Statement of Erik Autor, Vice President and
International Trade Counsel,
National Retail Federation
Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means
Hearing on Summit of the Americas and Prospects for Free Trade in the Hemisphere
May 8, 2001
I. IntroductionMy name is Erik Autor. I am a Vice President and International Trade Counsel for the National Retail Federation (NRF). NRF is the nation's largest trade association representing the U.S. retail industry. NRF members cover the entire spectrum of retailing - department, specialty, discount, catalog, Internet, and independent stores -- and also include 32 national retail associations and all 50 state retail associations. NRF speaks for an industry that encompasses over 1.4 million retail establishments, employs more than 23 million people - about 1 in 5 American workers, and registered sales of over $3 trillion in 2000.
NRF and the U.S. retail industry strongly support the negotiation of a Free Trade Agreement of the Americas (FTAA), and expanding the current trade program through the Andean Trade Preferences Act (ATPA) as an important stepping-stone towards creation of the FTAA. Initially, we would make the following general points on these initiatives:
II. The Andean Regional Initiative
It should first be emphasized that the United States has critical foreign policy interests in the Andean Region. This region is the most politically and economically unstable area in the hemisphere and is a major production point for illegal narcotics smuggled into this country. Economic and political instability has also resulted in an increase in illegal aliens coming into the United States from countries in the region. It is, therefore, in the interests of the United States to implement policies that will effectively address these problems -- curtail the production and trafficking of illegal narcotics, encourage political and economic stability in the Andean countries, help build democratic institutions, foster market-based economic reforms, generate economic growth, and create decent employment opportunities in legitimate industries.
With these larger goals in mind, we do not believe that an expanded Andean initiative should be seen primarily as a unilateral trade preferences program and certainly not mainly as a textile and apparel trade initiative. Bigger issues are at stake. Indeed, we might even suggest that the Congress consider a new name for this initiative - The Andean Regional Stabilization and Development Act (ARSDA).
That being said, we believe it will be difficult, if not impossible to achieve these larger policy goals without a trade component that will actually work to encourage U.S. investment and trade with the region. Only U.S. trade and investment can provide the capital necessary to reverse the massive unemployment in the Andean countries and create economic and employment opportunities in legitimate industries as an alternative to coca production and narcotics trafficking.
On this point, U.S. retailers can play an important role. Many retailers are interested in new apparel sourcing opportunities in the Andean region. The countries of the Andean region -- Colombia, Peru, Ecuador, and Bolivia -- have integrated textile and apparel industries that, while comparatively small, produce high-quality cotton knit shirts and trousers, baby garments, and specialty items, such as swimwear. However, to increase sourcing of apparel in the region, retailers need the right incentives in place. The obstacles to doing business in much of the Andean region are daunting. Crime, corruption fed by the insidious influence of narco-traffickers, political instability, and lack of adequate infrastructure present huge disincentives for American companies doing business in the region when other alternatives in Asia, Mexico, and the Caribbean Basin are available. However, the picture is not all bleak. As the example of the development of a thriving cut flower industry in Colombia and other Andean countries demonstrates, when the right incentives are in place, legitimate industries can grow and prosper in the region.
Other than a handful of industries, like cut flowers, workers in the Andean countries currently have few decent employment opportunities. Many peasants in the Andean highlands have few economic alternatives to growing coca. However, the members of the drug cartels take the lion's share of the profits from drug trafficking, not the peasant growers, most of whom survive at a bare subsistence level. The region also has large unemployed and underemployed urban populations. Moreover, jobs in the region's existing apparel industry are threatened as companies have begun moving production to Mexico and countries in the Caribbean Basin, which are more competitive than the Andean region, have closer proximity to the U.S. market, and can take advantage of existing trade preferences under the NAFTA, the U.S.-Caribbean Basin Trade Partnership Act (CBTPA) and the Caribbean Basin Initiative (CBI).
Increased trade with the United States would lead to the building of new textile and particularly apparel factories that would quickly provide jobs to thousands of rural peasants and urban workers. Following the current pattern in developing countries, jobs in these factories would pay wages at higher levels than the national average wage. They would also provide employment opportunities, particularly for women. The pattern of economic development in every country, including the United States and Japan, has shown that the establishment of a viable textile and apparel industry has always been the first rung on the ladder to creating a modern, industrial economy. The pattern has also shown, that giving women employment opportunities and control over their family's finances is the best way to provide people in developing countries the economic resources to move up the economic ladder and obtain marketable education and training.
It is important that we take quick action to stop the flight of apparel production from Colombia to Mexico and the Caribbean Basin and make the textile and apparel industries in the Andean region more competitive. Like the sub-Saharan African countries, the small textile and apparel producers in the Andean region are likely to be big losers to the more efficient producers in Asia once textile and apparel quotas are eliminated at the end of 2004. Just as AGOA has given the sub-Saharan African countries a fighting chance to get into the game, we need an Andean initiative that will allow the textile and apparel producers in the region to become more competitive and attractive to U.S. business in preparation for a quota-free world in 2005. This goal cannot be achieved without a sensible, incentive based textile and apparel program.
