THE GATT FIGHT

Byline: Jim Ostroff

WASHINGTON — It’s far from a sure thing, but if the GATT Uruguay Round gets Capitol Hill approval when it comes up for a post-Thanksgiving vote, it will set in motion some of the most dramatic changes of the century in textile and apparel trade.
It will usher in a new era of quota-free borders and heightened global competition.
The international agreement among 123 nations to liberalize various sectors of world trade was reached last December after seven years of intense, bitter negotiations. The implementing legislation now awaiting vote in Congress was worked out after months of debate in Congressional committees, which then sent their draft to the White House for its use in putting together a final bill, still fraught with controversy. Under the fast-track negotiating authority granted the administration, Congress can only approve or reject the legislation; it cannot amend it.
Passage was once considered a certainty, but resistance stiffened this fall. Even importers and retailers, who presumably would be reveling in anticipation of GATT, complained loudly over some of the provisions included in the implementing legislation.
Both chambers of Congress put off the vote until after the November elections, with the legislators returning for a lame-duck session after Thanksgiving. Now the Republican takeover of Congress in Tuesday’s elections puts yet another spin on the situation, even though the Congress that votes on GATT will be the same one that adjourned in October. GATT will need Republican votes to gain passage, and there have been post-election calls for bipartisan cooperation.
As reported, President Clinton on Wednesday urged Republicans to “put international affairs above politics…by passing the GATT agreement this year.”
“Our prosperity depends on it,” Clinton said.
Sen. Robert Dole (R., Kan.), who will be the next Senate’s majority leader, said he was “predisposed to vote for GATT,” but was still undecided. He urged Clinton to give the public fuller explanations of what GATT will mean.
Nevertheless, it remains open to question whether the Republicans, flush with their new power, will be willing to give Clinton this legislative victory.
The votes, which come up Nov. 28 in the House and Dec. 1 in the Senate, will be the center of attention for the various industries affected, and for textiles and apparels, the effects of GATT would be seismic. Here’s a look at the nuts and bolts of GATT and the contentious issues involved.

Phasing out the MFA
The agreement will mean the end of the Multi-Fiber Arrangement, which for nearly 21 years has governed international commerce with a system of quotas and tariffs.
The MFA will be phased out over 10 years starting Jan. 1. A new entity, the World Trade Organization, will become the watchdog of trade practices, with each of the member nations having an equal vote. While industry seers for years have been forecasting major restructuring of the textile-apparel and retail industries as trade has evolved into a more global business, the GATT insures that firms in these sectors will have to make basic changes soon after the implementation date — or face economic decline.
Sifting through the myriad details of GATT makes it clear that certain things will begin happening at once. Come Jan. 1 — assuming that is Day One of the new GATT era — the U.S. must eliminate quotas on textile and apparel products that accounted for at least 16 percent of all such imports in 1990.
By Jan. 1, 1998, the U.S. must eliminate quotas on goods that accounted for another 17 percent of imports in 1990, and then, on Jan. 1, 2002, a further 18 percent of this trade must be made quota free.
All told, 51 percent of U.S. textile-apparel import trade must be “integrated” during this 10-year period into the WTO, and at the end of the 10 years, the remaining 49 percent will simultaneously become quota free as well. WTO’s rules will allow for a reimposition of quotas, or temporary halts in trade, only when such imports threaten to disrupt domestic markets.
Each of these stages, called “tranches” in world trade parlance, also must produce an increase in the growth rate for quotas of products that remain covered by the MFA. In stage one, for example, from 1995 to 1997, the quota growth rate must be increased by 16 percent. In the second stage, from 1998 to 2001, this growth-on-growth must be increased by 25 percent and, during the final tranch, by 27 percent.
For practical purposes, this means that for textile and apparel products whose quotas are not eliminated until the end of 10 years, the volume of imports will double over the period. However, for foreign nations considered by the GATT agreement to be “small suppliers” — such as the Dominican Republic, Costa Rica, Guatemala, Jamaica, Mauritius and Poland — the quota increases will be larger: 25 percent in each of the first two stages and 27 percent in the third.

