman Fryman, who as chairman of the American Apparel Manufacturers Association in 1996 helped lobby for parity, said he can understand why U.S. makers now might be “reluctant to make new investment in the Caribbean, instead of going to Mexico, or… willing to do full-package in the Orient.”
But for practical reasons, much of this business likely will remain in the Caribbean, said Fryman, executive vice president, the Bayer Clothing Group, a New York private label maker.
“Most of the major companies, like Hartmarx, Russell and Sara Lee, already are well positioned in Mexico and so it’s a lot easier for others to talk [relocation] than do it,” he said. “There’s a limit on the labor and manufacturing facilities in Mexico, and you must have the right infrastructure and partners.”
While “there may be some shift to Mexico” by U.S. makers, Diane Weinberg, a partner in Wendt, Weinberg & Temples, an Atlanta customs and international trade law firm, said there’s a psychology at work that will keep most U.S. makers with Caribbean operations in the region.
“I’ve spoken with many officials at companies that have been in the Caribbean for many years and even after the recent [parity] defeat, most still believe that parity will be achieved in the next year or so,” said Weinberg, a former U.S. Customs attorney.
Robert Antoshak, a partner in Information Resources International, a Reston, Va., trade analysis and consulting firm, insisted there will be no flight by U.S. makers from the Caribbean, due to the existing duty, quota and quick response advantages that cannot be found in Asia, and the practical difficulties of relocating in Mexico.
As Antoshak sees it, the main impact of parity’s failure this year is that full-package, non-807 production in the Caribbean will be stifled. “At worst,” he said, “I foresee a slowdown in the growth rate of Caribbean exports to the U.S., which likely was going to happen anyhow given its large base numbers in recent years.”
Based on Commerce Department data compiled by International Development Systems, a Washington trade analysis and consulting firm, textile-apparel imports from the Caribbean have grown substantially in recent years. These imports, virtually all apparel, more than tripled between 1988 and last year, when they reached 2.39 billion square meters equivalent.
But the pace of growth was uneven. In the five years prior to NAFTA’s 1994 implementation, annual increases ranged from 9.6 to 23 percent. Caribbean imports rose 15.2 percent in 1994 versus a year earlier, were up 22.3 percent in 1995, but slumped to a 10 percent increase in 1996. For the year ended this past June, imports from the Caribbean reached 2.68 billion SME, up almost 21 percent from the year-ago period.
Mexico’s apparel shipments grew by 103.5 percent to 321.4 million SME between 1988 and 1993. From 1994 to 1996, these apparel shipments rose 128.1 percent to 1.1 billion SME and for the year ended in June, these imports rose 44.1 percent to 1.3 billion SME.
Carl Priestland, the American Apparel Manufacturers Association’s chief economist, said he “wouldn’t touch” prognosticating about the Caribbean’s or Mexico’s future as a U.S. apparel source, but noted that both should see a step-up in business in coming years. Priestland explained that retailer demand for quick response, and the makers’ need to provide apparel at the lowest cost, with tight inventories and few out-of-stock situations, is pushing U.S. firms to make and source apparel as close to the U.S. as possible.
Meanwhile, Julia Hughes, a vice president and Washington lobbyist with the U.S. Association of Importers of Textiles and Apparel, said the U.S. government’s Committee for the Implementation of Textile Agreements could help Caribbean makers by increasing quotas for apparel made with non-U.S., or non-U.S.-cut fabrics.
“Of course, such an action would face the same vocal opposition from the element of the domestic industry that opposed parity,” Hughes said.
Troy Cribb, the Commerce deputy assistant secretary for textiles and apparel, who also chairs CITA, said it would consider such a quota proposal if it is made, but several administration textile officials said they doubt CITA would touch the quota issue, given the parity debate that divided the industry.
Higher quotas would do little to help Caribbean apparel makers, other analysts contend. Phyllis Bonanno, The Warnaco Group’s longtime Washington lobbyist and U.S. trade official, who became president of Columbia College, Columbia, S.C., in July, asserted that every year without parity, Caribbean makers will lose new investments to Mexico.
“You can do full package in Mexico — which you basically can’t do in the Caribbean — and bring it to the U.S. at a better price differential than from the Caribbean” because of NAFTA’s benefits, said Bonanno. Rather than expand sourcing capacity in Caribbean nations, she said U.S. makers and importers will do more assembly in Mexico, “or go to a complete, full-package plan in Asia, Central Europe, or Africa.”