Spinning Out of Control

When President Bush sought support for the controversial Central America Free Trade Agreement a few years ago, Harding Stowe, chairman of RL Stowe Mills, hosted the president at his plant in Belmont, N.C.

The reason, Stowe said, was the Bush administration’s promise to strictly enforce trade preference rules in CAFTA. This January, RL Stowe Mills was forced to close because Customs failed to stem the tide of illegal imports of Pakistani and Chinese yarn falsely labeled “Made in the U.S.”

Worse, Stowe said his company supplied Customs with regular information about which other companies were using the illegal imports and where the yarns were coming from, but Customs failed to act. Stowe is hardly alone.

It sounds good on paper: CAFTA and other trade agreements open vast opportunities for U.S. textile yarn manufacturers that export to qualifying markets in the Western Hemisphere. U.S. companies enjoy duty-free benefits for the finished goods they import back to the United States.

But U.S. yarn makers say unscrupulous competitors have flooded the U.S. market with Asian products falsely identified as U.S. in origin. The result: Over the last year, at least nine plants closed in North Carolina, South Carolina and Alabama. Two companies have been forced to close entirely this year, and others could follow.

Dan Nation, president of Gastonia, N.C.-based Parkdale Mills, the largest yarn spinner in the U.S., testified in Congress that his company regularly sees false affidavits of U.S. origin attached to shipments of yarn imports from China and Pakistan. Textile yarn makers hope to pressure Customs to expand funding for monitoring compliance with CAFTA and NAFTA preference rules.

Effective monitoring of textile and apparel imports is important “because duties on textile and apparel products account for a significant share of U.S. duty collections,” said Loren Yager, director of international affairs and trade at the U.S. Government Accountability Office. In fiscal 2008, Customs collected more than $34 billion, making it the second-largest generator of federal revenue after the Internal Revenue Service.

But Yager said the GAO identified three major challenges that inhibit Customs’ ability to “fully address the risk of textile transshipment.” Customs identifies those countries, manufacturers, shipments and importers that present the greatest risks. The agency targets high-risk countries for overseas factory visits, sending teams to verify foreign factories are really able to manufacture what they claim they manufacture, and to look for evidence of transshipment.

That approach may make sense, Yager said, but Customs doesn’t have the budget to target and review more than “a small share of textile and apparel trade.”

Brenda Jacobs, Washington trade counsel to the U.S. Association of Importers of Textile and Apparel, questions how extensive the problem is. “I’m not saying there’s no fraud, but that the problem is not as huge as they make it out to be,” she said. “Customs says that in 35 percent of cases, there is inadequate paperwork. But this is not all fraud. It can also be incomplete and inadequate paperwork. The rules are not easy, and they are different in every trade agreement.”

Jacobs said Customs often rejects paperwork because the agency hates to get “blanket documents” that don’t show details of specific shipments.

“It is not easy for many companies to comply with a Customs request,” she said. “Customs wants importers to create a story about how the shipment was made. If you want to claim preference, you have to be able to present your documents in a way that enables the Customs officer to see a story.”

Jacobs doesn’t believe Customs has underfunded textile sector compliance. “Textiles are only 5 percent of the entrees, but they are 42 percent of the revenues,” she said. “A lot of people at Customs are dedicated to textiles, given the volume of entries.”

With hundreds of textile specialists at the agency, “I can’t imagine what should happen. The scrutiny level in this industry is higher than in any other.” With good reason, she said. “Textile duties are so high.”

Contact Alan Field at afield@joc.com.