By Cindy Skrzycki
Tuesday, February 5, 2008
The humble cotton sock has become the center of an international trade dispute.
The United States decided on Jan. 18 that millions of pairs of duty-free socks imported from Honduras may be hit with a tariff. The ruling made the hosiery a symbol of the choices that politicians, workers and even towns face in a global economy.
Honduran imports jumped to more than 27 million dozen pairs last year from 10 million in 2005, after the Central American Free Trade Agreement passed. American workers have lost jobs as a result, the kind of issue Democratic presidential candidates use to criticize trade agreements. Still, feelings are mixed.
"This safeguard is not free," said Brenda Jacobs of Sidley Austin, a D.C. law firm representing clothing importers who are trying to keep costs down. "The question is: Which U.S. industry is going to get socked with increased duties on its exports to Honduras?" That's because, under the treaty, the United States would have to pay compensation for a tariff.
The fight began when Bush administration officials were trying to secure votes to pass the trade agreement with five Central American countries and the Dominican Republic. To win the support of Rep. Robert B. Aderholt, a Republican from Alabama with sock mills in his district, officials promised to monitor Honduran imports and impose a "textile safeguard measure" if warranted.
The flood of imports, which pushed Honduras ahead of China and just behind Pakistan, led to last month's announcement by the U.S. Committee for the Implementation of Textile Agreements. The interagency group, which supervises such accords at the Commerce Department, can impose up to a 13.5 percent tariff on an estimated $109 million worth of Honduran cotton sock shipments through the end of the year.
The Honduran government responded to the tariff threat in a Jan. 18 statement that said the agreement hasn't been in place long enough to make an argument for domestic safeguards. It also said the domestic industry hadn't formally asked for protection and that a tariff would "negatively" affect other American textile producers -- namely yarn mills supplying the increased production in Honduras.
As a condition of the 2005 agreement, Honduran socks come in duty-free as long as they are made of American yarns, a provision that doesn't apply to Asian countries.
Supporters of a tariff, including NC Sock Co. in Hickory, N.C., and Wigwam Mills in Sheboygan, Wis., fear they won't be able to withstand a continuing surge of imports from Honduras.
George Ruppe, president of Ruppe Hosiery in Kings Mountain, N.C., told the committee that he has cut capacity and employees to cope with imports even though the company has some of the latest knitting equipment.
Added Dennis Martin, president of NC Sock, "there are few changes we can make to adapt our operations and stay in business."
James Schollaert, a lobbyist in Arlington for American sock manufacturers that favor the tariff, placed much of the blame on Montreal-based Gildan Activewear, which is making socks in Honduras and exporting them to the United States.
Schollaert said Gildan, with a sales office in Barbados, enjoys tax advantages that American manufacturers don't have. The company is "flush with cash" to buy domestic mills or expand in Honduras, as it plans to do if the preferences are not disturbed, he said.
Gildan, North America's largest T-shirt maker, has bought and closed American hosiery mills over the past two years. It purchased Kentucky Derby Hosiery of Mount Airy, N.C., in 2006 and closed all but one of its U.S. facilities.
Gildan recently acquired V.I. Prewett & Son in Fort Payne, Ala., acquiring a direct pipeline to mass retailers like Wal-Mart.
Gildan lobbyist Ron Sorini, of Sorini, Samet & Associates of the District, said the trade dispute is being portrayed as a battle against his client, especially by big competitors that support safeguards as a way to blunt competition.
Lobbying has won converts. Sorini, who was the textile negotiator in the U.S. Trade Representative's office, said many more domestic sockmakers now oppose government action than did two years ago.
Some manufacturers have sent parts of their sock production to Honduras while at least one, Kelly Hosiery in Fort Payne, is now Kelly Hosiery de Honduras because it moved its factory.
Top executives who led the fight for quotas against Chinese sock imports a few years ago now are free traders.
Jonathan Shugart, president of W.Y. Shugart & Sons in Fort Payne, said his small mill changed its business model. The company now knits children's socks in the United States, sends them to Honduras for labor-intensive finishing and packaging, and brings them back duty-free.
"It's still a plus to the U.S. manufacturing sector," he said in an interview.
William H. Jordan, the mayor of Fort Payne, the self-proclaimed Sock Capital of the World, shows the complexity of the issue. He first supported the tariff idea. After Gildan explained that it would be harder to operate the Prewett Hosiery in his town with the import tax, he backed off.
In a Dec. 19 letter to the committee, he said, "my position on the safeguard has been somewhat clouded" by the split in the local industry. "I want what is best for the people of Fort Payne because many families' livelihoods are touched by this situation."
He urged the committee to "review and investigate the issues as thoroughly as possible. Much depends on it."
Cindy Skrzycki is a regulatory columnist for Bloomberg News. She can be contacted atcskrzycki@bloomberg.net.
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