California Apparel News

U.S. yarn makers started suspecting something was fishy in Central America two years ago when fabric knitters in that region said they could buy U.S. yarn for only $3 a kilo instead of the prevailing $4 a kilo.

In a flash, many Central American knitting factories started canceling their yarn orders with U.S. mills, located primarily in the textile region of Georgia, South Carolina and North Carolina.

Perplexed by the cheaper ring-spun yarn, textile executives began to delve into the matter, unearthing a trail of forged documents, shell companies and label swapping to pass off Chinese and Pakistani yarns as U.S. yarns in Central America.

U.S. or regional yarns must be used in clothing made in Central America in order to qualify for duty-free status when exported to the United States under the Dominican Republic–Central American Free Trade Agreement. It was one of the provisions written into the highly contested free-trade agreement to help save U.S. textile mills, which face mounting challenges to compete with Asian yarn and fabric producers.

“Mills started losing contracts, especially for ring-spun yarn,” said Cass Johnson, president and chief executive of the National Council of Textile Organizations (NCTO) in Washington, D.C., a trade group for about 100 textile members. “We started noticing this in the beginning of 2007, and it accelerated in 2008 as Pakistan had excess capacity.”

Harding Stowe, chairman of R.L. Stowe Mills in North Carolina, told a House of Representatives panel on June 18 that he blames this illegal transshipment of yarns for his third-generation mill closing in January and idling 550 employees.

And Dan Nation, president of international operations for Parkdale Mills, the largest yarn spinner in the United States, told the same panel, the House Small-Business Committee, that his company had to lay off 450 employees in the last year as yarn fraud has increased throughout the DR-CAFTA region.

“Looking at the amount of yarn transshipped, I would say about 80 percent of our layoffs are due to transshipments,” Nation said.

Government records show that in 2008, U.S. production of combed cotton yarn, which is made up of mostly ring-spun yarn, totaled 48 million kilograms, while 91 million kilograms of combed cotton yarn was reportedly sent to Central America, nearly twice what was produced in the United States.

Many blame transshipments for Ramtex Inc. in Ramseur, N.C., closing its mill and laying off 200 people in April.Shrinkage factor

This dwindling world of U.S. yarn mills is complicating business for U.S. and Central American knitters trying to comply with the complicated regulations rolled into DR-CAFTA.

Keith Dartley, president of Swisstex Direct in Los Angeles, the marketing and sales arm for Swisstex California and Swisstex El Salvador, said it is harder to find a consistent supply of U.S. yarns that can be delivered in a timely manner to his company’s knitting operations in El Salvador.

Stowe used to supply about 30 percent of Swisstex’s yarn in El Salvador, and Ramtex provided another 10 percent. Now Swisstex El Salvador is using ring-spun yarn from primarily Parkdale Mills and Wellstone Mills.

However, Swisstex is finding that with fewer U.S. yarn suppliers, delivery times are getting longer. For high-quality, ring-spun yarn, shipments take about one month to arrive.

“There are retailers who are expecting faster delivery than ever right now. You don’t know what is coming [in terms of orders] until it shows up, and then you are scrambling,” Dartley said. “I’m concerned that when business gets stronger again, the delivery times will go up further, and at some point, there may not be enough yarn for delivery.”

Under DR-CAFTA, U.S. manufacturers have an option to buy Central American yarn if U.S. yarn is unavailable. But that option is tricky because much of the local yarn is already committed to local knitters and garment makers. “They will only sell you yarn if they have excess capacity, which is hard to plan for purchasing,” Dartley explained.Textile sleuths

Once the yarn prices began dropping, and textile executives began looking carefully at the supply chain, the true story of the cheap yarn began to unravel.

NCTO’s Johnson said illegal yarn importers made mistakes along the way by filing false paperwork. Through shipping records, textile experts unearthed that yarn was coming into Miami from Asia, being relabeled as U.S. yarn and then sent off to Central America.

Parkdale’s Nation said one of the main culprits is a shell company called Yarns America, whose Web site says it is based in Lawrence, N.Y., and has plants in North Carolina, South Carolina and Alabama. Its total capacity is listed as 526,400 spindles, which seems amazing when compared with Parkdale’s capacity of about 250,000 spindles,

“Yarns America doesn’t exist,” Nation said. “The amount of yarn they produce is supposedly more than us, but we had never heard of them. We would know them if they existed.”

Several calls to Yarns America resulted in the same phone message saying that “all lines were presently busy,” even when the calls were made at 8 p.m. (New York time).

Textile executives told the House panel that it was frustrated with U.S. Customs and Border Protection doing very little to resolve this problem.

NCTO’s Johnson said his group has met regularly with customs officials, the U.S. Trade Representative’s office and the U.S. Department of Commerce but has become aware that the government lacks the resources and personnel to battle the complicated issue of transshipments. The number of trade-preference claims reviewed last year, Johnson said, was only 1,500 of approximately 1.5 million claims made under the North American Free Trade Agreement, the Andean Trade Preference Act and CAFTA.

However, Janet Labuda, U.S. Customs’ director of textile and apparel policy and programs in Washington, D.C., said her office has made trade-preference claims an enforcement priority. Last year, she said, customs collected $5.5 million in fines for denied trade-preference claims.

“We are certainly trying to work with domestic industry to address their concerns and allegations,” Labuda said.

She added that by the end of this fiscal year, Sept. 30, customs will have conducted factory inspections in every CAFTA country to ferret out transshipments and false claims. “We are doing our best to ensure appropriate enforcement of our textile laws,” she said.

But textile executives want to see more. They are hoping Congress passes a Textile Enforcement Bill to allocate new resources, money and tools to help customs deal with this issue.

NCTO would like to see more import specialists working at the nation’s principal ports, particularly in Miami; Los Angeles; and Long Beach, Calif. The textile industry believes there needs to be more trade verifications done by customs inspectors, more training for textile and apparel import specialists, and a rapid-response team of apparel and textile import specialists created at the ports to target fraud outbreaks.

Parkdale’s Nation believes fraudulent goods should be seized rather than fined. “If we can catch a few of the bad guys, it most likely would make a big difference with the rest of them,” he said. “We are working hard to save American jobs and revenue for the government. I don’t know what is wrong with that.”