Tuesday, February 17, 2009

Preferential Trade Programs for Apparel Part 1

Preferential Trade Programs for Apparel- Getting access to the US market and reducing or eliminating duties

President John F Kennedy established restraint quotas on textiles and apparel to protect our domestic mills. This became to Multi-Fiber Agreement (MFA). Years later it was agreed that developed countries like the USA should not be allowed to stop foreign apparel imports from our "friendly" countries. So the MFA was integrated into the World Trade Organization (WTO). The latest talks are called the Doha Round. (Doha’s the capital city of the county of Qatar.) http://en.wikipedia.org/wiki/Doha_Development_Round (And the talks started back on Feb. 12 and centered again on Farm and the “Trade Distorting domestic subsidies” of the developed countries. Like the HUGE United States COTTON subsidies.) http://www.wto.org/
1. Point from this paragraph is that apparel and textile imports have historically been protected in the USA.

Off Shore Assembly of USA components has been around for a long time. http://ideas.repec.org/p/fth/caldec/98-10.html It basically states that if you use components made in the USA and send them off shore for assembly, you only pay duty on the “value added” or assembly. But with apparel, it didn’t help much because of the quota restraints. Then in the late 1980’s, a new type of quota was introduced to Caribbean countries called Guaranteed Access Level or GALs. This opened up new quota limits for apparel if the apparel was assembled from USA components or cut parts. (There are qualification rules for qualifying cut parts such as “fiber forward” meaning the cotton, polyester, or fiber must be made in the USA and all processes of yarn formation, fabric production, cutting, must be performed in the USA.) Still had to pay duty on the value added but that was soon wiped out with CAFTA, NAFTA, and other programs.
2. Point from this paragraph, the domestic brands that owned textile factories shut down their US sewing operations and moved sewing to the Caribbean and Central America countries.

With the elimination of restraint quota in 2005 from most WTO countries and the elimination (for now) of safe guard restrictions from China in 2009, countries with textiles can sew and ship apparel from their own country to the US. Now the US companies are shutting down their US yarn and textile factories and going to Asia - unless there are competitive textiles operations in the CAFTA/NAFTA countries to consume the textiles from the closed US factories.
3. Point from this paragraph, barriers are removed and gates are opened and smaller guys can competitively play in the apparel game.

But there are still many games that the big guys play and win to stop foreign imports. These games aren’t available to us smaller players. The Socks saga is a great example and I'll go into some of the details in my next post.

I welcome comments!
The Underwear Maven

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