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Guest Editorial: Nicaragua TPL–Pulling Pimentos from Olives?

Did you ever sit with a martini, stare at the glass, and wonder how the pimento got into the olive?

Who thinks of such a thing? Logic says that the pimento is the anti-pit, the flavor that adds sweet to salty. So, pimentos are a great idea, especially if you prefer not to crack your teeth, while enjoying the savior faire of ordering olives in your martini.

But, what if our U.S. government sent out a memo dictating that pimentos were no longer allowed in olives, and what if the reason was that the pimentos had “outlived their usefulness?”  Do you think there would be some sort of a national outcry, or do you think that people would be upset over tasteless martinis, or would they just move on and replace the olives with onions?

Stop. No fears–Washington is not targeting the beloved pimento.

However, the U.S. government is about to unplug a similar item in Nicaragua, and they think that’s just fine. Will it taste any different? Probably not, but it would be best if you didn’t allow anyone to tell you that this forward action is without consequence.

Ah, if only our government had a few retailers in the ranks, they would surely learn a thing or two about merchandising. Honestly, the olives help sell the martini, just like Tariff Preference Levels (TPL’s) help Nicaragua sell apparel production.

Our government passes trade legislation to encourage us to trade, and to encourage us to set up shop in potentially unstable areas of the world. However, the powers that be in Washington are fast becoming an untrustworthy partner as they fail to renew existing trade bills, and they start to disconnect areas of trade that are productive — like Nicaragua.

The history behind this is quite easy to understand. In August of 2004, as part of the incentive for CAFTA  (Central America Free Trade Agreement), Nicaragua was granted a special one-for-one provision (to a limit of 50,000 square meters equivalent) in order to encourage pant manufacturing business to grow in the region. What this meant (in simple terms) was that these apparel factories could buy one yard of U.S. fabric and match it with one yard of foreign fabric — up to a limit. In merchandising terms, if you have $6.00 per yard U.S. fabric, and you have $2.00 per yard foreign fabric, your average price is now $4.00 a yard…this means that you can have high price pants, low price pants, or average price pants. It’s a good system for the U.S., and a good system for Nicaragua.

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The TPL program had a ten-year limit, and is set to expire at the end of 2014. It also is applicable to knits (but not in the same manner as the special pants provision) up to a combined 100 million square meter equivalent.

The bottom line is that this is a good and worthy program, and Nicaragua has become one of the fastest growing markets for U.S. fabric exports (on a percentage basis) among the CAFTA countries. So, why is our government taking it away?  The naysayers will say that it lived for ten years and now it’s dead. OK, that’s true, but did we learn anything during these ten years? Did U.S. fabric exports increase? Did American textile jobs (that depend on those exports) in North Carolina, South Carolina, and Georgia increase? Did the working population in the Nicaraguan industrial zones (that utilized this TPL trade benefit) double their worker population?

If all this is true, then why on earth should we let it expire? Why would we kill something that is working?

Fortunately, in our Congress, there are people that “get it” and are trying to make a difference. Senator Diane Feinstein introduced a bill that grants an extension for the TPL’s, and Senator Kay Hagan put out a similar bill that provides an earned import allowance. Either one of these initiatives would help, but actual passage remains questionable. If more people take notice of the situation and demand action, then perhaps the legislation would move forward. The longer we wait, the closer the deadline comes, and the chances are quite clear that some apparel manufacturers will pack their bags and head out of town. Jobs will be lost — both in the U.S. and in Nicaragua.

Duke University’s Center on Globalization, Governance, and Competitiveness recently published an in-depth study of the Nicaraguan situation. One of their conclusions was quite compelling. In essence, the use of the TPL program brought foreign investment to Nicaragua, and helped display the many assets that the country has to offer. It was a win for U.S. textiles, and a win for Nicaragua.

Clearly, the loss of the TPL incentive is bad for business, but the pain and penalty opens a far deeper wound. For years, our apparel and footwear soldiers (non-uniformed) were courted by our government, and lured through trade agreements into unchartered territory. These pioneers built factories, provided jobs, sourced garment, and help stabilize third world countries. Anyone who thinks that the CAFTA and creation of Nicaragua factories is an accident remains highly naïve. Flash back to 1986, when we first started to learn about the Iran-Contra affair, and when a National Security Council staffer, Marine Lieutenant Colonel Oliver North, was running a clandestine operation from inside the White House, taking some profits from secret arms sales to Iran, and using them to help provide funding for the American-friendly Contra rebels in Nicaragua (after Congress had specifically forbidden such aid).

Today, Nicaragua is generally considered to be a constitutional democracy with a population of approximately six million people. It is the largest country by land size in Central America, and the poorest by per capita GDP. It is considered to be a reasonably safe country, and foreign investment is welcomed.

So what does this have to do with a TPL expiring? Everything!

Perhaps the folks in Washington should stop asking our apparel and footwear industries for their assistance with foreign diplomacy, by having us supply jobs to unstable countries. If, in fact, they have no intention to back us up down the road, then they have no business asking us to go to these countries in the first place.

It’s not just this TPL for Nicaragua that brings the issue to the forefront…Congress has a whole host of serious trade items to think about, that require immediate action (and continue to remain as unfinished business):

GSP is expired.  MTB is expired.  TPA is expired. TPL is about to expire.  AGOA expires next year.

Bottom line: the powers in Washington should not invite us to the party, unless they plan to take a long term view of the situation. They shouldn’t ask us to invest, and then make our investment have a lesser value, because they lack continuity of the very trade prerogatives that put us there in the first place.

We, in the apparel and footwear industries, are not going to stare at an empty martini glass.

Let’s hope they put the pimento back in the Oliver.

Lieutenant Colonel (Oliver) North wasn’t James Bond, and neither are we…



Rick Helfenbein is Chairman of the Board of the American Apparel and Footwear Association and President of TellaS Ltd (Luen Thai USA). He is a fierce advocate for a robust USA Trade Agenda and speaks frequently on the subjects of supply chain and international trade.