WASHINGTON — The fight to break through trade barriers into new markets around the world is a decades-old story and one that still bewitches U.S. companies looking to pry open the door to untapped consumer markets.
Trade barriers are a U.S. exporter’s and retailer’s biggest headache. That’s why retailers and apparel exporters are pinning their hopes on the current round of global trade talks, which aim to significantly reduce or completely eliminate tariffs and nontariff barriers.
The global trade talks under the auspices of the World Trade Organization have limped along, however, since they collapsed in Cancún in September 2003, and many leaders are trying to revive the talks in advance of a critical meeting in Hong Kong in December.
In the meantime, U.S. companies continue to press for more aggressive action against countries that maintain high trade barriers.
While some countries have made improvements in the past year to eliminate barriers such as tariffs, ownership requirements and burdensome licensing arrangements, others have erected new obstacles.
China and India took some steps to lower impediments to trade last year, for example, but many barriers remain despite years of consultations and diplomatic pressure.
The Office of the U.S. Trade Representative said in its recent annual report on foreign trade barriers that China, India and Egypt still maintain some of the highest hurdles on imported apparel and textile products, as well as burdensome business laws on retailing and distribution.
“This is a work in progress,” said a U.S. trade official who briefed reporters at the end of March when the report was released. “We need to continue more efforts but we have made substantial progress.”
The official cited a dispute the U.S. resolved with Egypt over excessively high tariffs on apparel and textile imports without having to form a dispute settlement panel at the World Trade Organization.
The official said the U.S. prefers to resolve problems and lower barriers through dialogue and diplomacy, but it will not hesitate to “use all of the tools at its disposal,” such as filing WTO cases.
Dialogue can take several years, however, and U.S. apparel companies are forced to come up with creative ways to get around some of the barriers.
“One of the challenges in India and Pakistan is U.S. apparel companies make a lot of goods there, but the challenge is trying to get the goods in the retail environment,” said Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association. “The government makes it difficult for goods made in the countries to be sold there.”
Burke noted that the Chinese, carrying out commitments made to join the WTO, have recently changed a law to allow the sale of products made in China for export to be sold in the country.
The Chinese law now allows U.S. branded products to be made and sold in China, but the government has not issued regulations instructing local governments how to allow foreign companies to sell apparel locally.
It is this bureaucratic red tape that many U.S. companies run into even when the laws are loosened.
Mark Jaeger, senior vice president and general counsel at Jockey International, said: “The challenge with apparel is whether it is more economical to export from the U.S. or to make or license production in the market we are trying to service. Some markets are more difficult to penetrate directly with investment or exports,” citing China as an example.
Foreign companies can now produce goods in China to sell to the Chinese market. Previously, foreign companies that manufactured in China had to have hard-to-obtain licenses to sell to the domestic market. That barrier, coupled with China’s 30 percent duties, made it difficult for foreign brands to sell there.
In addition, China changed its internal distribution rules on Dec. 11, per its WTO commitments, and foreign companies are now allowed to own their distribution centers and distribute goods produced outside of the country.
“We look forward to increased flexibility in selling branded goods in China, but there have only been high-level commitments to permit internal distribution, and we haven’t seen detailed regulations,” Jaeger said. “We would like to see detailed regulations and how they work in practice before considering other models.”
Jaeger said Jockey has also had problems in the Caribbean region shifting regional production into the local marketplace. To get around the trade barriers, Jockey produces in the Caribbean, exports the apparel back to the U.S. and re-exports it back to the Caribbean to sell to the local economy, he said.
“Presently we export from the U.S., which is ironic because when you look at San Pedro Sula [Honduras], it has the largest underwear production city in the world, and yet much of that production is not allowed to be sold in the local marketplace” under the current trade preference program known as the Caribbean Trade Partnership Act.
Wal-Mart has created a successful model through joint partnerships in China and is eyeing India as a possible market for store expansion, according to Amy Wyatt, a company spokeswoman.
John B. Menzer, president and chief executive officer of Wal-Mart International, traveled to India last week to visit the company’s procurement office. The retail giant sources apparel and accessories from India.
It is no secret Wal-Mart is hoping to break into retailing in India, but foreign investment rules have been highly prohibitive, Wyatt said.
“We believe there is a bright future for retailing in India,” she said. “We would explore it as soon as foreign direct investment regulations make it more viable. At this point they don’t.”
Foreign retailers are currently not allowed to open wholly owned ventures and must set up joint ventures with local partners in India.
“India is similar to China,” Wyatt said. “When we first went into China, we had to have local joint-venture partners. But China has since released those restrictions, and we can now own retail operations. That has lifted a lot of restrictions on foreign retailers and broadened the market in China.”
Wal-Mart, which operated 43 stores in China at the end of 2004, plans to continue operating with joint-venture partners in China this year and build an additional 15 to 20 stores.
Foreign barriers affect all aspects of the supply chain, and U.S. textile companies also fight to sell their fabric and yarn in countries around the world.
The USTR’s report on foreign trade barriers cited the U.S. textile industry’s ongoing concerns with India’s barriers to U.S. exports.
“According to the U.S. textile industry, India continues to maintain numerous textile trade barriers, and India remains one of the most heavily protected textile markets in the world,” the report noted.
Cass Johnson, president of the National Council of Textile Organizations, criticized the U.S. for not taking more aggressive action against countries that continue to maintain high barriers.
“The biggest markets we are locked out of — India and China — hide behind barriers that are either not being addressed or will only be addressed in the world trade talks,” said Johnson.
He said India’s high tariffs on textile imports, averaging 30 to 40 percent, are a formidable barrier that keeps U.S. producers locked out of the market.
“India still has a long way to go,” Johnson said. “India imports almost nothing from anyone. It is the second most populous nation on earth, and it doesn’t import textiles and apparel.”
He said his association has advised the government in the past to concentrate on a single country, such as India.
“We’ve seen with India that if one barrier is removed, another one pops up, and until the government is able to focus India on knocking down multiple barriers, we are not going to see significant results in terms of increased exports of textile and apparel products,” Johnson said.