U.S. Textile Industry Faced With Flooded Asian Goods, Ask Senate For Help

The U.S. textile industry – from yarn to finished products like T-shirts – is seeing an increase in products coming into the country and is at wit’s end to hold onto market share. Part of it is coming in through de minimis, the rest is coming through traditional channels, including from China, where the Uyghur Forced Labor Prevention Law (UFLPA) was supposed to curtail imports of goods made from cotton in Xinjiang. Mostly all of China’s cotton is sourced from there, a place believed to be crawling with forced labor and prison labor programs.

Late last month, industry representatives asked the Senate for some help.

In a Sept. 28 letter to President Biden, a bipartisan group of eight senators mainly cited China for the problem and tried to garner support by using economic security as a call for action.

From that letter:

U.S. textile production is the foundation of our Western Hemisphere textile and apparel co-production chain, responsible for over 500,000 U.S. jobs with $39 billion in annual shipments. Domestic producers are a critical part of the military’s warm industrial base, supplying over 8,000 items of mission critical gear and clothing annually to our war fighters, and are an essential component of U.S. health care security as our only domestic supply chain for critical personal protective equipment and other health supplies. Without a domestic textile industry, a vulnerable U.S. would be reliant on third parties to supply all of these essential products. Unfortunately, after decades of victimization by Chinese economic and trade predation, today our domestic textile manufacturers and workers find themselves attempting to recover from the pandemic while facing unprecedented demand destruction. – Letter to the President, Sept 28, 2023, signed by Sens. Thom Tillis, Ted Budd, JD Vance, Raphael Warnock, Sherrod Brown, Tim Scott, Lyndsey Graham and Ben Ray Lujan.

The letter asked President Biden to bring together senior leaders from the U.S. Trade Representative, the National Security Council, and the Homeland Security, Commerce, and Treasury departments to come up with a solution.

The goal is to “identify the root problems, develop robust and urgent solutions, and engage directly with U.S. industry and our regional allies,” according to the letter.

Specifically, the senators call for the interagency meeting to be “immediately focused on” three actions: enforcement, de minimis shipments, and other trade remedies.

Kimberly Glas, CEO of the National Council of Textile Organizations and a Commissioner with the U.S. China Economic and Security Review Commission said the industry does not need to wait for an “act of Congress” to make a move against the fabrics flood. This is mainly true with the de minimis provision, which allows for duty-free shipment of any good, from yarns to fabrics, men’s suits to microwave ovens, duty-free if priced under $800.

“The administration has the authority to close this loophole, which is essentially an unintended free trade deal for China,” Glas said.  “It’s imperative that the Administration use all the tools in the toolbox given this substantial threat.”

NCTO has long advocated against this provision. Here are some excerpts from an interview with Glas on this subject on Oct. 2.

Q&A With Kim Glas

Kim Glas leads the National Council of Textile Organizations in Washington, DC and is a commissioner on the U.S. China Economic and Security Review Commission.

CPA: Who alerted the Senators to this situation?

Kim Glas: Senator Brown and Senator Tillis are hearing from the domestic textile industry and we appreciate their leadership in leading these efforts. We strongly support their idea of creating an immediate task force at the White House to address the illegal trade practices that have led to this predatory environment right now, including: insufficient customs enforcement of imports made with forced labor under the UFLPA ; failure to prevent Xinjiang cotton from bleeding into the U.S. and into free trade agreement (FTA) partner countries; inadequate customs inspections related to rule of origin verifications in FTA countries, which are essential to getting duty-free status; and the existential threat of de minimis imports flooding our industry.

CPA: Brown has a de minimis bill, but doesn’t that just single out China?

KG: Yes, it is essentially China-focused and is a good step toward limiting these shipments, but it doesn’t address many other markets where de minimis goods are shipped to the U.S.  This is why the Brown-Tillis calls on the Biden administration to use its authorities to exclude certain products from de minimis benefits. If you made the actual company the importer of record, whether it is shipped to a warehouse or direct from China, you would significantly limit de minimis shipments. An e-commerce giant like Amazon would not be able to meet the de minimis threshold of $800 per day. Given the situation facing the textile industry, we should be using every tool in the toolbox right now to mitigate this damage in trade.

CPA: You mentioned ‘other markets’. What other countries are becoming big exporters of textiles to the U.S.?

KG: Take the CAFTA-DR agreement, for example. We are seeing a lot of fabric and yarns coming into the Central America free-trade region from India and other Asian countries. In CAFTA, we have the “yarn forward rule,” which means the yarn and fabric has to be made in the U.S. or in CAFTA countries and all the “forward” progress of turning that into a product has to be done in the CAFTA region in order for finished items to qualify for duty-free treatment when shipped to the U.S. But now we are seeing a lot of yarn coming in through Asia and the apparel is still claiming duty-free treatment when shipped to the U.S. Lack of enforcement undermines the CAFTA free trade agreement. I would say that right after Covid, 2022 was a banner year for those Asian textile imports into CAFTA. Supply chains were broken. This customs fraud jeopardizes CAFTA, which is essential to U.S. and regional textile and apparel producers.