Reductions in Tariffs
Over the 10 years, the U.S. also agreed to cut its textile and apparel tariffs by an average of 11.6 percent. But these duty cuts vary widely, depending upon the product. Yarn tariffs will be cut by 19.1 percent over the span, while fabric tariffs will be cut 27.5 percent.
On the average, apparel tariffs will be reduced 9.2 percent. These will vary drastically, though, depending upon the blend. The average cotton apparel duty will fall by 9.7 percent, duties on imports of man-made fiber apparel by 7.1 percent and those on wool apparel by 16 percent.
None of these trade-liberalizing provisions apply to countries that are not WTO members on Jan. 1, including such large textile and apparel exporters as China and Taiwan, both of which are actively seeking admission.
GATT also provides that foreign nations must permit the sale of U.S. textile and apparel products. Failure to do so would permit the U.S. to seek WTO approval to reduce the growth rate of imports from such countries. The U.S. currently is negotiating with India and Pakistan, which still ban such imports.

Rule of Oringin Change The final, significant provision is one not in the Uruguay Round agreement, but contained within the administration’s implementing legislation. This provision will change the way the U.S. will determine the country of origin for apparel imports. Effective July 1, 1996, the country where clothing is assembled will confer origin, not where the fabric is cut, as is now the case.
It is this one change, strongly supported by U.S. textile and apparel interests with a boost from the White House, that will produce the most immediate and sweeping impact on the domestic textile, apparel and retail industries, officials within each of these sectors maintain. They all have drastically different concepts of how their industry will be affected by the origin rule change and GATT in general.
Officials of importer and retail groups contend the origin rule shift itself will upset long-established sourcing patterns, force them to change the way they do business and consequently drive up apparel prices. This is predicated on the supposition that the rule change will halt the annual importation of millions of garments assembled in China, but cut in — and charged against the quotas of — Hong Kong.
“Consumers will have to pay for this in the first several years of the change, and some believe that up to $6 billion in trade will be impacted,” said Robert Hall, a National Retail Federation vice president. “One company says this will cost them $600 million over two years to change international sourcing plans, and other companies believe the rule change will cause them to raise prices by 5 to 15 percent.”
The NRF official averred that retailers don’t look for any GATT pact benefits regarding apparel imports until about 2001.
“Even after 10 years, the average apparel tariff will decline from the 19 percent average today to just over 17 percent, but this is not the whole story, since U.S. wool tariffs will be about 33 percent after the 10 years,” Hall said.
Martin Trust, president and ceo of Mast Industries, said the rule change could disrupt foreign sourcing until 1998 or later, in some cases.
“Many companies producing apparel offshore have built facilities and an infrastructure to comply with the origin rule that’s been in effect since 1985,” said Trust, whose firm is The Limited’s sourcing arm and one of the leading apparel importers in the U.S.
Trust explained, “We didn’t put cutting facilities or dyeing and printing facilities where they’d have to be with the rule change, and to relocate these could take as long as three or four years. Clearly, this will be a sourcing disruption of significant proportions.”
Trust said the rule change would “dramatically reduce” the ability of U.S. importers and retailers to source from Hong Kong using Chinese assembly.
“Obviously, we’re looking at a situation where prices will have to go up for items like men’s and women’s woven shirts and trousers, all sorts of tops and lingerie,” he said.
Officials within the import and retail communities have said privately that unless the U.S. acts to compensate low-wage countries like China, Malaysia and Singapore with additional quota for the loss of apparel assembly business created by the GATT origin rule change, importers will have to scour the world for new sources — at higher prices.
In addition, some have said importers will have little choice but to source from what are expected to be burgeoning apparel assembly locales in the Caribbean Basin, Mexico and South America, beginning as early as next year.
But the change in the rule of origin is not the only element of GATT making importers unhappy. Several importer executives, such as Frank Kelly, vice president for international trade with Liz Claiborne, have said the MFA phaseout process itself could affect their sourcing strategies.
“The GATT eliminates quotas on 51 percent of U.S. textile and apparel imports over 10 years, and then at 10 years and one day the remaining 49 percent are supposed to be eliminated,” Kelly said. “Given the track record of the government and our domestic industries, there is a real fear an effort will be made to get Congress to somehow stretch out protections.
“After all,” he noted, “the first import restraints were put in place as ‘temporary measures’ more than 30 years ago.”
The listing of categories to be integrated first into the new GATT regimen also riled importers. The 280 items, they pointed out, consisted exclusively of items that had not been under quota to begin with and included many noncritical and fringe products, such as silk parachutes, surgical cat gut and cotton tents.

