WASHINGTON — The domestic textile and apparel industries are staging a political attack to change the way the origin of apparel is determined, a move that could severely disrupt apparel imports.
U.S. manufacturers are trying to change the current law, which states that the origin of apparel is determined by where it is cut, to say that origin should be determined by where the apparel is assembled. They argue that assembly is a more complicated process that adds more value to the finished product.
The estimated 10 percent to 30 percent of apparel imports that are cut and sewn in different countries “would definitely be put into jeopardy” if the rules are changed, said Clinton Stack, president of International Development Systems Inc., Washington, a trade consulting firm.
The law that designates cutting as the origin-conferring process has been on the books since 1985. The approximately 40 foreign countries that ship apparel to the U.S. under bilateral agreements have negotiated their quotas — and arranged assembly operations in other countries — based on their cutting capacity.
The change is being sought primarily to stem the tide of apparel imports that are cut in Hong Kong, assembled in China, where labor is less expensive, and labeled as products of Hong Kong. Hong Kong was the leading apparel exporter to the U.S., in dollar value, in the year ending April 30, shipping clothing worth $3.8 billion, or 13.4 percent of total apparel imports.
“Hong Kong has been running this scam for years with this so-called outward processing regime,” charged Charles V. Bremmer, director of international trade at the American Textile Manufacturers Institute.
Importers and retailers are lobbying intensely against the proposed change.
“They’re just finding an excuse to disrupt trade…and what better way to do it than to change the rules so that people who in good faith negotiated [their bilateral agreements] suddenly find the rules are different and the deal they made is worth nothing to them?” said Robin Lanier, vice president, international trade, with the International Mass Retail Association.
The domestic industry’s primary attack against the origin rule is set to take place this week on Capitol Hill.
ATMI, the American Apparel Manufacturers Association, the ILGWU, the Amalgamated Clothing and Textile Workers Union and other U.S. interests have found sponsors in both the House Ways and Means Committee and the Senate Finance Committee for an amendment that would make assembly the origin-determining process.
Rep. Benjamin Cardin (D., Md.) and Sen. John Breaux (D., La.) are expected to introduce companion amendments this week to the Congressional proposals for the implementing legislation for the GATT Uruguay Round global trade agreement.
Various amendments, including this one, to the proposed GATT legislation are to be considered by the House Ways and Means Committee either Wednesday or Thursday and the Senate Finance Committee today.
If the amendment is added to the Uruguay Round bill and the bill is passed by Congress, the new origin rules would go into effect Jan. 1, 1995, Bremmer said. Thus, the brunt of the impact would be felt at the spring and summer 1995 seasons, according to Stack.
Laura Jones, executive director of the U.S. Association of Importers of Textiles and Apparel, sent a letter to congressional committee members Thursday asking them to reject the amendment.
“We oppose manipulation of the rules of origin by special interests for political purposes,” Jones’s letter said. The National Retail Federation also is lobbying heavily against the bill, according to a staffer there.
Sources were unwilling to predict how the committees will receive the amendments.
“There is some precedent of these little irksome amendments slipping by” while members concentrate on other issues, Stack said.
Stack said the amendment is given an extra boost because the Clinton administration helped to write it.
A spokeswoman for the U.S. Trade Representative’s Office would not comment on the country-of-origin amendment specifically. But she said the administration’s position on many of the proposed Uruguay Round amendments remains “fluid” as different lawmakers take sides.
A Treasury Department staffer who did not want his name used confirmed that an employee of the Customs Service, a division of Treasury, helped ATMI write the amendment. But he said that was only done so the language was legally correct, not because the administration supports it.
“A guy at Customs who works on this told ATMI how it could be done,” the Treasury staffer said. “That doesn’t necessarily mean the administration supports it. He did it so the issue can be addressed on its merits.”
Apart from the inevitable disruption in trade, those involved in the origin debate cited other possible effects of a change in origin rules.
Stack pointed out that most countries use assembly to determine origin, so the proposed change would bring the U.S. in line with much of the rest of the world.
“It makes sense” to let assembly confer origin because it is the most important part of the manufacturing process, he said.
However, he added, “The only problem is that the U.S. agreements have been negotiated based on trade determined by cutting.”
The importers and retailers argue that changing the rule would drive up the cost of apparel as shipments are turned away at the border, apparel is relabeled and companies are forced to rearrange their offshore manufacturing operations. This would create more demand for U.S. apparel and allow domestic manufacturers to raise their prices, said opponents of the change.
The domestic groups downplayed the potentially positive impact on their business.
“We would like to think there would be a lot more demand for U.S.-made apparel, but it all depends on how the entrepreneurs in Hong Kong and elsewhere react to the new rule,” said Larry Martin, AAMA’s director of government relations.
Concurrently with this legislative wrangling, the domestic industry is opposing a proposed Customs Service regulation to clarify the current law that cutting is the operation that determines origin. As with the proposed legislation, the ultimate aim of the domestic group is to make assembly the determining factor.
The clarification sought by Customs, however, would have little effect on apparel.Customs’ stated purpose in rewriting the regulation is to leave the 1985 law unchanged.