US apparel firms failing to exploit free trade deals
The uptake of US free trade agreements is falling
Are free trade agreements that allow the clothing and textile industries to import products free of duties, or at sharply reduced rates, really worth the effort involved in their negotiation? Maybe not always, or at least not in the US, say some experts.
According to Julie Hughes, president of the Washington-based US Fashion Industry Association (USFIA), only 14% of apparel imported into the US actually takes advantage of the FTAs that the US has signed with 20 other countries.
The USFIA represents US-based textile and apparel brands, retailers, importers, and wholesalers doing business globally, and works to eliminate the tariff and non-tariff barriers that impede the industry's ability to trade freely.
"There's a combination of reasons for this but the main one is that the US FTAs are incredibly complicated and each one is different from the other, so there is a very large upfront administrative commitment," said Hughes in an interview with just-style, highlighting the need for importers to ensure related origin and other rules are complied with.
"This is on top of the potential cost of the follow-up if there are to be audits or other questions from customs officials, either from the US or the other parties," she says.
"What we hear from companies is that in many cases the duty advantage (the average on apparel might be 17%) - is not a sufficient advantage to go through the administrative burden which involves guarantees that both you and all the companies in your supply chain are in compliance," she says.
Another factor is enforcement. Hughes referred to the "brouhaha" two years back "when Mexican customs were going back and doing audits on US companies that had manufactured in Mexico, requesting information from both yarn and fabric and apparel companies, and that was incredibly disruptive."
The big issue was the complexity of the agreement. "The yarn-forward rule of origin tends to limit the number of companies that are ready to take on that burden of proof," she says.
If the duties were eliminated "I think definitely we'd see price deflation," Hughes believes. "The duties on textile and apparel average 16% to 17% but there are peaks - up to 30%. That's a substantial chunk of money. Without duties "there's no question that companies would put more features into a product and you'd definitely see lower prices as well."
But there's no sign of this at present. Hughes said the strength of non-FTA countries like China, Vietnam and Bangladesh combined with weaker performance from many FTA partners, "leads to the conclusion that companies doing business with non-FTA partners are growing their businesses much more than they are with FTA countries right now."
Steve Lamar, executive vice president of the American Apparel and Footwear Association (AAFA), takes the same view.
"Restrictive rules of origin combined with uncertainties and burdens of excessive paperwork and documentation requirements often make the costs associated with using a free trade agreement outweigh the potential duty savings," he told just-style.
"As a result, although the number of free trade agreements has expanded over the past decade, the percent of trade that uses these FTAs has declined," he says.
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