U.S. textile makers ripped by tariff dodgers
U.S. textile makers say Customs and Border Protection has failed to adequately protect an already tattered domestic industry from importers who brazenly dodge correct tariff payments.
Dan Nation, division president of Gastonia, N.C.-based Parkdale Mills, in testimony to the House Small Business Committee's subcommittee on rural development, entrepreneurship and trade on Thursday, blamed lack of customs enforcement textile measures in both the North American Free Trade Agreement and Central American Free Trade Agreement for the loss of about 1,200 employees at the company's yarn-spinning plants in the last six years.
'Evidence of customs fraud in yarn shipments to NAFTA and CAFTA countries has grown exponentially,' said Nation, who represented the National Council of Textile Organizations at the hearing. 'Duty avoidance makes these companies more competitive with pricing, which takes U.S. jobs away from very competitive U.S. companies.'
Nation said U.S. yarn spinners are required to provide an affidavit certifying that the yarn is produced in the United States, giving the garment made in the CAFTA country duty-free access when shipped back to the United States. He warned the subcommittee's lawmakers that he has seen forged affidavits from Parkdale originals and from companies that were out of business or do not exist.
Nation pointed out that numerous small Asian-owned apparel companies in the CAFTA region will buy multiple containers of Asian yarn to each single container of U.S. yarn.
'Utilizing the affidavit on the U.S. yarn, with no continuous system of checks and balances from U.S. Customs, they can report all of these garments manufactured from U.S. yarn, when the actual U.S. yarn consumed is a fraction of the total,' he said.
'We would like to see the yarn that is imported into CAFTA tracked through the supply chain to see if duties are in fact paid on these garments,' Nation said. 'The solution can only be better enforcement of FTA (free trade agreement) rules of origin. To eliminate fraudulent affidavits of origin, forgery and shell companies, we must have an electronic system with the ability to follow product through the entire supply chain.
'Each electronic affidavit needs a unique number so that it cannot be reused or copied,' he said. 'Additionally, there has to be a qualifying registry of companies eligible for duty-free benefits issued unique codes to keep out shell companies.'
Nation recommended other measures to improve customs enforcement of these textile imports, including:
' Eliminate blanket affidavits.
' Increase the number of customs agents.
' Ban violators from the privilege of importing into the United States.
' Toughen penalties for false information in a free trade agreement claim.
' Seize undervalued goods.
' Dedicate permanent customs staff in the CAFTA region.
Dan Baldwin, assistant commissioner of CBP's Office of International Trade, told the House subcommittee that the agency 'maintains a robust trade enforcement program,' and because of the economic and political sensitivities involving textile imports has identified the commodity as one of the seven Priority Trade Issues. Textile imports still generate more than 42 percent of the annual duties collected by CBP.
The number of CBP import specialists assigned to textiles at ports of entry has generally ranged from 25 percent to 30 percent of the import specialist workforce. The agency also has 21 scientists assigned to ensure correct classification of textile products.
Baldwin said trade preference programs present a 'significant enforcement challenge' to the agency due to their complexities involving rules of origin and duty-free treatment.
On Jan. 1, textile quotas were also eliminated for China. 'As a result, CBP has prepared for a major shift in enforcement from quota admissibility issues to revenue protection and compliance with trade preference requirements,' Baldwin said.
Baldwin told the subcommittee that physical inspection of textile containers arriving at the border is simply not feasible, and that the agency continues to increase its use of risk-based analyses of the supply chain to root out duty discrepancies and other trade preference program violations.
Erik O. Autor, vice president and international trade counsel for the National Retail Federation, said textiles remain some of the most highly regulated U.S. imports.
'At a time when many retailers are struggling to stay in business and are facing increasingly burdensome compliance requirements on labor, environment, supply chain security, and product safety, an overly heavy hand by CBP that only disrupts legitimate textile and apparel trade while adding little to improve enforcement is unwise policy,' Autor testified.
'To avoid this problem, while ensuring effective enforcement, CBP should continue to focus on a post-entry enforcement approach with the posting of bonds, remote entry filing, paperless release of cargo, and post-entry compliance audits. Consistency in enforcement among ports is also important,' he said. ' Chris Gillis