WITNESS
STATEMENT OF
MR. ANDERSON
WARLICK
PRESIDENT &
CEO, PARKDALE MILLS
for
THE NATIONAL
COUNCIL OF TEXTILE
ORGANIZATIONS
SENATE COMMITTEE
ON FINANCE
MARCH 8,
2007
Chairman
Baucus, Senator Grassley, and distinguished
members of the Committee, thank you for the
opportunity to appear today and outline the
U.S.
textile industry’s perspective on the 2007 trade
agenda.
My
name is Anderson Warlick. I am
President and CEO of Parkdale Mills, a privately
held textile manufacturer headquartered in
Gastonia,
North
Carolina. We employ
some 4,080 workers in facilities in
North
Carolina,
South
Carolina,
Alabama,
and Virginia. Parkdale
Mills is the largest cotton yarn spinner in the
Western
Hemisphere
and our yarns are used in apparel, home
furnishings, and industrial-end
manufacturing. Our
U.S.
mills process 15 million lbs of cotton a week and
most of our yarns are exported abroad, mostly to
Central
America,
Mexico
and the Caribbean
region.
Parkdale Mills has been a strong supporter
of the NAFTA, CAFTA and Andean trade preference
programs.
I am also a member of the board of
directors of the National Council of Textile
Organizations.
In
this testimony, I would like to touch on a number
of issues, including the make-up of the
U.S.
textile industry, the recently-passed
Haiti
legislation and the need for a trade policy agenda
that delivers benefits to manufacturers that
produce in the
United
States
and employ millions of workers here at
home.
About
this last point, I would like to make one initial
observation.
The recent elections demonstrated clearly
that most Americans believe that trade policy has
been headed in the wrong direction and needs to be
turned around. As we
debate what changes might be made, I implore you
to keep your attention focused on rebalancing the
playing field to make sure that American jobs stay
here.
U.S.
workers are the most productive, creative and
highest-skilled workers in the world, but our
trade policy has tilted the playing field against
them.
Our goal should be to rebalance the field
so that they can keep their jobs. Parkdale’s
workers would rather you help preserve their jobs
rather than compensate them for lower paying jobs
they must take once their jobs are gone.
U.S.
Textile Industry
Background
First,
I would like to debunk some commonly held beliefs
about the
U.S.
textile industry. I have
often heard members of Congress and numerous
retailers and importers refer to our industry as a
dead or dying industry and one that is antiquated
and not prepared to meet the challenges of
manufacturing in the 21st Century. In
fact, these self-serving comments are not
true.
The
U.S.
textile sector continues to be one of the largest
manufacturing employers in the
United
States. The
overall textile sector employed nearly one million
workers in 2005.
Our
industry is the third largest exporter of textile
products in the world exporting more than $16
billion in 2005. These
exports went to more than 50 countries, with 20
countries buying more than $100 million a
year.
The
U.S.
textile sector is a very important component of
our national defense and supplies more than 8,000
different textile products a year to the
U.S.
military.
The industry spends enormous resources on
research and development each year to ensure that
our military continues to be the most
well-equipped and technologically advanced
military in the world.
From
1994 to 2004, the
U.S.
textile industry invested more than $33 billion in
new plants and equipment and has increased
productivity by 49 percent over the last ten
years.
This investment has secured our second
place ranking among all industrial sectors in
productivity increases over the past ten
years.
As
you can see, the
U.S.
textile industry is an innovative, productive
industry that can compete with anyone in the
world.
Unfortunately,
our industry, as well as much of manufacturing,
has been hamstrung by a series of trade policy
initiatives that have created a disincentive to
invest in this country and to employ workers in
this country. For a
snapshot of the difficulties that poorly thought
out trade policy can cause to a U.S. manufacturer
one need turn no further than the Haiti HOPE act
passed by Congress just last
December.
Haitian
Hemispheric Opportunity
through Partnership Encouragement
Act
Before
addressing the myriad of problems with the content
of this legislation, I would like to touch upon
the process by which this legislation was
developed.
Let’s be clear, the HOPE Act is not a trade
bill; it is a textile bill.
