Los Angeles denim manufacturers were caught off-guard by a quickly enacted European Union decision that tripled the duty on women’s jeans made in the United States.
As of May 1, all U.S.-made women’s denim pants imported into the EU had their duty raised from 12 percent to 38 percent.
Already, Los Angeles denim makers, who account for 75 percent of all the premium-denim blue jeans made in this country, were contemplating moving production to Mexico or Turkey. Mexico has had a free-trade agreement with the EU since 2000. Others were trying to figure out loopholes that could avoid the high import tax, which will make shoppers think twice about paying more than $250 to $300 for a pair of jeans that would have normally sold for $200 to $250.
“Basically, what they have done is priced the jeans right out of the market,” said Deborah Greaves, the in-house counsel for True Religion, which last year had 16 full-price and outlet stores in Europe. International sales made up 18 percent of the company’s $467.2 million in revenues in 2012. “As a manufacturer you can discount your product, but at some point we have to have [profit] margins, too.”
Executives at Hudson jeans were planning to keep their EU retail prices the same for the moment. Currently, jeans sell for between $189 and $245 in Europe. “We are committed to not have prices increase,” said Peter Kim, the Los Angeles company’s founder and chief executive. “We have to make some price concessions and take some margin hits for the most immediate and quickest solution for the shipments that are going out right now.”
But Hudson wants to keep its production in Los Angeles. “We are committed to ‘Made in LA,’ and we strongly believe in it and stand behind it,” Kim added.
Koral Los Angeles, a denim company started last July by veteran denim maker Peter Koral and his son, David, has been aggressive about reaching out to the international market. Exports now make up 40 percent of the company’s revenues. Europe is a big part of that. “Everyone is scrambling to figure whether to move our sewing to Mexico or Turkey and looking at other options,” said one executive at the company, who asked not to be named. “We take a lot of pride in the fact that the Koral label is made in Los Angeles, so this is difficult.”
The AG Adriano Goldschmied label, made by Koos Manufacturing in Los Angeles, has a number of distributors in Great Britain, Germany and Italy for its jeans, which sell in Europe for about 200 euros, or $260 a pair. “Certainly, it will affect our business. Our products are expensive,” said Sam Ku, vice president and creative director of the high-end blue-jeans line.
The new duties threaten to take a big chunk out of the Los Angeles garment-manufacturing industry, which has seen employment dwindle every year over the last decade. Early this year, there were 44,500 people working in the apparel-manufacturing business in Los Angeles County, down from 45,000 in 2012.
Ilse Metchek, president of the California Fashion Association, is putting together a letter urging action to overturn this duty or have it revoked. “The letter basically says, ‘Do something,’” Metchek said.
She was planning to send it to Barbara Boxer and Dianne Feinstein, the two U.S. senators representing California; California Governor Jerry Brown; U.S. Rep. Lucille Roybal-Allard, whose district is in California; Fernando Sanchez, an international trade specialist at the U.S. Department of Commerce; and a host of other officials.
The American Apparel & Footwear Association, a large trade group based in Arlington, Va., was reaching out to politicians in Congress and in the Obama administration to make them aware of the new duty and ask how they could remedy the situation.
The AAFA is also talking with other apparel and textile trade groups to help in lobbying efforts to be a stronger voice. “It is frustrating that we are getting ready to launch a trade agreement [negotiations] with the European Union, and this stuff is out there,” said Steve Lamar, the AAFA’s executive vice president.
Last year, the United States shipped
$30.3 million worth of women’s and girls’ denim pants to the European Union, down from the $44 million shipped in 2011, according to the U.S. Department of Commerce
The new duty on women’s premium denim was announced by the European Union on April 24 after the European Commission issued a regulation on April 17.
Three U.S. goods currently subject to a 15 percent EU duty—sweet corn, eyewear frames and mountings, and crane trucks—will have their duties increased to 26 percent.
But the big hit came to U.S.-made women’s jeans. This category saw its 12 percent duty rise to 38 percent.
The pumped-up duties come from the EU’s World Trade Organization dispute with the United States over the Continued Dumping and Subsidy Offset Act, also known as the Byrd Amendment.
The U.S. Congress approved legislation in 2006 repealing the Byrd Amendment. However, Congress added transitional provisions that allowed U.S. customs to continue collecting duties for distribution until Oct. 1, 2007. The payments continue to be disbursed on antidumping duties collected.
According to U.S. Customs and Border Protection’s annual report, issued on
Nov. 27, nearly $120 million was paid out to U.S. firms in the 2012 fiscal year, up from
$95 million in 2011.
Tom Travis, with the international trade law firm of Sandler, Travis & Rosenberg in Miami, said the Byrd Amendment was found to be in violation of WTO rules, and despite a repeal of the law, its effects were allowed to continue.
As a result, the WTO allows other countries to raise tariffs on goods imported from the United States up to a certain amount, which varies every year.
“What this [new duty] does is eliminates the most promising growth export market for these California products,” Travis said. “It represents a setback for the resurgence of U.S. manufacturers.”
Travis said his law firm is working with its European and U.S. offices to formulate some strategic options.
Many find it odd that the new duties were being added to apparel when most U.S. anti-dumping disputes have been about food products and steel. “In trade wars, you punch people where it hurts,” said Brenda Jacobs, an international-trade attorney with Sidley Austin in Washington, D.C. “We have some brands in Los Angeles that are really competitive in Europe.”
Thimio Sotos, the chief financial officer at J Brand, a well-known Los Angeles premium-denim label, said his company has many European customers and sells to stores such as Selfridges and Harrods in London and Bon Marché in Paris. “Europe is a big market. They love premium denim, and they love premium denim made in the USA, which is an important component,” Sotos said.
He said he will be working with the CFA and the industry to resolve this problem. “We want to make sure the industry is speaking with one voice and that we let the legislature [and Congress] know this is a California issue,” he said.
See related story about EU duty on jeans.