Statement of Carlos Moore, Executive Vice President, American Textile Manufacturers Institute

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

ATMI welcomes this opportunity to discuss the outcome of the recent Summit of the Americas held in Quebec City, particularly with respect to how that meeting has set the stage for negotiations on a Free Trade Agreement of the Americas (FTAA). We will also discuss renewal of the Andean Trade Preference Act (ATPA) and its possible expansion to include textiles.

As we stated in a submission to the committee earlier this year, we are an industry that is simultaneously both a major exporter and one that is deeply impacted by foreign imports. Accordingly, since we do endeavor to compete in this global trading environment, the domestic textile industry believes that United States trade policy should be motivated by principles of fairness and equity. I would refer you to my statement of March 7 for a detailed account of this overall issue, as well as how our industry has fared in recent years, largely as a result of the financial problems in Asia and despite our efforts to constantly modernize and seek new export markets.

To preface my remarks, which will make several references to NAFTA, I would like to remind the Committee that ATMI initially took no firm position for or against the North American Free Trade Agreement. Rather, our Board of Directors instructed ATMI's officers at the time, and ATMI staff, to work with our government to seek a yarn-forward rule of origin and effective Customs enforcement provisions. When the first Bush Administration incorporated this as its negotiating position, and was subsequently successful in getting such provisions into the final agreement, ATMI's Board then adopted a position in strong support of NAFTA, and we forcefully lobbied the Congress to urge NAFTA's adoption. The textile portion of the NAFTA is an outstanding case where a trade agreement is both fair and equitable to the textile sectors of all three NAFTA partners.

This is evidenced by the billions of dollars of two-way trade in textile and apparel exports that have been created since NAFTA was implemented. Indeed, during the past seven years, Mexico has overcome China to become by far the largest supplier of apparel to the United States. It was a deal that embodied the fairness and equity we would urge in an FTAA, although customs fraud has become an increasingly serious problem, as I will discuss later.

With respect to the subject of today's hearing, ATMI recognizes that the leaders of the 34 nations at the recent Summit of the Americas clearly support the goal of completing negotiations for an FTAA by January 2005. But as with all trade agreements, the details are critical as to whether an FTAA will help the U.S. textile industry establish beneficial trading partnerships with customers in these nations, as has been the case under NAFTA and in the Caribbean Basin. We believe that the goal of an FTAA from a textile perspective must be to establish measures that will benefit our industry.

As we stated in our March 7 testimony, it is important that the governments create a subgroup within the market access negotiating group dedicated to textile and apparel access issues. This would mirror the process that has been used in every major negotiation - including the Uruguay Round, NAFTA and the U.S. - Canada FTA -- that has involved textiles and apparel to date. The issues involved in textile and apparel market access, which include safeguards, customs enforcement and verification and the negotiation of over 1,500 tariff lines, are technical and detailed. A dedicated sub-group on textile market access is absolutely necessary for a successful outcome. To date, no such sub-group has been established.

As was the case with NAFTA at this stage of the negotiations, ATMI's Board of Directors has not yet taken a formal position on an FTAA. However, in general terms we believe the agreement should, like NAFTA, have a basic yarn-forward rule of origin, but without: (a) the large tariff preference levels (TPLs) included in NAFTA that granted benefits to countries outside the free trade agreement; or (b) the special preferences given to 807A goods under NAFTA that did not require U.S. yarn. We also believe that customs enforcement provisions in the FTAA should include not only the provisions in NAFTA, but should be expanded to take into account the difficulty in policing an entire hemisphere. New customs programs should include those in the recently enacted Trade and Development Act of 2000. Other enforcement measures should also be included and ATMI will be ready to advise U.S. negotiators about them.

Specifically, the FTAA must be fair and beneficial to U.S. textiles; it must have enforceable rules and governments must commit to enforcing those rules. To use NAFTA as a point of reference, the textile and apparel rules must exclude granting benefits to non-participating countries through TPLs, have strict origin requirements, allow for cross-country customs verification and have reciprocal tariff phase-outs. Enforcement is key; each time that free trade is expanded, the opportunity for goods from outside the free trade region to enter illegally through transshipment or smuggling is expanded, to the detriment of all of the participating countries.

Indeed, seven years into the NAFTA agreement it has become clear that large-scale smuggling of textile and apparel goods into Mexico and the United States to avoid quotas and tariffs is now a problem of the first magnitude. These goods, which falsely declare NAFTA origin and which deprive the U.S. and Mexican Treasuries of many millions of dollars in duties, cause great harm to U.S. and Mexican producers of textiles and apparel and their workers. Despite the authorization of funds and of dedicated agency personnel to NAFTA textile enforcement in the NAFTA legislation, U.S. Customs has yet to crack down on this illegal trade.