Impact on Textile and Apparel Makers
Meanwhile, textile and apparel industry officials take a radically different view of the GATT’s challenges and opportunities.
“Where countries around the world have been exporting their textile production for 100 years because their domestic demand didn’t satisfy their ambitions for growth, now our industry must go beyond our own market for distribution,” said William J. Armfield 4th, vice chairman of Unifi Inc. and president of the American Textile Manufacturers Institute.
Armfield said he is encouraged that the new trade pact requires nations to open their home markets to textile and apparel imports, just as the U.S. is doing.
“Devoting more resources to the export of U.S.-made textiles might involve joint ventures offshore or the installation of facilities there to serve foreign markets for growth opportunities and not moving existing ones offshore,” he said.
The textile executive noted domestic firms already have begun offshore joint ventures.
“Greenwood has done this in Pakistan and Venezuela. Milliken is negotiating a venture in China and already has started one in Japan,” he said. (Nevertheless, Milliken’s chairman Roger Milliken remains one of the most ardent foes of GATT.)
For his part, Armfield said there is concern that India and Pakistan still have refused to offer “meaningful market access” and that China is seeking GATT admission as a developing country, which would permit it to keep out many imports.
“China sells us $4.8 billion annually in textiles and apparel directly and probably another $5 billion through the current origin rule loophole, while we sell them about $441 million, which is hardly fair,” he said.
Ronald Sorini, an international trade vice president with Fruit of the Loom and a former chief U.S. textile negotiator, said there is still concern that at the end of the 10-year MFA phaseout China could virtually swamp the U.S. with low-cost apparel in some categories.
However, Sorini noted, this might not happen “should China become more market-oriented and wages rise there” — meaning that its exports will cost more. He added: “U.S. textiles are very competitive now and should remain so” after the MFA’s demise.
“The pressure will be on the apparel manufacturing side, the sewing jobs,” Sorini said. “In the first half of the phaseout, the smaller companies will be affected more than the larger ones, such as Fruit or Sara Lee. It will be easier for us to adjust.”
“Certainly, no one can say with total certainty what the future will bring, but the GATT Uruguay Round will force changes on industry,” said Michael Rothbaum, president of The Harwood Cos. and a former chairman of
the American Apparel Manufacturers Association.
“We all will have to hunker down, eliminate every inefficiency in our operations, do production as close to our markets as possible and reduce the time it takes to get our products to the marketplace,” said Rothbaum, whose firm manufactures apparel in the U.S., Costa Rica and Honduras.
Rothbaum maintains the bill to implement the GATT pact, with the change in the rule of origin and the discretionary scheduling by the U.S. of the items to first receive quota-free treatment, will benefit American apparel firms. The rule change will allow manufacturers to set up centralized cutting facilities wherever it makes economic sense and not be governed by the need for abundant quota. A U.S. company could use foreign fabric, set up a high-volume centralized cutting facility in Central America and take advantage of assembly throughout the Caribbean, he pointed out.
Rothbaum said the realization that global competition would intensify as the MFA phaseout gets under way was a major factor in a Harwood’s decision to revamp its own operations. By early February, it will close its New York headquarters and an apparel assembly operation in Marion, Va., consolidating them at a new facility in the Fort Lauderdale, Fla., area. It also is enlarging its Honduras facility.
“We feel it is vital to do this as part of our strategic plan to shrink assembly, transit and communication time to have our warehouse operations as close to the port of entry from Central America as possible,” Rothbaum said. The consolidation plan, he added, also permits its support staff “to be at any of our plants within two hours, where it takes all day to travel to some now.”
“With the GATT and growing global competition, you must be as efficient as possible — or maybe you won’t be,” he said.
— Fairchild News Service

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