Ninety-nine percent of the contents of this
legislation impact
U.S.
textile manufacturers alone. Yet,
the
U.S.
textile industry was never consulted, not even
once, as Congress drafted this
legislation. There was
neither a hearing on this proposal nor a committee
markup that would have allowed key stakeholders
and those who represent us the opportunity to
provide feedback and input.
As
the CEO of a large manufacturing company, I cannot
fathom undertaking a wholesale restructuring or
change within our company without consulting all
the stakeholders involved. So it is
baffling to me how our elected officials could
pass a major proposal, like the HOPE Act, without
consulting those who would be most affected by
it.
It is these types of antics that continue
to make American workers skeptical of trade. By putting
the interests of Haitian workers above those of
U.S.
workers, Congress ensures that support for trade
liberalization among
U.S.
workers and companies will continue to erode.
The
irony in all of this is that the
U.S.
textile industry is supportive of a trade
preference program for
Haiti,
just not this program. Again, if
all the stakeholders had been consulted and worked
together on this initiative, I am confident we
could have developed a win-win proposal – a
program that would have greatly benefited Haiti,
but not at the expense of U.S. workers and not at
a loss of $200 million in U.S. exports to
Haiti.
Finally,
the HOPE Act is not a reciprocal agreement – the
benefits under this program are extended to
Haiti
without any new benefits for
U.S.
companies.
In fact, under the HOPE proposal,
U.S.
textile companies will lose market access, while
new market access is created for
China
and Vietnam
through the various loopholes and tariff
preference levels that are established under this
program.
The
U.S.
textile industry is extremely concerned that under
the HOPE Act
U.S.
mills could lose substantial business if the
United
States
government and the Haitian government do not
appropriately administer the customs regulations
required under this new program. Under the
Caribbean Basin Initiative (CBI) and its successor
program, the Caribbean Trade Partnership Act
(CBTPA),
Haiti
has been an important export market for
U.S.
textile products – totaling nearly $200 million a
year.
These programs have been relatively simple
to enforce because of the requirement that
U.S.
yarns and fabrics are utilized in apparel
receiving duty-free access to the
U.S.
market.
Effective
enforcement of the HOPE Act is a major concern for
the U.S.
textile industry. This
program will not be beneficial to
Haiti
or anyone else if it becomes a magnet for fraud as
it has in other textile and apparel programs
involving value-added rules. Indeed,
Customs reports that because of its relatively
high tariffs, fraud occurs in textiles and apparel
far more than any other category of goods. (A
comprehensive list of Customs concerns is appended
to the back of my
statement.)
As
of today,
Haiti
does not have an effective visa system or any
domestic laws covering enforcement of the new HOPE
program.
In addition, NCTO
is aware of no legislation or regulations that
Haiti
has promulgated concerning access by U.S. Customs
inspection teams and we are aware of no reporting
systems that have been put in place regarding
imports, exports or documents which could
substantiate claims under the new value-added
rules.
Yet it appears that the HOPE program
will come into force later this month.
I
certainly hope that we have all learned something
from this experience. Trade is
important and the
U.S.
textile industry, and NCTO specifically, are
supportive of trade liberalization, but it has to
be done the right way.
Understanding the benefits and costs of
trade not only to the U.S. consumer, but also to
the U.S. worker, requires careful and deliberative
analysis and is not something that should be done
under a veil of secrecy and without clear
understanding of the impact on U.S. workers and
companies.
Perspectives
on the 2007 Trade
Agenda
In
order to understand the
U.S.
textile industry’s current perspective on trade,
we need to understand the historical context of
textile trade. As part of
the Uruguay Round Agreement, the
U.S.
textile industry agreed to a ten-year phase-out of
quotas on textile and apparel goods that began in
1994 and ended with the final phase-out in
2004.
During this ten-year period, the
U.S.
industry was told that new market access
opportunities would be aggressively pursued to
ensure we had a fair shot at the end of this
transition.
At
the time the quota phase-out agreement was made,
China
was not a member of the WTO and no one expected
they would become a member in the foreseeable
future.
Yet
China
did become a member in 2001. And despite the fact
that China
was a manufacturing powerhouse, especially in
textiles and apparel,
China
was not subjected to a ten-year phase-out of
quotas; rather, it was allowed preferential
treatment over the rest of the WTO members and had
its quotas phased-out in just three short
years.
