Friday, February 20, 2009

Preferential Trade Programs for Apparel Part 2

Using Free Trade Programs like CAFTA, NAFTA, ATPDEA, HAITI HOPE, AGOA and others, apparel can be imported to the USA with no duty. Most of these programs have a requirement that the yarn and fabric be produced in the USA or within the region. (And you better follow the program rules and have your approved and active certificates or origin or you will be in BIG trouble.) The requirement for regional or US yarns and fabrics can be a problem for many of the countries. (Read more about all of these and more at this link
1. Using USA materials can make the end garment too expensive to attract the volume mass garments sold by discount retailers like Wal-Mart
2. Producing the yarn or fabric in the region is usually not an immediate option because the manufacturing equipment is so expensive. In addition, the infrastructure needed to support these manufacturing operations like cheap reliable electricity and water treatment facilities are also expensive to set up.

In principle, the goal of these trade agreements is to generate employment for the people in these countries. Setting up a sewing factory and employing sewing machine operators matches up perfectly with this goal.
1. Sewing machines are relatively inexpensive and can be easily set up in a simple structure.
2. Operators can usually be trained in 6 weeks to efficiently sew garments

So if the US really wanted to quickly provide employment through apparel jobs, they would permit duty free garments sewn in these countries with fabric from anywhere. Indeed, in the programs for some of the poorest countries like Haiti and the sub-Saharan countries of AOGA there is a limited quantity of apparel granted duty free treatment with fabrics sourced outside of the region. But there id not enough of this free quota and there's no guarantee that it will be available when your garments need it. So the big volume players usually elect to pay the higher duty and source from a country that already has the infrastructure and technology in place to produce garments. ` `

I do think that garments labeled Made in the USA have an advantage over garments made in other countries. It’s just that today most US consumers will not pay a premium for a garment just because it’s Made in the USA.

Most EU countries don’t even require country of origin on their garments.

And then there is Jordan and the Qualifying Industrial Zone or QIZ that allows foreign fabrics if the garment uses 8% Israeli input. But the QIZ factories I’ve visited in Jordan usually have a lot of imported sewing machine operators hired from countries like Bangladesh. These workers are recruited, shipped, and housed by the factories. So, maybe the goal here is Peace in the Middle East and not employment.

Let me know if you have any specific questions and I’ll be glad to track it down! There’s even a presentation on the Haiti 3x1 – DR 2x1.

The end of Trade Programs!


The Underwear Maven

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