California Apparel News

The United States has free-trade agreements with 20 countries around the world, but only 14 percent of the apparel imported into the United States actually takes advantage of them.

“Clearly, the free-trade agreements aren’t being used,” said Julie Hughes, president of the U.S. Fashion Industry Association, a Washington, D.C.–based apparel trade group that held a Feb. 17 panel discussion on free-trade accords during MAGIC Market Week in Las Vegas.

Most free-trade apparel—some 42 percent—comes from Central America, which trades freely with the United States under the Dominican Republic–Central American Free Trade Agreement. Another 24 percent of duty-free clothing imported to the country comes from Mexico under the North American Free Trade Agreement.

But most importers find it easier and more practical to skip the duty-free advantages built into the free-trade accords, which were designed to save importers as much as 32 percent in tariffs.

Steve DiBlasio, vice president of product development and global sourcing for Lanier Clothes, a New York company that makes tailored suits for men, said his company has its own suit-making factory in Mexico for higher-end suits, but it still doesn’t utilize many free-trade agreements when manufacturing its line of jackets and pants. “Why is that? Because of their restrictive nature.”

Many free-trade agreements have so many rules and regulations that it makes it complicated to understand how to use them. Also, there is an enormous amount of paperwork that must be stored to verify where the raw materials were made and where the goods were sewn.

In addition, most fabric used in production must be made from yarns that come from within the free-trade region. This is called a yarn-forward provision. Free-trade regions can’t use cheaper imported fabric from countries such as China and India unless it is in short supply.

When calculating whether a free-trade agreement will pay off, DiBlasio said, you have to look at the landed cost of the garment and compare whether it is cheaper to manufacture in China or in Colombia. “A lower-value product may not benefit as much from a duty-free scenario,” he said.

Also, changing the fabric content of a garment might save money. For example, rayon suits imported into the United States carry only a 14 percent tariff while polyester/viscose suits are subject to a 28 percent tariff.

“However, cost may not be a determining factor,” he noted. “If you are building a brand, it is not always about the lowest cost. It should be about the intrinsic value the consumer puts into that brand, which allows you to have a higher ticket price.”

He advised importers to have partnerships with factories around the world so that you are assured of getting goods on time and being able to do small runs when necessary. “We are sourcing lower labor in Vietnam but materials that come from multiple countries,” he noted. But that extends the supply chain and can create a problem if there is a typhoon in China that damages a major seaport or collapses the factory where your fabric is being made.

Also, DiBlasio advised looking at delivery-time issues when making sourcing decisions. It only takes five days to get a garment from Mexico to the United States, but it can be at least two weeks or more from China. “You have to decide what works best for you,” he said, noting it takes only three hours to fly to Mexico but as many as 28 hours to fly to Vietnam.

And if you want to use a free-trade agreement, he suggested you read the agreement from front to back and have someone on staff that knows the intricate details of the regulations, such as whether pocket lining fabric must come from the region or whether it can be a short-supply textile.

Another company that isn’t a big user of free-trade agreements is Urban Outfitters. Stefanie Rotta, the retailer’s senior director of global sourcing operations, said, “We are definitely one of the guilty parties of corporations that underutilize free-trade agreements. That’s because we are highly assorted and item-driven and we don’t have a lot of stores that match one thing to another.

Urban Outfitters and its sister retail chain, Anthropologie, pride themselves on each store having an individual character and a very eclectic assortment of goods often produced in small quantities. So the retail chains need flexible factories that can do a wide variety of goods for different brands and often in runs of only 100 to 300.

Urban Outfitters has an entire team that is focused on product development and understanding cost and working with suppliers to keep costs down.

“The relationship with our suppliers is critically important,” Rotta said. “We invest time with our new factories to set them up with us. We need to get a product right.”

But she said Urban Outfitters is loyal to its factories. “We do not make fast decisions about ending our relationship if things start off bumpy,” she noted. “We pay back from loyalty.”

Urban Outfitters and Anthropologie have been working extensively in Vietnam, which has its advantages with low-cost labor, but raw materials need to be imported from China and other Asian countries. “We have worked pretty hard to grow Vietnam,” Rotta said. “We have decent logistics and supply chains established for moving raw materials into Vietnam, but it is no China. … But we are hopeful for it down the road.”

She noted that one of the newest free-trade agreements being negotiated is the Trans-Pacific Partnership, which encompasses 12 countries that include Vietnam as well as Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and the United States. The latest round of negotiations wrapped up in Singapore on

Feb. 25. “The TPP is a nice carrot, and we get as excited about it as everyone else. We would love a generous short-supply list and no yarn-forward requirements,” she said. “It would be a key aspect of our sourcing strategy.”

However, manufacturing in the United States is still on the retail company’s sourcing radar, especially when it comes to making small quantities. “If we are talking 250 pieces, we may want to test that with the customer and put it online,” she explained. “If the product is scarce, that might drive quick sell-through.”

Even with a growing appreciation for “Made in America,” it is not going to make Urban Outfitters or Anthropologie shift its sourcing policy to domestic production. “It is not what makes our decision for us,” Rotta said. “The product is what makes the decision.”