To summarize, ATMI believes that the FTAA can provide benefits to the industries of all the participating countries, including U.S. textile producers, but only if a separate negotiating subgroup succeeds with a final package that includes textile and apparel provisions based on NAFTA, with the improvements we describe above.

On the matter of renewal of expansion of the ATPA, which expires in December, our industry is aware that the leaders of the four Andean Pact nations -- Bolivia, Colombia, Ecuador and Peru -- met with President Bush in Quebec City on the need to include textiles in a new agreement. We have serious concerns regarding this issue, particularly coming so close on the heels of last year's Trade and Development Act of 2000. This law, which went into effect only seven months ago, has not been given the opportunity to achieve its desired results. We should be careful about doing anything which might diminish the benefits which the new law is intended to provide to the apparel producing countries of the Caribbean and to their yarn and fabric suppliers in the United States.

Moreover, there are still a number of outstanding issues which must be resolved before the new Caribbean Basin Trade Partnership Act's potential benefits and impact can be properly determined and evaluated. While ATMI endorsed and supported the CBI portion of that law, ATMI is still concerned about U.S. Customs' interpretation of key provisions of the Act, especially with respect to texturing of U.S. yarn and dyeing and finishing of U.S. fabrics.

ATMI's position is not unreasonable. Our position supports post-assembly apparel dyeing and finishing in the Caribbean. Our position also supports dyeing and finishing in the Caribbean for U.S.-formed yarn and thread required for use in qualifying apparel, as well as for regional knit fabric. Our position for U.S.-only dyeing and finishing would apply only with respect to U.S. fabric in garments not qualifying for the regional knit apparel or T-shirt allowance and to fabric used in textile luggage. Our position with respect to textured yarn - that is, that such yarn must be both extruded and textured in the U.S. - reflects the commercial reality of the most efficient and cost-effective way of producing textured yarn.

Also, the Sub-Saharan Africa portion of the Trade and Development Act of 2000 Act contained sections that were very troubling to our members. These included the lack of a workable surge mechanism, the size, structure and growth rate of the quota for garments made of non-U.S. components and generally weak anti-transshipment measures. These concerns will be taken into account in our evaluation of any Andean Pact renewal proposal that might include textiles.

Senator Bob Graham, who was so helpful in securing enactment of the CBI law, has introduced legislation in the Senate, S. 525, to renew the ATPA and to extend it to textile products provided the final product is made of U.S. fabric of U.S. yarn. Let me state very clearly that ATMI would strongly oppose any efforts to weaken this U.S. fabric and yarn requirement. If the U.S. is to grant the Andean countries greater access to our markets on a unilateral basis, the principles of fairness and reciprocity demand that only U.S. textile components be used.

We also note that Senator Graham's bill would permit duty-free entry for knit to shape apparel articles assembled in the Andean region from components knit to shape in the U.S. and/or a beneficiary country of U.S. yarn. It also provides such benefits to Andean knit to shape apparel from components formed in the U.S. regardless of the source of these yarns --- they could be U.S., Andean, Asian -- it doesn't matter. These are significant differences from the precedent set in last year's Caribbean Basin legislation, and are in opposition to the intent of the legislation, which is to promote increased trade of goods sourced from the region.

We further note that Senator Graham's bill provides for an additional 70 million square meters equivalent (sme) worth of imported apparel made of regional knit fabric of U.S. yarn, which would be allowed to increase by 16 percent annually over the next three years. While ATMI represents yarn spinners who could benefit from this provision, we also represent knitters who could be harmed by its inclusion.

Finally, we would like to reiterate our support for a ruling by Customs, as stated above, regarding texturing of yarns and dyeing and finishing of fabrics under last year's CBI law, and we are still waiting for that favorable determination. Because that issue is still unresolved, that is another uncertainty that adds to our concerns with respect to the expansion of the ATPA.

In light of all the concerns cited above, and particularly in light of reports that this body might seek an even further weakening of the Graham bill to the detriment of our members, we are opposed to expanding the ATPA to include textiles.

In closing, Mr. Chairman, ATMI is not opposed to fair and equitable trade agreements which establish mutually beneficial trading arrangements and thus create a true economic partnership been U.S. textile companies and our customers in other regions. That is why we supported NAFTA and the Caribbean provisions of last year's trade bill. Let's establish a true economic partnership within this hemisphere that benefits apparel makers throughout the FTAA region and U.S. textile producers.

Thank you.