CARIBBEAN LOW-COST LABOR IS A POTENT LURE
Byline: Anne Dukes
MIAMI — Even as they worry about the increased competition from Mexico, apparel firms based here continue to enjoy the benefits of 807 manufacturing in the Caribbean. And lured by the abundance of low-cost labor there, some are even turning over more of their work — including fabric cutting — to the island countries.
Under the 807 programs, fabric cut in the U.S. can be assembled into apparel in the Caribbean and imported into the U.S. under tariffs that reflect only the value added. The advantages of this arrangement are increasingly obvious.
“Every day it is more difficult to do any domestic assembly because we can’t compete with the cheap labor offshore,” said Jorje Soleis, plant manager for R.B. Apparel here. His company, which makes pants and tops, has been doing 807 work in the Dominican Republic for about two years.
Now his firm is one of those turning over some of its fabric cutting to the Caribbean as well, which of course means that the goods, when imported into the U.S., lose the tariff advantage of 807. In some instances, said Soleis, the benefits of cheaper labor in Costa Rica and Santa Domingo make more profit sense than taking the 807 route.
“In some cases, 807 doesn’t help that much, and eventually we will probably do all manufacturing offshore because the labor is cheaper,” he said. The proposed increase in the U.S. minimum wage, though its chances of passage are slim in the current Congress, poses another worry, and would make it even more desirable to do most of the work offshore and give up the 807 advantage.
Soleis predicted domestic manufacturing would one day only involve high, fast-turnover jobs where the maker is behind and needs the goods within two weeks.
“It takes a long time to send things to Santa Domingo and back, so if a manufacturer needs goods quickly, he’ll just have to pay the price. Otherwise, in the next two or three years, the future will be cutting and assembling offshore and the domestic end will be mainly warehousing,” said Soleis.
At Raymel Corp., president Ronald Lacayo said his company has been buying fabric and cutting it in Guatemala and El Salvador for the last four years. Raymel makes knit sportswear tops and pants, and Lacayo said 1994 was one of the best years ever and predicted 1995 would be even better.
If a company can find fabric at the right price in the Caribbean basin, he said, it can be cheaper to buy and cut the fleece and sweatshirt materials offshore and pay the duty, rather than use U.S. fabric and cut it in the U.S., even with the 807 advantage.
“In our business, we do about half and half [cutting offshore and 807], but the scale is tipping more toward true imports rather than 807,” he said.
“Don’t get me wrong, 807 is a definite advantage, but unless U.S. mills become competitive with worldwide sourcing, that’s where we’ll go,” said Lacayo.
“As the whole Caribbean Basin market opens up and expands, I can only see positive benefits for us,” he added, noting his company had to shut its Miami plant two and a half years ago because of the difficulty of getting manual labor.
Because of the various sourcing connections now built up in the Caribbean, however, further trade benefits for the Caribbean, to put the area on a par with Mexico under the North American Free Trade Agreement, is seen as critical. The free-fall of the peso’s value since December has given Mexico’s apparel makers another big advantage as exporters. However, experts do not believe this will be a long-term advantage.
“If history is any judge, that situation will gradually recover,” said Thomas G. Travis, managing director of the law firm of Sandler, Travis & Rosenberg, Miami, a specialist in international trade.
Still, as the manufacturing community looks for further cohesion with the Caribbean, some see current shortcomings.
While praising 807 and its influence on the company’s business, Argus International’s chief executive officer, Alphonzo Hernandez, pointed out the Caribbean still needs to develop more flexibility in production.
“It is by no means the Far East,” he said. “The factories have the ability to produce products, but if you begin to change styles too frequently, they have problems.”
Hernandez said his company, which makes women’s pants and tops, and other similar firms have recognized this limitation and have developed product families with styles that can be easily adapted for different details. For example, his company might create a women’s top with different sleeves, or no sleeves, or other details, which would not affect the construction of the main body of the item. He said there are not yet enough contractors with the skills to do radical changes to accommodate all the manufacturers’ needs.