Will Congress Help the Apparel Industry With New Trade Law?

Could the third time be the charm for a trade bill lowering tariffs on apparel and textiles from some of the poorest countries in the world?

No one is sure, but legislation recently introduced in the U.S. Senate by Dianne Feinstein (D–Calif.) and Kit Bond (R–Mo.) could give a boost to apparel production in countries such as Bangladesh, Sri Lanka and Cambodia. All three have substantial apparel industries that in recent years have been churning out relatively inexpensive clothing to U.S. retailers. But the price tag on those clothes could dip even further if the Tariff Relief Assistance for Developing Economies Act of 2009, also known as the Trade Act of 2009, is approved by Congress this year.

The bill (S. 1141), introduced May 21 and now in the Senate Finance Committee, basically would eliminate tariffs on textiles and clothing coming from 14 least-developed countries whose economies need a shot in the arm. Those countries are: Afghanistan, Bangladesh, Bhutan, Cambodia, East Timor, Kiribati, Laos, Maldives, Nepal, Samoa, Solomon Islands, Tuvalu, Vanuatu and Yemen. Sri Lanka would receive limited duty-free benefits.

“This legislation would help to create more jobs, raise living standards, and promote economic and political stability in some of the world’s poorest countries,” Feinstein said in a statement.

Supporters note that some of these countries face tariff barriers that are much higher than those of developed countries. For example, in 2008, goods imported from Bangladesh were charged a 15.2 percent tariff, on average. For Cambodia, it was 16.2 percent, but U.S. imports from France averaged a 1 percent tariff rate, according to the U.S. International Trade Commission.

Only two weeks after introduction, various interests are jostling to either support the bill or shoot it down as they did when the unsuccessful Trade Act of 2005 and the Trade Act of 2007 were introduced in Congress.

Apparel manufacturers and retailers are stepping up behind the bill, which would help reduce manufacturing costs at a time when consumers are demanding lower prices amidst a dreary economy.

Currently, Bangladesh is the No. 3 provider of clothing to the United States, making up 6.6 percent of all U.S. apparel imports. China is No. 1, with 34 percent, and Vietnam is No. 2, with 7 percent.

Gregg Weisberg, chief operating officer for Second Generation Inc., a juniorswear maker in Vernon, Calif., whose labels include BeBop and Fishbowl, said he has toured factories in Bangladesh to view options for producing the company’s tops, shorts, dresses and pants sold to teen-agers. But he still is doing a lot of work in China, Vietnam, India, Cambodia and Southern California. “There is definitely potential there,” he said. “If the bill does pass, producing in Bangladesh would become an option if the prices are right.”

But passage of the bill, which has not been introduced yet into the House of Representatives, has several hurdles. First, Congress has many other pressing issues, such as health care reform and the U.S. economy, to worry about.

Also, many U.S. businesses, the U.S. Chamber of Commerce, the American Apparel & Footwear Association and several non-governmental organizations have formed a coalition to urge the Obama administration to overhaul the wide-flung, trade-preference programs that are so complex it takes a team of talented lawyers to figure out what is going on. There are textile and quantity restrictions, various short-supply amendments, and short duration times in the programs.

“We look forward to working closely with Congress and the Obama administration to reform U.S. trade-preference programs to make them work better for everyone involved,” said Kevin Burke, the AAFA’s president and executive director.

For example, the Andean Trade Preference & Drug Eradication Act—which gives duty-free status for goods coming from countries such as Colombia, Ecuador and Bolivia—has been living on a year-to-year life-support system. It expires at the end of this year, again, but could be extended for another year.

“I honestly don’t think the bill as it is currently written will be the one we see at the end of the day,” said Nicole Bivens Collinson, a Washington, D.C. - based consultant with law firm Sandler Travis & Rosenberg. “If it were to move forward, it would be included in or become part of the overall discussion that Congress is planning to have on trade preferences.”

David Spooner, the former assistant U.S. secretary of commerce for import administration under the George W. Bush administration, doesn’t see the bill passing if countries such as Bangladesh and Cambodia are included. In recent years, Bangladesh has invested in new machinery to produce cotton bottoms as well as woven cotton tops. Much of its fabric input comes from China. “They are recently large producers of apparel and perceived by the U.S. textile industry as a threat to their customers in Latin America,” he said.

Indeed, the American Manufacturing Trade Action Coalition in Washington, D.C., which works to protect U.S. textile and apparel manufacturing jobs, feels there are too many duty-free preference programs being dispensed by Congress. Dozens of U.S. yarn and fabric mills have been kept alive by U.S. trade agreements, such as the Dominican Republic–Central American Free Trade Agreement, that stipulate that only apparel made of U.S. or regional yarns receive duty-free access. Honduras and El Salvador have been winners under the free-trade agreement, which went into effect in 2006. “Countries in this hemisphere that are making apparel are making it out of our fabric,” said Auggie Tantillo, AMTAC’s executive director. “What people fail to understand is that for every action, there is a reaction. And there are going to be losers by expanding these preferences to countries that are, quite frankly, large enough players in the market without these preferences.”

Top 10 Apparel Exporters to the United States

China 34%Vietnam 7%Bangladesh 6.6%Honduras 5.7%Indonesia 5%Mexico 4.7%India 4%Cambodia 3.8%El Salvador 3.58%Pakistan 3.08%

Source: International Development Systems