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DR-CAFTA dispute divides U.S. textile industry

By Doreen Hemlock
Business Writer
Posted June 26 2005

A look at DR-CAFTA
Jun 26, 2005

textile imports
Jun 26, 2005


It's midday in Weston, and managers at the Americas office of Levi Strauss & Co. are busy on phones and e-mail finalizing contract details with factories spanning the Dominican Republic, Guatemala and beyond.

About two dozen people work at the Levi's office, helping funnel millions of dollars worth of U.S. fabric south to be sewn into pants and shipped back for sale in U.S. stores. The trade is a staple at South Florida ports.

But Levi's sees the business shrinking and tens of thousands left jobless across the Americas, unless Congress passes the U.S.-Dominican Republic-Central America Free Trade Agreement known as DR-CAFTA. It expects production to shift to lower-cost Asia, unless U.S. neighbors get a permanent break to sell into the United States without paying U.S. import duties.

"The accord helps the Western Hemisphere remain competitive," said Helga Ying, Levi's director of worldwide government affairs and trade policy from Levi's headquarters in San Francisco.

"Without it," added fellow apparel marketer George Feldenkreis, chief of Miami-based Perry Ellis International Inc., "you're going to see a lot more people from Latin America trying to reach our border."

The battle over the DR-CAFTA accord is finally coming to a head, as formal submission of a bill Thursday opened a 90-legislative-day window for a vote in Congress. The White House seeks passage before August recess.

Yet legislators -- including Florida's pivotal delegation -- remain divided because of stiff opposition from U.S. labor unions, the U.S. sugar industry and many U.S. fabric producers.

The stakes extend far beyond slashing barriers to U.S. trade, investment and business with six small, relatively poor Latin neighbors.

Both sides see DR-CAFTA as a key test of whether Washington can pursue its busy free trade agenda that also includes accords with Bahrain, Colombia and other countries, plus far-reaching world trade talks. Lobbying sometimes gets nasty amid discord over the appropriate U.S. strategy in today's global economy.

"Everyone is waiting to see if DR-CAFTA passes," said Levi's Ying, noting no other free trade deal took a year before a vote amid such bitter feuding. "If it doesn't pass, then what happens with other trade agreements being negotiated or in line?"

The fight within the U.S. textile and apparel industry underscores the complex forces at play, including the long shadows cast by the soaring U.S. trade deficit and trade tensions with China.

Florida has a major stake, because it trades more than any state with DR-CAFTA nations -- about $16 billion in goods last year. The DR- CAFTA nations combined rank as the state's top trade partner.

Just apparel-related trade with DR-CAFTA nations accounts for about 15 percent of cargo at South Florida seaports. And that trade fuels other sales, from the state's cell phone exports to office rentals in South Florida for such garment giants as Levi's, The Gap and Eddie Bauer International.

Central to the garment debate is whether a stronger U.S. partnership with DR-CAFTA nations can slow the hemorrhaging of textile and apparel jobs in the United States and help the Americas better compete against China. Big importers like Levi's and Perry Ellis say it can. Some U.S. fabric makers also see hope, but many U.S. textile producers see only steady job losses ahead.

"This is basically another outsourcing deal to shift jobs to DR-CAFTA nations," said Lloyd Wood, a spokesman for the American Manufacturing Trade Action Coalition, an advocacy group based in Washington that includes fabric makers among its members. "When U.S. textile output is down 25 percent since 1997 and imports are surging, we can't afford to believe anymore that free trade deals are going to help us."

China gains ground

The question is vital, because China has quickly emerged as the world's textile and apparel powerhouse since the World Trade Organization phased out a decades-old system of quotas that limited how much apparel nations could sell one another. The system ended Jan. 1.

Before the phaseout, DR-CAFTA nations used to be the top foreign supplier of apparel to the United States. They gained prominence through a program Washington began in the 1980s to fight communism. The Caribbean Basin Initiative gave U.S. neighbors the chance to sell clothes to the U.S. market without quotas and duties, if garments used U.S. fabrics and other U.S. components. The countries hardly produced cloth on their own.

