California Apparel News

MEXICO CITY—Three hefty vans fortified with armed guards weaved in and out of the heavy traffic that has become a daily occurrence in Mexico City, one of the world’s most populated cities.

Riding inside were representatives from some of Los Angeles’ largest apparel companies, who were on their way to meet with representatives of the Ministry of Economy.

Their goal was to convince the Mexican government it needed to lobby U.S. trade representatives about maintaining duty-free status for goods sewn in Mexico but cut in the United States out of fabrics imported from Asia and Europe. Those goods are then shipped back to the United States.

This particular piece of legislation, part of the North American Free Trade Agreement, is called Tariff Protection Level 3 (TPL3) and covers 25 million square-meter equivalents of fabric a year. It is set to expire on Jan. 1, 2005, when apparel quotas are dropped among all World Trade Organization members.

This duty-free rule is one of the key things that have kept many of these U.S. manufacturers in Mexico and out of China. It helps to employ 400,000 Mexican apparel workers. Anywhere from one-fourth to one-half of these workers would be displaced if U.S. manufacturers lost this financial incentive for making clothes in Mexico, a country that last year exported $9.5 billion in textiles and apparel to the United States.

“What is coming is a big smack on the side of the head [to Mexico and American apparel makers],” said Max Curry, president of Byer California, a decades-old apparel company in Los Angeles.

Since June, Curry has been working like a one-man lobbyist, trying to generate some noise about what is happening. He wants to alter things right now but is concerned that the bureaucratic wheels of change are creaking along at a pace that may be too slow to do anything.

“It is not the 11th hour,” Curry said. “It is the 11:30th hour on the clock.”

That is why Curry organized a group of U.S. apparel makers to fly to Mexico City and crisscross this congested metropolis to meet with ministry officials in the morning and members of a government bank called BancoMext, influential in the import/export trade, in the afternoon.

At the meetings, each and every one of the apparel makers had a powerful story to tell. Rakesh Lal, executive vice president of Just for Wraps Inc. in Los Angeles, did about 50 percent of his $50 million in production last year in Mexico. But this year, he reduced that to 40 percent as the TPL3 quota got used up earlier than in previous years and he became concerned. He started sending more goods to Guatemala to be sewn and began scouting around Asia for possible factories that could pick up production.

But he prefers to remain in Mexico.

“It is almost next door,” Lal explained. “Fabric can leave Friday on a truck and arrive on Monday. We can almost treat it like domestic production. If there is a problem that needs to be fixed, it can be done quickly.”

Lal, whose brother Brij founded Just for Wraps in 1978, used to do all his production in the United States. But as labor became more expensive, he moved to Mexico, where contractors make his various labels, which range from Wrapper for juniors to the A-List dress division.

Another major Los Angeles company that would be affected is Apparel Ventures, a swimwear manufacturer. The company owns two factories in Mexico: one in Cuernavaca, where 180 employees stitch 10,000 to 15,000 swimsuits a week, and another in Sonora, where 300 workers produce about 25,000 swimsuits a week.

Apparel Ventures’ plant manager, Juan Fernando Garcia, traveled from Cuernavaca to Mexico City to help with the group’s lobbying effort. “Everything we sew is cut in Los Angeles,” he said. “With TPL3 going off, it will raise our costs by 25 percent.”

With duty fees going up, he will have to offset that by finding ways to increase productivity, negotiate better shipping rates and trim costs in other areas. But he fears that Apparel Ventures, which two years ago made 50 percent of its suits in Mexico and now does 25 percent of its production there, will be tempted to go to Asia for sourcing. Asia now accounts for 50 percent of the company’s swimwear production.

Group effort

A host of other apparel makers joined the lobbying group. Howard Johnson Jr., who owns Charmex de Baja California, a small contracting company in Mexicali, Mexico, is worried that much of the sewing business he does for Byer California and Apparel Ventures will disappear and affect his 120 employees. He tried to put on an optimistic face. “All I can say is there is always someone who wants quick turn and quality,” he said.

The end of TPL3 would have an immediate effect on Byer California’s production. The well-established and gigantic company until about 10 months ago did 45 percent to 50 percent of its production in Mexico. When the TPL3 quota got used up by June, the company started shifting production to other areas, such as Guatemala and Asia. Currently, it is producing about 25 percent of its goods in Mexico.

“When we don’t have TPL3 status, we pay 33 percent duty on things like tops,” Curry explained. “But if TPL is on, Mexico is still very attractive.”

There is, however, TPL1, which allows manufacturers to bring in 45 million square meter equivalents of fabric from a country outside NAFTA, cut and sew it in Mexico, and export it to the United States duty-free.

However, this was used up by April of this year, in large part by L & L Manufacturing Co. Inc. in Culver City, Calif., which has been making goods in Mexico since 1994 and opened its own factory in 1996. It caters to clients such as Wal-Mart Stores Inc. and Target Inc. making 40 million goods a year there. L & L uses up 24 percent of the TPL1 allotment, leaving other apparel companies fighting over the rest.

So the meeting with Mexican officials was a last-ditch effort—along with lobbying efforts in the United States by the American Apparel & Footwear Association, the National Retail Federation, the Retail Industry Leaders Association and the U.S. Association of Importers of Textiles and Apparel—to make things happen quickly.

During an hour-long visit with Angel Villalobos Rodriguez, a sub-secretary in the Ministry of Economy, the apparel makers tried to stress that Mexico is the party that will be on the losing end. Villalobos assured the group he and his staff will be doing what they can to keep TPL3 around.

“We appreciate the business you have here in Mexico,” Villalobos said. “We will do anything we have to do to keep your business in Mexico.”

But even Curry wondered if that would be enough. Things like this take a long time, and this is a U.S. presidential election year.

“This is not one of the top five issues the U.S. government has to work on right now,” Curry said. “This is not even one of the top 10.”