What
has this meant for the
U.S.
textile industry? In textile
and apparel products that have been completely
removed from quota,
China
has attained a 65 percent market share in apparel
categories removed from quota more than three
years and a 46 percent market share in apparel
categories removed from quota since
January
1, 2005. While
China
still has quotas on several sensitive categories
as a result of the U.S.-China textile bilateral
agreement that went into effect on
January
1, 2006,
these quotas will expire on January
1, 2008,
and there is no mechanism to take its place. Once these
quotas expire, the
U.S.
textile industry will be completely defenseless
against dumped or subsidized goods coming from
China.
But
it is not just
China.
Since 1994 when the industry was told that new
market access opportunities would be aggressively
pursued, the exact opposite has indeed
happened.
During this time, one-way preferential
trade programs and FTAs with loopholes for
third-country fabrics have dominated the trade
agenda in textiles and apparel, with very limited
gains being made in new market opportunities for
U.S.
exports.
In 2000, it was the African Growth and
Opportunity Act (AGOA), a one-way preference
program that allowed yarns and fabrics from
China
to be sent to Africa,
assembled into apparel, and exported to the
U.S.
duty-free.
Once again,
China
was the big winner and no real market access was
established for
U.S.
exports. In 2005, the Egyptian Qualified
Industrial Zones were implemented and then
expanded in 2006. Yet again,
China
won and
U.S.
industry lost.
There
is also the plethora of FTAs --
Bahrain,
Chile,
Jordan,
Morocco,
Oman,
Singapore
– where exceptions to the rule of origin for
textiles and apparel were prevalent and once again
diminished new market access opportunities for
U.S.
producers by providing huge loopholes for
third-country fabrics. And
finally, the HOPE Act, which if not implemented
and enforced correctly, will simply become a
conduit for transshipped goods from
China
and the loss of $200 million in
U.S.
exports to
Haiti.
The
obvious question is why does
China
win?
China
wins because it can offer whatever price necessary
to make the sale. Chinese
companies are not worried about profits or
shareholder values or credit-worthiness – they
simply must make the sale to keep their plants
operating and keep their people employed. They
achieve this through a complex web of subsidies
including currency manipulation, export tax
rebates, non-performing loans, and subsidized
transportation and utility rates to name a
few.
Many, if
not most of these, are illegal under
U.S.
trade law and WTO law. Yet, there
appears to be precious little interest in going
after countries that do not live up to their WTO
obligations.
As
an example, I find it stunning that more than five
years after
China
joined the WTO, the
United
States
government still does not have a list of subsidies
that China
uses to put American workers out of their
jobs.
In fact, the only list that the
U.S.
government has is the very incomplete list that
the Chinese government sent to the WTO last year,
four years after it was required to do so under
its accession agreement.
To
my mind, this is the crux of the problem with
trade policy today. We have a
de facto trade policy that allows foreign
governments to subsidize their exports and throw
U.S.
workers out of their jobs while our own Congress
and government essentially look the other way or
conveniently provide aid and assistance to
China,
its businesses and government.
While
there are many examples of how government policy
has tilted the playing field against
U.S.
workers, I would like to detail two which I think
cost more American jobs than any
other.
1) Currency
Manipulation and Value-Added
Taxes
In
February, the government reported that the
U.S.
trade deficit with
China
grew to a high of $232.5 million in 2006, up from
$201.5 billion in 2005. This is
the largest
U.S.
deficit ever with a single country. In the
words of Professor Peter Morici a former economist
at the International Trade Commission, “although
Americans may be getting cheap t-shirts at
Wal-Mart today, their children will be paying the
Chinese interest forever.”
Why
our government refuses to use access to the
U.S.
market as trade negotiating leverage to rein in
the ballooning trade deficit with
China
defies logic. Such
inaction is simply a green light to
China
that they can play by their own rules without
consequence.
Because of the Administration’s refusal to
act, the time has come for Congress to take
matters into its own hands and address the plight
of U.S.
manufacturing before it is too late.
As
a first step, Congress should quickly pass
legislation to allow countervailing subsidies to
be applied to non-market economies and to provide
that currency misalignment is a countervailable
subsidy.
