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Parkdale CEO Tells Congress Changing CAFTA Yarn Origin Rules Would be ‘Disaster’

Anderson Warlick, chairman and CEO of Parkdale Mills, testifying at a House hearing on “Private Sector Investment in the Northern Triangle,” called on Congress to keeping strong rules of origin for apparel production in place under the Central American Free Trade Agreement (CAFTA) instead of altering them in favor of expanding access to third-party textile inputs from China and other low-cost Asian producers.

Warlick, whose company is the largest domestic consumer of U.S. cotton and operates 34 facilities in the U.S., Latin America and Europe, told the hearing that some argue that CAFTA has not been as successful as its signatories had hoped when it went into force, underpinning their requests to the administration and Congress to fundamentally alter the agreement’s rules of origin in favor of expanding access to third-party textile inputs from China and other low-cost Asian producers.

“This strategy would open a backdoor into CAFTA-DR for textile inputs from China and other third-party countries to supercharge end-stage apparel assembly in the Northern Triangle,” he said. “These Trojan horse concepts would chill Parkdale’s investments in the U.S. and the region, undermine new opportunities in CAFTA-DR, and cede the future for this supply chain to Asia and China.”

“It would dismantle employment in Central America, the United States and every free trade agreement in our hemisphere, including the newly renegotiated United States-Mexico-Canada Agreement, and have a profound impact on trade preference partners like Haiti, where apparel production is the predominant employment sector,” Warlick said. “Simply put, it would be a disaster.”

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He noted that Parkdale exports 99 percent of its yarn to Western Hemisphere countries, with 78 percent going to the Northern Triangle countries of Guatemala, Honduras and El Salvador. Those exports support 4,000 jobs in the U.S. and have a substantial impact on employment in the region, he noted.

“This demonstrates the incredibly strong textile and apparel co-production chain between the United States and the Western Hemisphere,” Warlick told the hearing. “These industries in Central America and the U.S. are partners in our own success.”

Parkdale Mills chairman and CEO Anderson Warlick told a House hearing altering rules of origin for under CAFTA would be "a disaster."
Anderson Warlick Courtesy

Parkdale also worked hand in hand with its Central American customers to retool production lines to manufacture personal protective equipment (PPE) for the U.S. government, he noted. Since the onset of the Covid-19 pandemic, Parkdale has become one of the federal government’s largest domestic suppliers of PPE products, producing over 450 million testing swabs, more than 100 million face masks and over 60 million level-1 isolation gowns.

“Over nearly a decade, our company has made significant capital investments totaling $500 million, creating more than 1,500 jobs,” Warlick said. “If those rules of origin were undermined in any way, it would have a significant ripple impact on employment and lead to further instability and migration from the hemisphere.”

The need to recalibrate U.S. supply chains was made even more apparent by the recent focus on China’s history of unfair and exploitative trade practices that succeed at the expense of U.S. workers and its trading partners in the CAFTA region, he noted

“Perhaps no other sector has suffered more at the hands of Chinese trade practices than the U.S. textile and apparel industries,” Warlick said. “As Congress holds China accountable for its exploitation and genocide of the Uyghur Muslim population in China’s Xinjiang Uyghur Autonomous Region, sourcing apparel from Asia has rightly become more problematic due to its inherent link to forced labor utilized throughout the region’s supply chains, including cotton production. The best alternative to China’s forced labor apparel is this hemisphere’s supply chains.”

In December, Parkdale announced a $150 million investment in a new yarn spinning facility in Honduras, enhancing production at Parkdale’s textile manufacturing facility in Hillsville, Va. The new investment will support approximately 500 employees at each location and also increase indirect job growth in Honduras and the United States, and particularly in the U.S. cotton industry across 18 states.

“This investment will help our customers shift sourcing for 1 million pounds of yarn per week away from supply chains in Asia and China, enhance U.S.-CAFTA-DR co-production resilience and increase our product offerings in the region,” Warlick said. “The reason this investment is possible is because of the CAFTA-DR agreement’s rule of origin for textiles and apparel, known as the yarn forward rule of origin, and the administration’s continued support for this critical provision.”

Parkdale believes its investment is just the first of several announcements that will unlock hundreds of millions of dollars in additional yarn and fabric investment in both the CAFTA-DR region and the United States in the coming months, he testified.

