Statement of Julia K. Hughes,
Vice President, International Trade & Government Relations,
United States Association of Importers of Textiles and Apparel

Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means

Hearing on Trade Agency Budget Authorizations and Other Customs Issues

July 17, 2001

The United States Association of Importers of Textiles and Apparel (USA-ITA), an association founded in 1989 with more than 200 members involved in the textile and apparel business, is pleased to have this opportunity to address the Subcommittee on progress to date in the implementation of the Trade and Development Act of 2000. Regrettably, there are many problems and delays to report with respect to the implementation of the African Growth and Opportunity Act and the Caribbean Basin Trade Partnership Act, and these problems and delays are hindering the accomplishments of this extremely important legislation.

As this subcommittee well knows, USA-ITA was a strong supporter of AGOA and CBTPA, with our members recognizing the significant opportunities presented by duty-free, quota-free access to the U.S. market for apparel produced in these two regions. USA-ITA members now know first-hand the difficulties of doing business under the complex provisions of this new law. USA-ITA, as an association, sponsored seminars in South Africa, Mauritius and Kenya to help manufacturers and the governments better understand the requirements of the law and expectations of U.S. importers. Association members and representatives also participated in seminars in several CBTPA beneficiary countries.

While it has been 14 months since the Trade and Development Act was signed into law in May of 2000, progress toward implementation is limited, with many essential questions unanswered. The U.S. Customs Service issued some interim regulations last October, after the law actually went into effect, but has yet to finalize those regulations.

In addition, regulations governing the treatment of brassieres under the CBTPA still have not been issued even in interim form. Instead, late last month, the Customs Service posted a draft version of such regulations on its website, promising to issue interim regulations soon. At the rate we are going, it is looking extremely unlikely that there will be final regulations governing the specifics of new law by this coming October, the one-year anniversary of laws that only have an eight year term.

As a consequence, U.S. importers are hesitant to make substantial commitments to shift business from Asia to Sub-Saharan Africa or to the CBI countries in the absence of certainty as to whether their investments will qualify for duty-free, quota-free treatment.

Total apparel shipments from Sub-Saharan Africa are up by 33.8% since one year ago -- but only a small amount of the apparel imports from SSA countries actually qualify for AGOA benefits. The most recent U.S. government statistics are for imports through April 2001 - and they show that while the total value of SSA apparel shipments is $814.4 million dollars, only $11.7 million of imports received AGOA duty-free benefits. In other words, less than 1.5% of the apparel imports from the region are entering under AGOA.

The trade statistics for CBTPA beneficiaries highlight a more troubling problem - growth from the region has slipped to only 1.8 percent from double-digit growth during 2000. Of the total value of CBI apparel imports -- $9.7 billion - only $1.4 billion was under the CBTPA benefits enhancements. So less than fifteen percent of the apparel imports qualify for the new benefits.

The surprisingly low import growth for AGOA and CBTPA apparel shipments highlights the fact that there are numerous problems and questions with respect to implementation. Allow me to review some of these questions.

First, there is the question of whether knit-to-shape garments are entitled to preferential treatment under AGOA. Regrettably, the specific language of statute references fabrics but fails to specifically include within its specific terminology components that are formed through a knit-to-shape process. USA-ITA believes strongly that the inclusion of knit-to-shape garments under AGOA was the intent of Congress because all apparel is covered. The Members of the full Committee have made this clear, as evidenced by the letter of March 6, 2001 to Treasury Secretary O'Neill.

In any event, many knit-to-shape components are analogous to panels of fabric. The opportunity to expand the production of knit-to-shape sweaters in SSA is the single greatest opportunity we have to develop new business - and yet there is a stalemate that will likely lead to the cancellation of millions of dollars of orders. We have been urging the Customs Service to ensure that its regulations comport with this interpretation, but thus far there is no assurance that this will be reflected in the final regulations.

Second, there is the issue created by Senator Helms -- whether printing and dyeing of greige U.S. formed fabrics should be required in the U.S. in order for apparel made from those fabrics to qualify for benefits under CBTPA and AGOA. There is no ambiguity in the Customs regulations on this point. The law is clear and it is the law established under the Uruguay Round Agreements Act, and more specifically, the Breaux-Cardin rules of origin. That law, even as amended by the Trade and Development Act of 2000, says that fabric formation is either weaving or knitting and that such operations alone are origin-conferring. Finishing operations such as printing or dyeing are irrelevant.

Yet, so long as this issue is under public review, important investments in finishing operations that have been made in the Caribbean and Central American countries are at risk. And even more important for the long-term partnerships is the fact that U.S. companies cannot take the risk of shifting new orders to beneficiary countries when the rules may change overnight, possibly even retroactively.

Third, the Customs Service has put forward unnecessarily burdensome and complicated paperwork requirements under AGOA and CBTPA. These requirements, including a multi-part certificate of origin that includes incredible detail, add greatly to the cost of doing business, undermining the economic incentive Congress intended to create. They add nothing to ensure compliance with the law but do greatly increase the likelihood of inadvertent and meaningless errors.

Fourth, the Customs Service has indicated to Sub-Saharan countries that it is not sufficient that the yarn and fabric and other inputs originate in the region. Instead, the agency is apparently interpreting the law to require that all inputs be produced in countries that also have in place formal visa systems. The result is that with only five Sub-Saharan countries recognized as having approved visa systems, there are a limited number of sources for regional inputs. USA-ITA believes strongly that it was Congress' intent that the visa requirement should apply only to the country in which the finished garment is manufactured.

Fifth, in the Caribbean, a question has arisen with respect to garments that are composed of both regional components and U.S. formed components. These so-called hybrid type garments surely should qualify for benefits, but so long as Customs fails to issue final clarifying regulations, there are no benefits being provided.

Sixth, the Customs Service has yet to provide guidance on the circumstances under which the limitation on foreign findings and trimmings applies. For those Sub-Saharan countries eligible to use third-country fabrics, it makes little sense to require that the findings and trimmings are produced in the region or the U.S., yet we have been unable to obtain clarification from the Customs Service on this point.

Obviously the issuance of implementing regulations is Customs' responsibility. But we do not place all of the blame for the lack of progress in implementation on Customs. Efforts to effectively overturn or re-write the will of the Congress through the regulatory process are also undermining the success of the law. Another problem is that while the law authorized funds to Customs to implement the new law, Congress never actually appropriated these monies. Getting the necessary funding to Customs could greatly increase the ability of the agency to ensure that the Caribbean and African countries entitled to benefits actually understand and implement the law correctly. And that would give U.S. importers a greater comfort level in making new investments in these regions.

USA-ITA urges the Subcommittee to take action to ensure that the Customs Service finalizes its regulations promptly and in accord with Congressional intent. Thank you.