Bad Trade Deals Destroy Textile Industry in Virginia

Tara Bozick, WSLS 10 Unfortunately, the story of the loss of Dan River Inc. isn’t unique. Cheap imports, overseas labor, big-box retailers and U.S. trade policy culminated in not just the demise of Dan River, but of U.S. textiles and ultimately, undermined American manufacturing, industry advocates said. “It is a very tangled web at this point,” said Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition. “Producers like Dan River got caught in that web. Here’s a company committed to Danville and committed to its workers and the people they are selling sheets and pillowcases to are saying, ‘Hmmm, we can buy this out of China for 10 percent, 15 percent less.’” What happened? As early as 1959, Dan River President W.J. Erwin described increased imports of fabric and apparel as an “ever-present threat” until the government takes long-range action in a report to stockholders, according to Malcolm Cross’ “Dan River Runs Deep.” In the 1960s, Japan became an aggressive low-cost producer of textile and apparel products, making inroads into the U.S. market, Tantillo said. Developed countries responded by agreeing to allow each other to impose quotas on imports of cotton textiles. This later developed into the Multi-Fiber Arrangement (1974-94), bolstering import control of textiles and apparel. Yet, in the new Agreement on Textiles and Clothing in 1994, the United States and European Union agreed to phase out restrictions on imports over the next 10 years. “I do think the demise of the quota system was the death nail of businesses like Dan River,” said Linwood Wright, who was vice president of research quality and development. Why would the United States agree to give up market share in textiles? Part of this goes back to national policy created after World War II, when the United States set out to refurbish the economies of the world as many were completely devastated by the war, said Tantillo, who served as deputy assistant secretary of commerce for textiles, apparel and consumer goods under President George H.W. Bush. The country never fully shifted out of that mode. It sought to keep good relations with developing nations with the idea that in exchange for textile jobs, the United States would have access to markets to sell high-tech goods, Tantillo said. Additionally, retail interests sold policymakers on the idea that lowering the cost of goods would benefit American consumers, who could buy cheaper merchandise. “The Washington gurus decided that it was in the best interest of the country to sacrifice textile and garment industries for high-tech industries,” Wright said. NAFTA Many employees blamed Dan River’s demise on the North American Free Trade Agreement enacted in 1994, around the start of the quota system phase-out. Actually, NAFTA helped Dan River stay afloat about 10 years longer, Wright said. True, NAFTA hurt apparel producers or sewing operations, but even when production shifted to Mexico, they still used Dan River fabric, Wright said. NAFTA allowed the textile industry to stay competitive by using cheaper Mexican labor and later Latin American labor with the Central America Free Trade Agreement. Shipping was quicker and less costly than from Asia. Before it got out of the apparel business, Dan River owned a plant in Mexico that made shirts for Eddie Bauer, according to a 2001 company newsletter. Dan River also contracted in Latin America to supply apparel to customers. But North America still couldn’t compete with China and Asia as they became bigger players. “They overwhelmed the whole concept of how NAFTA might work,” Tantillo said. China While “free trade” seems fair, one problem is China is not a fair player, Tantillo said. China came on the scene in the 1980s with a limitless work force and state-controlled economy. China owns electric power, water, the plants and cotton farms. As a result, China can subsidize every part of the production chain, making their product artificially cheaper in the world market, he said. Even during the quota system, China found ways to circumvent restrictions by shipping product out of other countries, Tantillo said. The U.S. government did little to deal with this “cheating” and the final nail was China being given full membership in the World Trade Organization at the end of 2001, Tantillo said. The shortsightedness of American trade policy is that China won’t be content with just menial labor and textiles, he said. Textiles are just a “stepping stone.” Dan River joined a coalition of trade organizations fighting to slow the flood of imports from China, according to a 2003 company newsletter. “Our biggest complaint was that it was unfair competition,” said Rodney Reynolds, who retired as senior vice president and chief financial officer. “ … Eventually, it led to the demise of our industry.” In 2003, the United States had more than 50 percent market share in pillowcase and sheets, according to U.S. Department of Commerce International Trade Administration data. In 2008, just a few years after the quotas ended in 2005, U.S. market share dropped to 3 percent. The American Manufacturing Trade Action Coalition was founded in 2002 under the premise that U.S. trade policy is flawed and to lobby policymakers, said Tantillo, who spent more than 20 years representing textile interests in Washington. “We like to ask a simple question,” Tantillo said. “Is a country made great by what it consumes or what it produces?” Big-box retail During the same time, the big-box retailers, Dan River’s customers, are telling Dan River to get their price down because they can get it out of China or Bangladesh cheaper, Tantillo said. Dan River had changed its focus to home furnishings. Because this segment is sold mostly in big-box stores, retailers like Walmart got a “somewhat dictatorial pricing power within the system,” Tantillo said. “Dan River did everything they could,” Tantillo said. “They squeezed every level of efficiency out of the process.” Tantillo would like consumers to consider the “hidden cost” of this kind of big-box retail. “You paid more than that dollar you saved. Look at the social costs and economic costs to the country as a whole. It’s not such a good deal,” Tantillo said. “But that’s the argument where Dan River is the perfect example.” Read original post here.