“This is a pivotal time for nearshoring and onshoring these critical production chains amid a global supply chain crisis that is forcing importers to shift their sourcing away from elongated Asian supply chains to the Western Hemisphere and United States,” Warlick said. “We welcome the opportunity to be a solution to brands and retailers seeking to recalibrate their supply chains long term and believe we have a historic opportunity, if done right, to further strengthen the industry in both the United States and Central America.”

He said the textile and apparel co-production supply chain the U.S. shares with the region is essential for employment and economic development, currently supporting more than 1 million combined jobs and $12.5 billion in two-way trade. Guatemala, Honduras and El Salvador receive two-thirds of all U.S. textile exports to the region and 78 percent of U.S. spun yarn exports for processing. In return, 70 percent of CAFTA textile and apparel exports to the U.S. come from these countries.

“For every $1 of U.S. textile exports to the region, we receive approximately $3.44 in apparel imports from the Northern Triangle,” Warlick said. “CAFTA-DR is a bilateral free trade agreement that creates jobs and value through preferential market access for a completely vertical regional production chain, from base fibers through finished apparel and other textile goods. Since the adoption of the trade agreement, investments in U.S. textile production to supply the CAFTA-DR market with textile inputs has led to billions of dollars of investment in both the U.S. and the region with further bold investments to be announced soon.”

He cited a report from Werner International that estimates that doubling apparel exports from the region to the U.S. would result in an additional $6 billion in new investment in the U.S. and CAFTA region. The study also concluded that a commitment by brands and retailers to double sourcing from the CAFTA countries to the U.S under the current yarn forward rules would result in an additional 180,000 U.S. textile jobs and 2.17 million jobs in the CAFTA region.

“Further, we can save on our greenhouse gas emissions by shifting sourcing from Asia and China to Central America and the hemisphere,” Warlick said. “By simply shipping a container from Central America instead of China, we are able to cut greenhouse gas emissions significantly…With additional policy support from Capitol Hill, we see a once-in-a-generation opportunity to onshore and nearshore these critical co-production chains–and both the United States textile industry and that of the region stand ready to be active partners.”

He stressed that the most important element of the CAFTA agreement and all other U.S. FTAs is the yarn forward rule of origin. This unique investment-based rule for textiles and apparel ensures that the signatory countries benefit from investments made in capital-intensive yarn and fabric production, he said, “capturing that important value-add from third-party countries like China.”

Under this model, every stage of manufacturing from yarn formation through apparel assembly must take place within a CAFTA signatory country to receive duty benefits.

“This construct is responsible for creating a massive regional market for U.S. textile exports in the Western Hemisphere resulting in $35 billion in annual two-way trade and supporting 2 million direct jobs,” Warlick said.

Under rules that would permit Chinese and other Asian textiles into the CAFTA production chain, “we would see a catastrophic loss of employment and investment both in the U.S. and in Northern Triangle countries. For the U.S., we would expect to see the loss of billions of dollars in exports to the…region and the loss of over 307,000 U.S. jobs in the short- to medium-term as Chinese products are substituted for American ones,” he said, citing the Werner study estimates.

“As customers for American textiles decline, we would also lose vital warm industrial base capacity for mission critical military procurement, creating a national security threat,” Warlick said. “Further, a severe contraction of U.S. textile manufacturing would cause U.S. cotton farmers to lose their sole domestic customer, devastating the market for American cotton. These U.S. manufacturing and farm jobs would be lost forever to China’s dominant position in the hemisphere.”

He said the domestic textile industry believes that keeping a “laser focus on China” is the critical issue from an economic and national security perspective and urged Congress to consider creating a framework that places “a strong Western Hemisphere front and center in our approach to international trade.”

Warlick said for far too long, “we have permitted China to set the global agenda, undermining U.S. values and ideals and harming our workers and trading partners in the Western Hemisphere.”

“With Congress’s help, we can empower U.S. companies to commit sourcing and capital investments to the region, hold China accountable for its unfair trade practices that undermine U.S. and regional competitiveness and enable the Northern Triangle countries to fully realize the benefits available to them under CAFTA-DR,” he added. “Working hand in hand with the governments and industries of the Northern Triangle, we can address our shared challenges, leading to increased economic opportunity throughout the region and mitigating the underlying causes of outward migration.”