Central American Apparel Production Threatened by Trans-Pacific Partnership
GUATEMALA CITY, Guatemala—Ronnie Ekelund and Priscilla Silva flew from California to Guatemala on a mission.
For the past seven years, their company, Bébé au Lait in Los Gatos, Calif., has been manufacturing its high-end nursing covers—which look like large aprons that offer nursing mothers a little privacy—in Vietnam. But the long lead time of 90 days from order to retail store shelf keeps their capital tied up too long. Shipping time on the water from Vietnam to the United States is 30 days. From Guatemala City, ocean-bound cargo to Miami takes only three to four days.
The apparel executives’ first stop in Guatemala was to visit the 196 booths that made up the annual Apparel Sourcing Show, held May 21–23 in this country’s bustling capital.
Wandering among the booths, they visited textile companies and manufacturing operations in search of a place to make the nursing covers that sell for $35 at stores such as Nordstrom and Destiny Maternity.
“We came on this trip to explore the opportunities on this side of the hemisphere,” said Ekelund, the company’s president and chief executive, as well as a former Danish soccer player, whose wife came up with the idea to create nursing covers made of trendy fabrics and designs.
Guatemala’s proximity to the United States is one of the country’s advantages. Another perk is that apparel made in the country’s 146 apparel factories enter the United States duty-free under the Dominican Republic–Central America Free Trade Agreement, which went into effect in 2006. (The average tariff for clothing is 12 percent with duties as high as 32 percent for synthetic goods.)
But despite the free-trade agreement, apparel production in the region has slipped over the past few years, due primarily to the weak U.S. economy. American consumers are the No. 1 buyers of all those T-shirts, blue jeans, socks, underwear, jackets, childrenswear and activewear made in the region.
In 2012, Central America and the Dominican Republic shipped $7.87 billion in apparel and textiles to the United States, a slight decline from the $7.93 billion exported in 2011. When it comes to quantity, the region sent 3 billion square-meter equivalents, or SMEs, in 2012, a drop from 2011, when it exported 3.1 billion SMEs.
The lackluster performance of the industry was evident on the Apparel Sourcing Show floor. Yarn and fabric makers said it has been a challenging year for sales in the region. “Business in Central America has been very difficult,” said Victor Almeida, a sales and product-development specialist with Buhler Quality Yarns Corp., based in Jefferson, Ga. “You have to adjust your prices to keep business.”
John Garris III, director of international sales for Frontier Spinning Mills in Sanford, N.C., said that business has been slow but improving recently, especially in light of the apparel factory fires and building collapses in Bangladesh that killed more than 1,200 garment workers in the last few months. “There is a little more effort to bring back business to this area,” Garris said.
But Saul Mishaan, export manager of Liztex, the largest textile manufacturer in Guatemala as well as Central America, said 2012 was the company’s best year even though factory owner Joe Habie died in a helicopter crash last September. “We are selling a lot to Mexico,” Mishaan said. “Kellwood is buying. VF Corp. is coming back as well as PVH. Also, a lot of uniform business is coming back to the region.”
Eyes on Trans-Pacific Partnership
Still, there are several economic concerns looming. Central American factory owners are worried about the negotiations taking place for a new free-trade agreement called the Trans-Pacific Partnership, whose member countries are the United States, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
The 17th round of negotiations wrapped up in Lima, Peru, on May 24. U.S. textile makers are lobbying that any new trade pact require that all apparel be made of regional yarns and fabric to qualify for duty-free entry into the United States.
U.S. apparel importers and retailers are hoping that garments can be made of fabric from outside the trade-agreement region, principally China, to qualify for duty-free entry. A fabric-forward agreement would give Vietnam, which exported $7.65 billion in apparel to the United States in 2012, a major advantage because of its low labor cost and skilled workers.
One study, prepared for the National Council of Textile Organizations in Washington, D.C., shows that a yarn-forward TPP pact would reduce the region’s apparel production by 25 percent because of new competition and a fabric-forward agreement would see apparel production shrink 50 percent.
Guatemalan President Otto Pérez Molina, who spoke at the Apparel Sourcing Show’s opening breakfast, noted he met with President Obama at a conference in May in Costa Rica and emphasized that any apparel-production advantages hammered out in the TPP negotiations be extended to Guatemala and the other DR-CAFTA countries. “President Obama said he would be mindful of Guatemala and Central America,” Pérez said.
Guatemala is particularly concerned because it has seen its apparel and textile industry shrink from 160,000 workers in 2003 to 90,000 workers today. Many apparel companies, which are mostly owned by Koreans, have picked up and moved their production to cheaper countries and regions.
Erick Sterkel, a long-time Guatemalan textile executive who now works as a consultant, said the giant Korean corporation SAE-A, which makes T-shirts for big retailers such as Target and Wal-Mart, moved one of its Guatemalan factories, which employed 800 workers, to Haiti last year. SAE-A still employs 4,000 garment workers in Guatemala. Other factories are moving to Nicaragua, where a garment worker makes $1.15 an hour, compared with Guatemala’s $1.84.
Competition from Vietnam and other TPP member countries is a great concern to Timoteo Kim, the administrative manager at INT Trading in Guatemala City. His company’s 600 workers produce T-shirts destined almost exclusively for the United States. For the last 10 years, INT Trading has been a major producer of T-shirts for Bella + Canvas in Los Angeles as well as for Disney, Guess, Alstyle Apparel, Kohl’s and JCPenney.
“Ninety percent of what we produce goes out duty-free under DR-CAFTA regulations,” said Kim, who noted that the company’s revenues were $50 million in 2012. “For us, 2009 and 2010 were difficult years when revenues were below
$36 million. Right now our advantage is that we are close to the United States. But if Vietnam has duty-free entrance and is allowed to use Chinese fabric, things will be so cheap that they can afford to ship their goods by plane to the United States, making us lose our advantage.”