By 2001, the garment industry had become one of the largest in DR-CAFTA nations, employing more than 550,000 people. And U.S. textile makers enjoyed growing exports to the DR-CAFTA region, topping $4 billion last year and making the area a top market for U.S. fabric, U.S. Commerce data shows.

But gains in the Americas paled next to China's growth in the industry.


As garment quotas fell, lower-cost China overtook the DR-CAFTA region as the No. 1 foreign supplier of textiles and apparel to the U.S. market, outselling the area by $5 billion last year. Many small apparel makers in the Caribbean Basin shut down, unable to compete. And losses of U.S. textile and apparel jobs mounted, down more than half or 890,000 since 1994 to 665,000 in March, U.S. job reports show.

"Our jobs became the political currency for the United States to trade with everyone else," said DR-CAFTA critic Wood, urging more safeguards against imported clothes.

To an out-of-work U.S. apparel worker, it may matter little whether imports come from China or Guatemala.

But DR-CAFTA supporters see a big difference. Clothes made in DR-CAFTA nations use more U.S. components; those from China use mainly Asian cloth. DR-CAFTA countries recycle about 50-60 cents of every dollar back into purchases in the United States; China buys mainly from Asia. Plus, the collapse of a vital employer in the DR-CAFTA region poses a serious immigration risk on the U.S. "Third Border" with the Caribbean.

"The question comes down to this: Will we import garments made with U.S. content from Central America or Asian content from Asia?," asked Steve Lamar, senior vice president of the Washington-based American Apparel and Footwear Association, which represents mainly importers and includes Perry Ellis' Feldenkreis on its board.

Bitter infighting

To be sure, no one sees the small DR-CAFTA nations -- population 44 million -- overtaking giant China, with its 1.3 billion residents, as the top U.S. supplier in today's quota-free garment market. And questions remain whether a permanent break on U.S. duties up to 32 percent will be enough for DR-CAFTA nations to offset China's other advantages, such as a robust fabric industry and Chinese government aid that some call "unfair."

"From my standpoint, it's frustrating and almost scary," said Barry Horowitz, president of Linbar Apparel Group in Boca Raton, which has been working in U.S.-Caribbean Basin apparel operations for decades. "The DR-CAFTA bill may help a little, but I see the handwriting on the wall" for thousands of jobs shifting to Asia.

One example: A garment maker in the Caribbean can buy U.S. synthetic fleece at about $7 a yard, versus $1.25 a yard from China, including shipping costs. Plus, China's wages are lower to sew a garment, he said.

Yet DR-CAFTA advocates say the accord can at least preserve some of the Americas industry, and some is better than none. Indeed, it may be the best hope for the shrinking U.S. textile industry, supporters argue.

To win support from U.S. textile makers, the White House even offered some sweeteners. It recently proposed a tweak to the accord that would help U.S. exporters of materials used for pockets and linings. And it pledged a crackdown, so China won't use DR-CAFTA nations as a back door to enter the U.S. market without paying duties.

The offers swung some groups, including the National Council of Textile Organizations last month. They saw opportunity in working more closely with DR-CAFTA partners, so together they may offer speedy delivery of garments with Americas' components to the U.S. duty-free -- faster than from distant Asia.

But other U.S. producers scoffed, noting that DR-CAFTA nations hadn't signed off on the changes and the administration has failed to hire extra inspectors to check against back-door shipments in previous deals.

The bitter infighting for and against the treaty plays out in many other U.S. industries, from agriculture to services, as they too seek to cope with record U.S. trade deficits and define the U.S. role in a world with more open borders.

Congress surely faces a tough trade battle in the weeks ahead, with the apparel question just one of many difficult threads to untangle before the final vote.

Doreen Hemlock can be reached at dhemlock@sun-sentinel.com or 305-810-5009.