Contact:  Cass Johnson: 202-822-8025                                                             September 24, 2006
                Missy Branson:  202-822-8026

INDUSTRY OPPOSES JOB DESTROYING TRADE PACKAGE

Decades Old Trade Policy Overturned – Industry Compromise Rejected

China Major Beneficiary – CAFTA Countries Imperiled

Washington DC) NCTO announced its opposition to the textile provisions in HR 6142, declaring that they would “primarily benefit China and imperil tens of the thousands of U.S. textile workers.”   The bill would allow China to displace U.S. yarn and fabric shipments which total billions of dollars to the CAFTA region by reversing a decades old trade policy.  This policy, which helped to grow the CAFTA region into a major apparel producer and sustains hundreds of thousands of U.S. textile jobs, would be overturned by granting enormous loopholes to products made in Haiti and Africa made from Chinese yarns and fabrics.

Cass Johnson, President of NCTO, stated: “This bill creates enormous loopholes equal to nearly 600 million square meters – equal to 30 percent of the textile industry’s exports to the CAFTA region.  It is also destabilizing to other CAFTA countries, imperiling 20 percent of total CAFTA exports at a time when the CAFTA countries are struggling to compete.  And it creates new rules that are so difficult to enforce that China will be the main beneficiary.”

“Trade policy should not be about sacrificing additional US manufacturing jobs so that China can benefit. The US textile industry has already lost 26,000 jobs this year.  This poorly crafted bill will cost tens of thousands of additional jobs.  In fact, our members have already heard from the importers in the region who have said: ‘This bill passes and your orders are gone the next day.  We are just waiting to source from China.’”

Johnson explained, “This bill upends trade policy that stretches back to the 1980’s by singling out one country to get dramatically better benefits than everyone else in the CAFTA, NAFTA, CBTPA and ANDEAN region.  These benefits are unilateral, which means that they will come at the expense of the U.S. industry.  Under this legislation, Haiti, as well as most African countries, will be able to use Chinese fabric or Chinese yarns for apparel production while every other preference partner must use regionally made yarns and fabrics.  This is a benefit that cannot be beat given China’s state-owned and subsidized textile sector and its use of currency manipulation.  While China wins, regional producers, including the U.S. industry, will be the big losers.” 

“The result will be a huge shift of orders out of the CAFTA region. The worst part is that Customs has already told us this rule cannot be enforced.  Therefore, Haiti will not even get the benefits that this bill projects because China will send fully assembled goods or nearly fully assembled goods through Haiti.  Unfortunately, this is history repeating itself – the Northern Marianas Islands have exactly the same loophole and they have shipped every kind of apparel product to the United States duty free, all of it made from Chinese yarns and fabrics. Every other producer has been shut out and Customs has repeatedly found enormous fraud.”

“Ironically, this bill is being proposed at a time when apparel exports from Haiti are surging (up 20%) while exports from CAFTA are falling (down 13%).  In the midst of a very competitive global environment, Haiti is doing extremely well and it is doing so using primarily U.S. yarns and fabrics.”

Johnson concluded: “Haiti, one of the most impoverished countries in this hemisphere, clearly needs help.  The textile industry has offered on numerous occasions to work with this bill’s backer to provide real help to Haiti in a manner that will not harm manufacturing workers in our country that are already struggling to keep their jobs.  We have offered innovative ideas that would quickly increase apparel production in Haiti.  We stand ready to work to quickly pass such legislation.  But we strongly oppose any legislation that needlessly sacrifices so many hardworking American jobs.”

FACTS on the Textile Provisions of HR 6142:

Haiti Provisions:

1.  Creates a new TPL (tariff preference level) through a 50 percent value-added rule wherein if 50 percent of the value of the goods is added in either HAITI or any other FTA partner, the good enters the US duty-free.  The size of the value-added TPL begins at 221 million in year one, and, assuming normal growth in trade, increases to 537 million square meters in year five. 

• Value-added rules used in a textile and apparel context are impossible to enforce.  The enforcement problem occurs because Customs does not have the manpower or technical ability to monitor the dozens of steps which take place when a piece of fabric is turned into a particular garment.  Thus Customs is forced to rely on an “honor code” which invites massive fraud and serves primarily to encourage China to transship goods.

• A key example of why such rules do not work is the Northern Marianas Islands, which have the same rule as included in the Thomas bill.  All the apparel shipped from the Northern Marianas Islands is made from fabric sourced in China and Customs teams have found repeated instances where the entire garment is made in China. 

2. Creates a new TPL of 50 million square meters for woven apparel, where the fabrics and yarns can be sourced from anywhere.

AGOA Provisions:

The AGOA provisions are very similar to the benefits provided for Haiti.  It should be noted that less than three years ago the industry accepted a compromise allowing third country, i.e. Chinese fabrics, to be used for apparel assembly in Africa and still receive duty-free access to the United States.  We were told at the time that this would access would definitively end by next year.  Now, just three years later, we are being asked to further compromise at the expense of U.S. companies and workers.

1.  Extends the current program allowing duty-free access for apparel made in Africa from Chinese fabrics and creates a new TPL (tariff preference level) through a 50 percent value-added rule wherein if 50 percent of the value of the goods is added in either AGOA or any other FTA partner, the good enters the US duty-free.  The size of these TPLs is equivalent of 770 million sme annually of fabrics from China.
                               
2. For the first time, this legislation would allow duty-free access for textile products (yarns and fabrics) from Africa.  Africa does not give up anything for this benefit, including extremely high tariffs on U.S. textile exports to African countries.

3.  Provides a 60 percent credit to offset U.S. tax on income earned as a result of trade with or investment in Africa.  Credit is equal to 60 percent of wages and benefits and investments in tangible property.  Credit can be carried forward for 10 years.  There is no offsetting credit for U.S. textile manufacturers wanting to continue to do business in the U.S.