It is estimated that
China’s
currency is undervalued by as much as 40
percent.
This undervaluation acts as an export
subsidy for Chinese-made products and puts
U.S.
manufacturers at a disadvantage and ultimately
leads to plant closures and job losses.
China
cheats – that is a fact. Until the
U.S.
government forces them to behave otherwise, they
will continue to play by their own set of rules
and the
U.S.
manufacturing base will continue to erode.
Unfortunately,
our trade imbalance will not be erased by simply
addressing currency and other subsidies. Another
significant problem for
U.S.
manufacturers is the prevalence of value-added tax
systems (VATs) that are employed by 137 countries,
including every major industrial power except the
United
States. These
countries rebate VAT taxes on exported goods and
levy VAT taxes on imported goods.
What
does this mean for
U.S.
manufacturers? In real
terms, U.S.
producers were disadvantaged by an estimated $294
billion in 2005 as a result of foreign VAT
taxes.
China
alone accounted for $48 billion of this
total.
Foreign countries with VAT systems are
estimated to have rebated $201 billion in VAT
taxes on exports to the
United
States
while imposing an estimated $93 billion in VAT
taxes on imports from the
United
States.
This
is an important issue to keep in mind as Congress
potentially weighs the benefits and costs of a
Doha Round Agreement. Even if
the U.S.
were successful in tearing down trade barriers and
creating real market access opportunities for
U.S.
manufacturers as part of this agreement, the
trading environment will still be stacked against
us because of the effects of the foreign VAT
systems on
U.S.
exports.
If
Congress would tackle these two issues alone –
currency manipulation and foreign VAT systems -- I
am convinced the
U.S.
would experience a rebirth in manufacturing and
the restoration of millions of
U.S.
manufacturing jobs.
Finally,
I want to be clear that I am not
China
bashing.
China
is simply doing what it needs to do to continue
growing its economy and providing adequate
employment for its citizens.
China
is simply acting in its own national
interest.
The time has come for the
U.S.
government to do the same. It is time
for the
U.S.
to stop utilizing trade policy for purely foreign
policy and social objectives and to start looking
out for the interests of
U.S.
workers and companies.
2) Free Trade
Agreements
Parkdale
Mills and the National Council of Textile
Organizations fully support the pending FTAs with
Colombia and
Peru. These
agreements contain a strict yarn forward rule of
origin, no loopholes for Asian products and strong
customs enforcement and will help the
U.S.
textile industry and its workers compete in world
markets.
Colombia and
Peru
represent important and growing export markets for
U.S.
textile products, totaling nearly $200 million a
year. These FTAs
are essential if the
Peru and
Columbia
markets are to continue to grow, and we urge
Congress to quickly pass implementing legislation
for these agreements.
At $16
billion a year in exports, the
U.S.
textile industry is the third largest exporter of
textile products in the world. These
exports depend on trade agreements like the
Colombia and
Peru FTAs which ensure
that FTA partners, not Asian exporters, are the
true beneficiaries of these agreements. In
fact, the textile provisions of these agreements
should be used as a template for future trade
agreements which can garner wide industry
support. When trade agreements benefit
U.S.
textile workers and companies, the industry will
back them
enthusiastically.
In
order for the
Colombia and
Peru FTAs to be
effective, however, there must be no loss in
benefits in the transition from the current trade
preference program (the Andean Trade Promotion and
Drug Eradication Act, or ATPDEA). The ATPDEA
is scheduled to expire at the end of June and we
strongly urge Congress to extend these trade
preference benefits until the new FTAs can take
effect. Congress must prevent the
mistakes made during the CAFTA agreement when a
staggered implementation caused substantial
business to be lost to Asia
because duty benefits for the region were
suspended.
The
Peru and
Columbia FTAs are key
components in making the Western
Hemisphere a
competitive alternative to Asia.
With 2.2 million textile and apparel workers in
the NAFTA, CAFTA and Andean region, textile
producers in the
United
States and
apparel manufacturers in the larger region have
integrated their production lines. These
FTAs will create the
necessary predictability and stability that is
needed to help ensure this region remains
viable.
With
respect to the current FTA negotiations with
Korea,
the
industry is very concerned that an FTA with
Korea
will simply be a one-way street, with a massive
