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Op-Ed: Nicaragua TPL – There’s More to the Story

When it’s deliver-or-die, supply chains become the lifeblood of a company. To that end, the fashion industry has embraced technology to navigate today’s hyper-complicated supply chain, with myriad solutions shaping the first, middle and last mile. Call it Sourcing 2.0.

By Augustine Tantillo, President and CEO, National Council of Textile Organizations (NCTO)

In a September 22 op-ed entitled, “Renewing Nicaragua TPL Is Not Just a Game,” Steve Lamar of the American Apparel & Footwear Association (AAFA) called on Congress to extend the current Nicaragua Tariff Preference Level (TPL) before it expires at the end of this year. The TPL allows 100 million square meter equivalents (SME) annually of apparel made in Nicaragua from non-CAFTA textile inputs to enter the U.S. duty free.

Lamar argued that Nicaragua is thriving under the U.S./Central American-Dominican Republic Free Trade Agreement (CAFTA-DR) due to the existence of the TPL, and that all other CAFTA-DR partners are floundering. However, the data used in the op-ed presents a distorted picture of what is actually transpiring in the CAFTA-DR region for two key reasons:

  1. Only U.S. fabric exports to the region were tracked, omitting critical data related to U.S. yarn exports
  2. Nicaragua’s positioning relative to other CAFTA-DR partners in terms of total trade volumes was exaggerated

A more accurate analysis, as shown in the graph below, includes all yarn and fabric exports from the United States to the region, and displays the relatively minor trade volumes shipped to Nicaragua compared to the rest of CAFTA-DR region.

USA Exports of Textiles to CAFTA-DR

When yarns and fabrics are both incorporated in the data, it is clear that Nicaragua represents a small portion of total U.S. textile exports to the CAFTA-DR region. U.S. textile (i.e. yarn and fabric) exports to the CAFTA-DR region totaled $2.54 billion in 2013. Of this total, U.S. exports to Nicaragua represented only $99 million, or a mere 4 percent. Certainly trade with Nicaragua has grown, but it remains a minor portion of total U.S. textile exports to the CAFTA-DR region. While all trade is important, the data and Nicaragua should be viewed in their proper context.

When studying the region from the perspective of textile investment, it can also be argued that the TPL has actually hurt Nicaragua’s overall economy. Nicaragua lags behind other CAFTA-DR countries in terms of yarn and fabric manufacturing investment. Apart from Nicaragua, the CAFTA-DR region has seen tremendous growth in fabric formation investment, bolstering the view that yarn forward rules promote the growth of a brick-and-mortar integrated industry, rather than just cut and sew jobs. According to the Central America – Dominican Republic Apparel and Textile Council (CECATEC-RD), Nicaragua has only three textile mills in contrast to 24 in El Salvador, 35 in Guatemala, 19 in Honduras, and eight in the Dominican Republic. The TPL is a clear deterrent to the use of U.S., Nicaraguan, and other CAFTA country textile components. As such, apparel makers in Nicaragua continue to outsource yarn and fabrics, along with the jobs associated with that production, to Asia.

Secondly, the AAFA piece focused almost entirely on the one-for-one trouser matching aspect of the TPL program, which is described as “wildly successful.”  Lamar hardly mentioned, however, that the Nicaraguan TPL has a second and extremely damaging component that U.S. textile manufactures could define as anything but successful. That second portion of the TPL allows Nicaragua to ship annually hundreds of millions of dollars of duty free apparel, without any matching or incorporation of U.S. or regional yarns and fabrics.  The table below provides U.S. government data on the volume of the non-matching aspect of the TPL.

US Imports from Nicaragua under TPL

As the data indicate, the non-matching provision has allowed $3.2 billion of apparel made from non-U.S./non-CAFTA textile components to come into the U.S. market duty free over the past 7 and a half years.  That equates to billions of dollars of lost sales, exports and job opportunities for U.S. textile manufacturers. In short, it is impossible to understand why the TPL issue is unresolved in Congress without fully acknowledging and analyzing the non-matching portion of the program.

Finally, as noted above, AAFA went on to extol the virtues of the one-for-one trouser matching program, calling it “one of the best success stories of the CAFTA-DR.”  If that is their view, it is certainly odd that neither AAFA nor any other trade association representing apparel brands, importers, and retailers has endorsed current legislation that would extend the one-for-one program. Senator Kay Hagan (D-NC) is currently seeking passage of S.1883, a bill that would keep in place the Nicaragua one-for-one trouser provision for ten additional years, and even adds a growth provision.

Yet, the silence from AAFA and other apparel, importing, and retailing associations has been deafening on the Hagan bill. This is likely due to the fact that S. 1883 does not extend the highly damaging non-matching component of the Nicaragua TPL. If these organizations refuse to accept the compromise promoted by Senator Hagan, it will continue the very stalemate that was decried in AAFA’s recent op-ed. Lamar is correct, the clock is ticking and the time for Congress to act is growing short. However, by demanding an extension of TPL provisions that damage U.S. textile production and employment, and do nothing to promote a regional supply chain, he and others that share this view will have to shoulder the responsibility for allowing the program to expire.

 

Augustine Tantillo – NCTO President & CEO: Auggie has been engaged in either direct government service or government relations activities in Washington, D.C. for the past thirty-two years. Most recently he served as Executive Director of the American Manufacturing Trade Action Coalition, an industry trade association dedicated to furthering the interests of U.S. manufacturing. At earlier points in his career, he was appointed Deputy Assistant Secretary for Textiles & Apparel at the U.S. Department of Commerce under President George H. W. Bush, and Chief of Staff to U. S. Senator Strom Thurmond of South Carolina.

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