Colombia Relying on Free Trade Agreement for Competitive Edge in Textiles

MEDELLIacute;N, Colombia—Inside a brick and corrugated-tinroof building near the center of this textile capital, 900 workers are shaping blue jeans destined to be sold under the Nautica, Ecko and Levi’s labels.

In the past few years, blue jean manufacturer C.I. El Globo S.A. has added a new building and beefed up its workforce by 40 percent to accommodate a burgeoning number of U.S. apparel companies opting to manufacture in this South American country, which in the past has been better known as a cocaine capital than as an apparel center.

C.I. El Globo’s expansion is due, in part, to a 5 year-old agreement between the United States and Colombia that allows about 85 percent of the apparel exported from Colombia to bypass paying a 15 to 17 percent tariff on apparel and textiles.

In addition, most apparel made of U.S. or Andean fabric can be imported into the United States free of quota under the same agreement, the Andean Trade Promotion and Drug Eradication Act (ATPDEA). This accord is designed to help Ecuador, Colombia, Bolivia and Peru divert their economies away from cocaine production and into other industries. Since the accord was launched, Colombia’s textile exports to the United States have risen from $359 million for the year ending Nov. 30, 2002, to $626 million for the year ending Nov. 30, 2005, according to statistics from International Development Systems, aWashington, D.C., firm that tracks apparel and textile imports. More than half of Colombia’s textile exports go to the United States.

However, ATPDEA, which has helped Colombian apparel and textile producers be more competitive with China, expires at the end of 2006. Colombian industrialists are hoping that a new free trade agreement, currently being negotiated in Washington, D.C., will keep their businesses healthy.

“If they don’t sign the free trade agreement, it will be very bad,” said Claudia Uribe, one of the owners of C.I. El Globo, which makes about 200,000 pairs of denim pants a month.

She and her husband, Juan Carlos Restrepo, have invested much time and money into their apparel factory, which took on Israel Bluman Levy last year as a third owner. They have also been aggressive in marketing their company through numerous visits to New York. Their factory had a booth at the recently held Colombiatex of the Americas, a semi-annual trade fair in Medelliacute;n encompassing seven pavilions that showcase textile factories, full-package apparel makers, machinery and trim suppliers. This year’s fair, held Jan. 24–26, featured 450 booths, 8,000 national buyers and visitors, and 1,300 international buyers.

Rodrigo Jativa, sourcing director for National Stores Inc., a Gardena, Calif., company that operates 200 stores under the Factory 2-U, Fallas Paredes and Weiner’s logos, was making his first serious buying trip to Colombia. He crammed several factory visits into his brief time in Medelliacute;n in search of extremely low-cost goods that would retail for no more than $4 to $15 in his company’s U.S. stores, which cater to Latino customers. In the past, National Stores imported very little from overseas, mostly shopping through jobbers, closeout sales and offprice discount shows. Jativa said that last year his import budget was only $10 million. This year it has been pumped up to $35 million and next year may soar to $100 million. Much of this is because National Stores was part of a retail consortium that in 2004 acquired 100 Factory 2-U stores that had been placed in bankruptcy.

Last year, about 60 percent of what National Stores imported came from China and the other 40 percent from other Asian countries. Now, the company is diversifying its sourcing strategy ever since temporary quotas were imposed until the end of 2008 on Chinese- made textiles brought into the United States. “Quota costs $1.40 a pant in China,” said Jativa, a native of Ecuador who used to have a manufacturing operation in Brazil. “I have to look for different alternatives.”

Colombia looked attractive because its apparel is duty- and quota-free. It is also relatively close to the United States, with ocean freight arriving in Miami in five days.

“Seven or eight years ago, I would have never considered coming to Colombia,” Jativa said, noting that the country was considered too dangerous then for business travelers. But with the United States infusing major doses of money into the country to combat cocaine traffickers and a conservative president, Alvaro Uribe, setting the pace to eradicate the drug industry, Jativa said he feels safer coming to Medelliacute;n.

Price is the No. 1 priority for National Stores. “We are the sleeping Wal-Mart,” he said.

National Stores sells T-shirts for $3.99, junior fashion pants for $7.99 and Indian-style skirts for $9.99. Childrenswear goes for even less.

Jativa’s goal is to shave 50 cents here, $1 there off the wholesale price of each item to fit the low, low, low price ranges so popular with his customers. At the same time, he wants to inject a little more fashion into National Stores’ assortment, something he feels he can find in Medelliacute;n. “I’ve found product here that is awesome,” Jativa said.

Fashion factor

Colombian companies know they have to invest in their designers to create more fashion and add more value to their goods if they are going to compete in the battle with China.

China has already dipped into Colombia’s textile export market to the United States.

Last year, Colombia’s apparel and textile exports to the United States declined 8 percent over 2004 when measured in square meters. However, the dollar value declined only 1 percent to $626 million for the year ending Nov. 30, 2005. The relatively low dip in the dollar value shows Colombia’s goods were fetching more money for better goods with added elements.

At Coltejer, a 100-year-old denim, twill and linen mill with $200 million in annual revenues, designers visit the Paris fabric show Premiegrave;re Vision twice a year, as well as the New York shows, to study trends, said Andreacute;s Restrepo, the company’s marketing manager. Coltejer incorporates the trends into its own fabric designs, which are used by customers such as Levi Strauss.

Polo Ralph Lauren has been producing 40 percent of its childrenswear in Colombia for the last 12 years. It started when its childrenswear licensee, S. Schwab Company Inc. in Maryland, started using Colombian factories to produce its goods. When Polo Ralph Lauren bought back its childrenswear license two years ago, it decided to stay in Colombia because of lower costs. Also, Colombia is on Eastern Standard Time, which helps with communications during the business day.

The Crystal Group, which has several divisions, including Vestimundo, makes cotton pants for Liz Claiborne and Jones Apparel Group.

Winning formula

On Jan. 1, 2005, quotas expired on goods shipped from World Trade Organization members. New member China was poised to take over the lion’s share of the apparel and textile market until pressure from U.S. textile producers and manufacturers prompted the U.S. government to step in mid-year to impose safeguard measures, or temporary quotas, on many apparel categories. In addition to helping the domestic market, the safeguard measures have provided additional time for other apparel centers to try to capture some of the U.S. business.

With the new Chinese apparel and textile quotas in place until the end of 2008, Colombia has leeway to hone its competitive edge.

“China has affected Colombia’s textile business seriously,” said Roque Ospina, executive director of Inexmoda, Colombia’s Institute for Exports and Fashion. “It is almost impossible to compete with the prices in China.”

Colombia also has transshipment problems with China. Goods that arrive in neighboring Panama mysteriously find their way into Colombia without paying duties or being subject to quotas.

Ospina said the textile industry has a three-step program in place to survive China.

Colombia’s textile factories are looking for more foreign investment, concentrating on value-added goods and spending more time training their employees. ”If we manage to do the work as we planned, I think the industry can survive,” said the textile engineer, who studied at the Georgia Institute of Technology. “If we sleep on this, we’ll die forever.”