The U.S. has a handful of free trade agreements that provide countries with tariff-free entry to the U.S. For textiles, the U.S. industry has partnered closely with Central America and the Dominican Republic (CAFTA-DR), with about three countries there, led by Nicaragua, being big exporters of clothing to the United States. But to ship clothing here duty free, Nicaragua manufacturers, for instance, have to use yarn made in the CAFTA-DR countries or the U.S.  If not, there is no trade benefit afforded to that item. This free trade agreement becomes completely bogus when countries there can use yarns imported from other countries outside of the U.S. and CAFTA-DR and turn it into textiles and apparel shipped here. That essentially gives no signatories of that deal the chance to participate in it. And that, apparently, is happening, according to many in the textile industry.

CPA: Is the UFLPA becoming impossible to enforce?

KG: I don’t think so. I know the magnitude of this law is significant because of the volume of trade. But just to try and put it in context…20 percent of the world’s cotton is in Xinjiang. Approximately 72 percent of cotton-based apparel in China is made of Xinjiang cotton and it comes directly into the U.S. from China, and indirectly through other countries. It comes in through our free trade agreements and through the de minimis loophole.  Congress allocated over $100 million for UFLPA enforcement and Customs has only spent $1.3 million on isotopic testing. Isotopic testing allows for them to open the box, test the product in a lab, and determine if it came from Xinjiang via DNA testing. Unfortunately, this funding has been significantly underutilized by Customs. UFLPA enforcement for textile and apparel shipments has actually gone down which is baffling given the size of the trade.

The average number of Customs detentions of textile, apparel and footwear shipments per month is down 50% by value ($1.7 million vs $3.5 million a year ago) and 24% by shipment count (430 items in 2022 vs 493 items in 2023). The U.S. imported $184 billion worth of textiles, apparel and footwear last year and roughly $39 million in shipments were detained for possible UFLPA violations over the last 15 months.

KG: For cotton-based products alone, the amount of imports to the U.S. is $8 billion. If over 70 percent of China cotton-based apparel is made of Xinjiang cotton, you would logically expect that 70 percent of those shipments should be detained. I looked at Customs’ UFLPA dashboard. It tells me no one is really looking closely at this. I understand that there is a massive volume to deal with here and that people and resources are thin. But they definitely have the resources to do more than $1.3 million worth of isotopic testing. There is no roadmap, not that I am aware of, of ramping up activities. There are no new Withhold Release Orders from Customs that I have seen against any new companies out there in countries like Pakistan that have been found to be using Xinjiang cotton.

CPA: What if you put 10% tariffs on all textiles – yarns, fabrics, shirts, towels. Do you support that?

KG: I don’t want to hurt duty-free textile trade that qualifies for duty-free exports to the U.S. If it is made of regional yarn and fabrics then it should qualify for duty-free treatment. But as a general matter, we strongly support tariffs, including penalty tariffs, as a critical tool to level the playing field on finished textile and apparel products by countries that are undermining our trade rules.  We believe this tool has historically been underutilized in addressing predatory trade practices.

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China is becoming a big exporter of apparel to Mexico. In 2022, they exported around $1.3 billion, up from around $900 million in 2021 and a previous record of $780 million in 2014. It has nearly doubled in less than 10 years.

By comparison, Mexico’s exports of apparel in 2022 were about $2.2 billion but have been hovering between $1.5 billion and $1.6 billion since 2012, according to Comtrade data.

Certain finished goods from China in the textile space are trending way up. For sweaters, pullovers, and vests, China exported around $260 million worth to Mexico in 2022, up from around $170 million in 2021, and up from its previous record high of around $149 million in 2007.

Mexico’s exports of those same items to the United States were around $310 million, not much bigger than China’s exports to Mexico.  Mexico’s exports of these items to the U.S. have been rising steadily since 2013, though that does not mean those items are being re-exported to the United States.

In their Sept. 28 letter to Biden, the eight Senators said that “Without urgent action, we will be unable to head off a coming disaster that will substantially undermine textile and apparel production and employment in the U.S. and throughout the Western Hemisphere.”

The proposed interagency group from USTR, Commerce, and others should improve enforcement for textiles and apparel flooding into the U.S. market from China and other Asian suppliers in particular, the Senators said.

Additionally, the letter urges a crackdown on “reported customs fraud undermining manufacturing in our Western Hemisphere free trade agreement regions.” This means Asian-sourced yarns coming in from India and elsewhere to Mexico to be turned into clothing. Whether this clothing gets exported to the U.S. is not clear, but it is possible. There is no real deterrent.

Finally, the Uyghur Forced Labor law does presume guilt for all cotton goods made in Xinjiang. Finished products that used cotton from Xinjiang are presumed to have been made with forced labor and are barred entry to the U.S.

The Senators requested the administration review “all available executive authorities and rulemaking processes” to find a way to end duty-free treatment for de minimis shipments, something Glas said Biden could do on his own by Executive Order.