Barriers Being Raised to Curtail Apparel Exports to Brazil and Argentina

A trade war that will affect U.S. apparel sales is brewing in South America. American Apparel, one of the rare U.S. companies that has had its own company-operated store in Brazil, stocks only “Made in USA” merchandise in its São Paulo store, which opened in 2008. But the Los Angeles–based company said lately it has been difficult and expensive to bring apparel into Brazil, which has made American Apparel change how it does business.

Online orders are now shipped from the São Paulo store rather than from the Los Angeles factory, which is atypical for the company. Tariffs and delays have made it challenging for American Apparel to operate as it does in other countries, a company representative said.To make matters worse, in late August, the Brazilian Textile and Apparel Industry Association [ABIT] filed a motion with its government to impose a global safeguard measure that would limit about 82 percent of all apparel and textiles being shipped into the country.In 2011, the United States shipped $271 million in clothing and textiles to Brazil, up slightly from $240 million the previous year. But that doesn’t even take into account the millions of dollars in U.S. branded apparel manufactured in places such as China, Indonesia and Vietnam that end up in Brazil and South America.

“It’s a major issue for U.S. brands,” said Brenda Jacobs, a trade-law and policy expert at law firm Sidley Austin LLP in Washington, D.C.

The situation in Brazil is mirrored in nearby Argentina.

In August, Ralph Lauren temporarily shuttered its three stores in Argentina because the government was making it too difficult to import goods from overseas.

German retailer Escada already had exited the country, and Calvin Klein Underwear decided in March to close its stores there, too. Hard times and struggling economies are reviving trade protectionism as seen by the drastic measures these two South American countries are taking to shelter domestic apparel factories and maintain healthy balance-of-trade systems. Brazil has seen its once-vibrant economy, which saw its gross domestic product burgeon 7.5 percent in 2010, struggle with GDP growth, dwindling to 2.7 percent in 2011.

When filing its safeguard petition, the Brazilian apparel industry noted that 11,729 jobs had disappeared in the last few years, blaming China and other Asian apparel manufacturers. “The global crisis caused a fall in the imports of clothing of the major buying markets in the world, such as the United States and the European Union, generating increased production surpluses in Asia,” the association wrote in its petition. “These Asian countries sought alternative markets, causing a surge in imports of clothing in Brazil.”

The association said apparel imports jumped 270 percent from 2007 to 2011. In 2011 alone, apparel imports were up 42 percent compared with the previous year.

During the first seven months of this year, Brazil experienced a $3 billion deficit when it came to clothing imports versus clothing exports. China accounted for $1.9 billion of that deficit, the association said.

“We are not against imported products. We are against predatory Asian imports and against immense tax burdens that made our industry infeasible, aggravated by the devalued Brazilian real [the local currency] and the forcibly devalued [Chinese] yuan,” said Aguinaldo Diniz Filho, president of the Brazilian Textile and Apparel Industry Association, in a statement. “We will fight until the end because we have 1.5 million workers on our side. It is our duty to preserve the jobs in our country.”

But Brazil decided to impose its safeguard measures to all countries, not just Asia, to comply with World Trade Organization rules.

Return of safeguards Safeguard measures seemed the thing of the past. The United States, the European Union and other countries had safeguard measures in place on and off against Chinese apparel and textile imports shortly after China joined the WTO in 2001. The United States lifted its last safeguard measures on 34 Chinese-made categories of apparel and textiles at the end of 2008. Europe lifted its safeguard measures at the end of 2007.

Recently, Turkey has been imposing safeguard measures on certain textile and footwear categories as well as other items that add higher tariffs when imported.

“Brazil suddenly has become quite protectionist,” said David Spooner, an attorney with Squire, Sanders & Dempsey LLP in Washington, D.C. Spooner was the textile and apparel negotiator in the office of the U.S. Trade Representative as well as the assistant secretary of commerce for import administration under the Bush administration.

But Brazil has always had high tariffs and non-tariff barriers to curtail imports. Tariffs on apparel add 35 percent to the cost of all garments.

Spooner noted that when his law firm recently opened a new office in São Paulo, it could not import any computers from overseas. Several attorneys had to fly down, each carrying one new computer to stock the office.

Tangling with Argentina Argentina’s protectionist attitude has been in force for the last few years, frustrating apparel companies and other industries looking for new markets. The country, led by President Christina Fernández de Kirchner, has increased import licensing requirements to protect local industries, keep the country’s currency strong compared with the U.S. dollar and maintain stocks of international reserves to pay down debt.

Argentina has told local companies that import licenses would be denied if they didn’t balance them out with equivalent exports to avoid a flood of imports.

Several countries have opposed these protectionist measures, saying they go against WTO rules and regulations governing trade among members.

Recently, the United States, Europe, Japan and Mexico requested consultations with Argentina through the WTO to fight these overly burdensome and non-transparent trade restrictions. They could ask the WTO to set up a panel to adjudicate if there is no resolution in 60 days.

The American Apparel & Footwear Association said that products that can be produced locally in Argentina do not get an import permit and that getting goods through customs is intentionally slow and thorough.

Other organizations have noticed Argentina has been a difficult market to penetrate. “There have been problems with entries into Argentina for several years,” said Julie Hughes, president of International Development Systems, a company in Washington, D.C., that tracks trade issues. “But the Brazil thing is new.”