Trade deal sparks fight over socks

A Canadian company that last week finalized the purchase of an Alabama sock company is at the center of an intense lobbying fight between importers and producers over whether higher tariffs should be imposed on socks from Honduras.

Gildan Activewear, the Canadian firm, is building a huge plant in Honduras in part to increase sock sales in the United States. Socks from Honduras can enter the United States duty-free thanks to the Central American Free Trade Agreement (CAFTA), which Congress narrowly approved in 2005.
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The Committee on the Implementation of Textile Agreements (CITA), however, has launched an inter-agency investigation that will decide whether to re-impose tariffs as high as 13.5 percent on socks from Honduras. Small U.S. companies that argue the imports could kill their businesses have vigorously lobbied for the tariffs.

The origins of the investigation date back to the CAFTA fight more than two years ago.  Rep. Robert AderholtRobert Brown AderholtHouse advances B agriculture bill Dems advance bill defying Trump State Department cuts Maryland raises legal tobacco purchasing age to 21 MORE (R-Ala.) has said he voted for the trade deal after the administration said it would be proactive in considering a safeguard on socks from Central America if imports hurt the U.S. industry. Supporters of higher tariffs fear that Gildan will close the Alabama facility after its Honduras plant is completed.

The subject is critical to Aderholt because his district includes Fort Payne, the self-proclaimed “sock capital of the world.” Aderholt and local officials argue Fort Payne’s producers have been devastated by imports, particularly from Honduras. Those imports have soared since CAFTA was implemented last year.

“Many of our sock manufacturers are closing their doors either because they were forced to move some or all of their production offshore, mainly to Honduras, or they were put out of business by this unfair competition,” Fort Payne Mayor William Jordan wrote in public comments to CITA last month.

Last week, Montreal-based Gildan finalized its purchase of one Fort Payne sock producer, V.I. Prewett & Sons. A Gildan official insisted the company has no plans to close the Fort Payne operation. Genevieve Gosselin, director of Gildan’s corporate communications, said that Gildan has developed a business plan with Pruwett’s management that in 2008 will “maintain production and employment at current levels in Fort Payne.”

Jordan and others, however, are skeptical. Jim Schollaert, who represents domestic sock manufacturers, notes that Gildan closed Kentucky Derby Hosiery in Mount Airy, N.C., after purchasing it in 2006 and moved production to Honduras.

Mount Airy Mayor Jack Loftis supports the safeguard, and criticized Gildan in comments to CITA. He said Gildan’s decision led to the loss of 1,100 jobs in his town.

“While the proposed safeguards would have been more effective if considered and passed much earlier, it is still time to help the remaining industry,” he wrote.

Gildan told CITA the Mount Airy decision was unavoidable given Kentucky Derby’s “deteriorating financial and liquidity position.” It also notes that a Kentucky Derby plant in Virginia remains in operation.

Gildan and others argue the safeguard would devastate Honduras’s industry, and would perversely hurt U.S. cotton producers and yarn spinners. This is because sock imports from Honduras can only receive duty-free treatment in the United States if they are made from U.S. yarn, according to Gildan lobbyist Ron Sorini, a veteran of Washington trade fights.

As a result, Sorini, who once served as a textile negotiator at the Office of the U.S. Trade Representative, argues the Department of Commerce would hurt U.S. producers of those products by imposing a higher tariff on socks from Honduras, cutting off a way for what’s left of the domestic textile industry to survive.

In addition, higher tariffs would not help U.S. sock producers in Fort Payne, Sorini said, since U.S. retailers would simply buy more socks from low-cost producers in countries such as China and Pakistan.

Sorini, who recently left Sandler Travis Rosenberg to set up his own lobbying firm, Sorini, Samet and Associates, represents several clients that oppose the safeguard, including Payless Shoe Source and the Footwear Distributors and Retailers of America.

Gildan put its case bluntly in formal comments to CITA on Sept. 27: “This pattern of industry closures is an inevitable consequence of globalization and Asian import competition, which had a significant impact on the domestic U.S. sock industry long before the passage of [CAFTA].”

Such comments sting representatives of domestic textile companies even if they are grounded in reality. They’ve watched the U.S. apparel and textile industry for decades migrate offshore, with the pace picking up dramatically since 2000, when trade with Asian nations intensified.

“If we are not more aggressive in addressing this problem, we will lose more and more U.S. manufacturers and the workers they employ,” said Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition.

The stakes of the decision are high. U.S. sock producers are receiving support from one unlikely source: Renfro Corporation. The company previously has opposed safeguards on socks from China and imports from China, India and other countries. When it comes to socks produced in Honduras, however, Renfro, which maintains some U.S. production facilities in addition to its offshore sites, has had a change of heart. In comments to Commerce, Renfro argued in favor of the proposed protections. Several sources said that Renfro favors safeguards in this case because it fears competition from Gildan.

In a reference to Gildan, which has an administrative office in Barbados, Renfro argues the tax structures of some foreign companies currently operating in Honduras “enjoy a significantly lower based tax rate” over U.S. companies. Because of a tax treaty between Canada and Barbados, Renfro argues Gildan would still enjoy an advantage even if Renfro sourced its operations in Honduras.

Gildan responded that Barbados has tax treaties with the United States and Canada, and that it is not a “tax haven.” It also argues it is inappropriate to justify the use of a safeguard in order to address a “perceived tax inequality.”