California Apparel News

At the beginning of August, two 40-foot metal containers filled to the brim with Mexican-made denim landed on the door step of Koramsa, the largest blue-jeans manufacturer in Guatemala.

For the first time in history, Koramsa will be able to take this fabric from its neighbor to the north, cut it into thousands of pants and then ship them back to the United States without having to pay any duties or be subject to quota.

The same thing is happening in the Dominican Republic. Grupo M, one of the largest pants makers in the island nation, is placing major denim orders with Mexican textile factories to take advantage of Mexican cumulation, the newest provision within the Dominican Republic–Central American Free Trade Agreement, which has been gradually building up steam.

With retailers looking more to the Western Hemisphere for just-in-time delivery, the race is on in Central America to be first in line for this Mexican fabric, which can save factory owners as much as 30 to 40 cents per garment. “All the manufacturers are eager to use it,” said Joe Stephenson, president of Rocedes Apparel, a Nicaraguan apparel factory with 2,500 workers who cut and sew school uniforms, workwear and five-pocket jeans for American customers. “Fabric throughout the region is scarce.”

Cumulation works this way: 100 million square meters of Mexican woven fabric can be sent to Central America each year to make duty- and quota-free clothing destined for the United States. There is an annual 20 million-square-meter cap on denim fabric and a 45 million-square-meter limit on cotton and man-made bottom-weight fabric. Also, fabric is purchased on a first-come, first-served basis, which means as soon as the Mexican fabric quota is used up, no more fabric can be shipped that year.

The first-come, first-served model was strongly opposed by most Central American manufacturers that vociferously lobbied Washington and the U.S. Trade Representative about it. Central America favored a per-country allotment system that would have allowed apparel factories to predict more accurately when the fabric quota would be used up. “It makes it very difficult for our customers to program their business,” said Dominic Poon, president of Twin Dragon Marketing Inc. in Gardena, Calif. His company has a joint-venture denim fabric factory in Victoria, Mexico, that employs about 650 workers. Almost all the plant’s denim production right now goes to Mexican factories making blue jeans destined for the U.S. market.

But Twin Dragon is definitely interested in branching out to the Central American market, whose apparel industry has been waging an uphill battle with China for apparel production.

“VF Corp. will use it for the first three months [of the year], and after that they won’t take a chance,” said Bo Dean, vice president of sales at Twin Dragon. “To be honest, I don’t know what this is going to mean for our business.”

Green light

For years, the United States, Mexico and Central America have been talking about this new textile provision, but the inauguration date kept fluctuating because of endless negotiations to fine-tune this landmark measure. Originally, it was supposed to have started nearly two years ago.

But everyone got the green light when Scott Quesenberry, the special textile negotiator for the U.S. Trade Representative’s office, held an international conference call July 2 to reassure people that Mexican cumulation would indeed start Aug. 15, when apparel can begin crossing the border into the United States.

On the conference call were companies that included Kohl’s Inc., VF Corp., Levi Strauss & Co., Perry Ellis International and The Argus Group, an apparel company with four factories in Nicaragua and El Salvador.

“After that conference call, manufacturers were more comfortable in starting to do business in Mexico,” said Rolando Sierra, a sales representative in Guatemala for GFM Telas Parras, one of the largest textile companies in Mexico. Sierra said he has already sold denim fabric to Koramsa and Group M and is working on a textile order for another factory in the Dominican Republic.

Kaltex, the largest textile maker in Mexico, will be delivering about 400,000 square meters of twill to Central American manufacturers in September, said Bob McCormack, chief executive of Kaltex America.

“We have been preparing for this for quite a while. We have several orders ready to go,” McCormack said. “There has been a real shortage of fabric in Central America, particularly on the twill side.”

With the erosion of the U.S. textile industry, there hasn’t been enough regional fabric to supply many of the apparel makers in Central America who want their goods to receive duty-free status.

The new textile provision has people such as Gregg Pavalon, president of Jeanworks LLC in Illinois, enthused about buying Mexican fabric at a time when costs are going up. Mexican fabric can be 10 percent to 30 percent cheaper than U.S. fabric. “It will open a lot of opportunity. Mexican prices are less than U.S. prices,” said Pavalon, who is making pants in Nicaragua, as well as Bangladesh and Pakistan. “When you are talking about a business where nickels and dimes count, you have to look at all deals.”

Chinese interference

Meanwhile, U.S. and Mexican textile companies and trade organizations met in Gastonia, N.C., in mid-July to talk about several issues affecting textile factories on both sides of the border and how to increase their competitiveness.

“There was no politics, just flat out what are the issues and what are the problems,” said Mike Hubbard, vice president of the National Council of Textile Organizations (NCTO), which organized the meeting in the town where Parkdale Mills, the largest U.S. cotton spinner, is located.

Some issues addressed were government subsidies to Chinese textile factories and customs fraud in which Chinese fibers, yarns and fabric make their way into Mexican and Central American apparel that comes back to the United States duty-free.

NCTO last year started a customs fraud-alert program and wants to integrate its data with Mexican textile factories.

Janet Labuda, director of textile and apparel enforcement for U.S. Customs and Border Protection, said that since January, her office has made 30 to 40 seizures of Chinese fabric and yarn trying to make their way illegally into Mexico through the southwestern U.S. border and ports in Los Angeles and Long Beach. Some of it eventually ends up in Central America.

Last year, CBP seized $48 million in transshipped apparel and textiles coming from China, Labuda said.

Mexican Cumulation Rules

bull; Every year, Mexico can send up to 100 million square meters of woven fabric to Central America to make clothing that then receives duty-free and quota-free status when shipped to the United States. This cap can increase to 200 million square meters a year, depending on trade growth. Knit fabrics are not part of the textile provision.

bull; There is an annual 20 million-square-meter cap on blue denim and a 45 million square–meter cap on cotton and man-made bottom weights.

bull; The original cumulation agreement put a 1 million-square-meter cap on wool. In December, an amendment allowed for an unlimited quantity of worsted wool whose average fiber diameter is greater than 18.5 microns. It is used mostly in uniforms and mid-priced suits.

bull; Garments clearing U.S. customs on or after Aug. 15 will receive duty-free treatment.

bull; Cumulation works under a first-come, first-served basis. Weekly and year-to-date fill rates will be posted on the U.S. Customs Web site at www.cbp.gov.