It should be emphasized that an increase in textile and apparel jobs and production in the Andean region does not threaten U.S. jobs. In 2000, American consumers spent about $300 billion on apparel. U.S. textile and apparel imports from the ATPA region totaled just $831 million (before markup) or about 0.5 percent of the U.S. market. This level of trade is comparable to that of the sub-Saharan region. In contrast, Mexico and the Caribbean Basin region account for 27 percent of total U.S. textile and apparel imports. Therefore, for the foreseeable future, it is evident that, the Andean region is likely to be a comparatively small, niche player in supplying apparel to the United States and that any sourcing shifts created as a result of increased trade with the Andean countries will come at the expense of other foreign producers, most likely in Asia.
The question arises -- what incentives would U.S. retailers need to increase sourcing and investment in the Andean region? The experience of the CBTPA over the last year provides us some useful lessons. Unfortunately, with the CBTPA we have faced a host of implementation problems, in which the Customs Service has interpreted most ambiguities in the language in the most trade restrictive way. Moreover, the complex rules of origin, exclusions of certain categories of apparel made from regional fabric, quantitative limitations on categories of eligible apparel products made from regional fabric, and weak short-supply procedures, have proven to be disincentives for retailers in using the program. As a result, U.S. retailers, apparel manufacturers, textile and apparel importers, yarn spinners, cotton growers, and fabric manufacturers, as well as the Caribbean Basin countries have been so far disappointed that the program has failed to generate as much trade as hoped.
The potential problems that could arise in constructing the Andean initiative are of even greater concern. With their competitive handicaps vis-à-vis the Caribbean Basin countries, it is clear that if Congress merely provides the Andean countries the same trade benefits as under the CBTPA, there will be no new trade and investment. In order to avoid the problems in the CBTPA legislation and create a viable program that would be more than window dressing, the trade preferences for apparel must be simple, easy to use, and provide more generous level of incentives than are available under the CBTPA. Specifically, we would advocate that the Andean program provide trade preferences to any apparel assembled or knit-to-shape in one or more Andean countries from:
Without such incentives, U.S. retailers will not increase sourcing and investment in the Andean countries and will continue to source largely from Asia, Mexico, and the Caribbean Basin. If the incentives in the program are insufficient to attract U.S. retailers, it will also mean lost business opportunities for U.S. cotton growers, yarn spinners, and fabric producers, and apparel manufacturers. If the companies that sell apparel at retail in the U.S. are not doing business in the region, then the U.S. suppliers of inputs to make that apparel will not have any new business in the region. But, more disturbingly, without the business of U.S. retailers in the Andean countries, the likelihood of achieving our country's larger foreign, economic, and drug policy goals for the region is also diminished.
II. The Free Trade Area of the Americas
It is our view that regional trade initiatives such as the CBTPA and the Andean initiative can serve as important building blocks for negotiation of the Free Trade Area of the Americas (FTAA). NRF has been a strong supporter of the FTAA since its inception, under the Clinton Administration, and its predecessor, the Enterprise for the Americas Initiative, under the first Bush Administration.
In the FTAA and other trade negotiations, some domestic industries have pressured U.S. negotiators to take certain issues, such as the U.S. trade laws, off the table. It is widely held that, in trying to develop a negotiating agenda for the next round at the World Trade Organization (WTO), use of this tactic played a key role in the failure of the WTO Ministerial in Seattle. Therefore, as a negotiating strategy, we strongly urge the Bush Administration not to tie their hands by excluding any issue, and especially trade remedies laws, from the FTAA negotiating agenda.
As a substantive matter, application of the antidumping law is frequently defended on the basis that foreign producers are using protected "sanctuary" home markets as a way to subsidize their foreign exports at dumped prices. Since a free trade agreement would eliminate the ability of a producer to create a sanctuary home market, we believe that the application of the antidumping laws is an appropriate topic of discussion in negotiations on free trade agreements.
We are also of the opinion that, with the elimination of the global textile and apparel quotas in less than four years, the inclusion of any special protections for the textile and apparel sector in the FTAA negotiations is unwarranted. We are particularly concerned about an unduly long phase out of textile and apparel duties, burdensome textile and apparel rules of origin (often in the guise of addressing illegal transshipment) that inhibit rather than encourage trade, and special safeguards that apply only to textiles and apparel. If we are serious about eliminating trade barriers and liberalizing trade across the board in free trade agreements, then we need to seriously address the remaining trade barriers on textiles and apparel, including U.S. duties that average 16 percent on these products.