Companies in the U.S. are not taking full advantage of trade provisions, according to Sandler, Travis & Rosenberg principal Tom Travis.
ST&R is a law firm that specializes in helping businesses take advantage of trade agreements. They work in all industries, not just apparel, but apparel is about 1t% of their business according to Travis.
“Costs are going up around the world in different countries, and in the United States we have inexpensive land and inexpensive water, relatively speaking. I think it’s a complimentary offering in the global supply of goods.”
Travis mentioned several firms that have maneuvered to take advantage of trade agreements, including, notably, Los Angeles denim manufacturers. In a move he called “troubling,” many of the firms producing denim in the Los Angeles area have temporarily relocated to Mexico, following a retributive tariff on women’s denim by the European Union.
Those companies are staying nimble and adjusting their production facilities to fit the changing trade picture, but trade agreements don’t have to mean firms will leave the United States.
“I saw an exporter of medical products, for example, who discovered a provision in one of our trade agreements and built his entire business out of it. He asked the right questions, he got the right answers, and he did it real well.”
Staying aware of trade facilities means factoring the total cost of production into your line. Firms with denim on the water when the European tariff went into effect found themselves with an unexpected double-digit increase in their total cost.
The key isn’t focusing on a general trade agreement or deal – it’s more specific than that
“It’s not the event, or the program. It’s about how your individual company can take advantage of it. Everyone knows there’s a trade agreement being negotiated, but is there anything in it for me? Sometimes the fine detail in an agreement will say you can’t make the numbers work, and then a small provision will change and you can.”
This attention to detail is what Travis’s firm specializes in, but he says it’s not impossible for exporters to find their own loopholes. The provisions that do exist aren’t being taken advantage of.
“For example, we have tariff preference levels for the CAFTA region that say that if you export 1 SME of American fabric, you can import 1 SME of garment made from anywhere. It’s a program that has worked, and it needs more attention.”
Many firms haven’t adjusted to take advantage of 2012 changes to short supply rules, for example. Those goods allow firms to ship goods containing materials not made in CAFTA-DR countries without paying duty, as long as the materials are in short supply in those countries.
Most of the goods involved are elastometric yarns, such as nylon and polyester. This means that substantial blending can take place, and fast-fashion stretch fabrics can be made duty free in CAFTA-DR countries. However, taking advantage of a trade provision like this can require designing a good around it, and attending to total unit costing in order to accurately capture the savings from the duty-free.
The same modification added women’s cut-and-sew sleepwear to the agreement, making duty-free export of women’s sleepwear made from imported fabric possible.
At the same time, trade agreements are making it easier for foreign firms to compete with U.S. companies.
“China has the best infrastructure for apparel, and I can’t imagine it won’t continue to be the dominant player in the foreseeable future. Nevertheless, a number of free trade countries have gotten control of certain products. The Transpacific Partnership would be a real boost to Vietnam, for example.”
American firms can and should take advantage of quick-turn abilities in Latin America, says Travis, to compete with foreign fast fashion firms and low-cost, high-volume importers. Creative sourcing opportunities can be underwritten by trade preferences.
“The real key is following your dream and absorbing as much good information as you can. From a trade perspective, it’s essential to remember that a shirt is different than a tie is different than a belt is different from shoes and pants.”
A firm might not be able to make their core product domestically for export, but it might find a slight modification of fabric sourcing or trims that would make the item fall under a trade agreement, cutting costs enormously.
The CAFTA agreement opens the door for re-export of imported goods; for example, with finishing taking place in the United States. However, fully utilizing that provision means maximizing partnerships in CAFTA countries to fulfill the export requirement, before cheap fabric can be brought into the U.S.