A Changing Industry


N
 ew data point up an ongoing shift in overall mill strategy that’s making for a lot
smaller but increasingly efficient domestic textile/ apparel complex. Looking at size first, the
latest figures show capacity in the basic textile sector fell about 7 percent over the four
quarters ending late last year. And for more highly fabricated mill products and apparel,
comparable capacity reductions of 6 percent and 4.5 percent, respectively, are reported. These
declines were far above the 1-percent-or-so slippage noted in overall U.S. production potential
over the same period. But many of the closings involved older, relatively inefficient facilities —
and, in most cases, are leaving the industry in better competitive shape. The fact that textile
productivity has continued to improve over the past year would certainly seem to confirm this
conclusion. Still another indication of a stronger industry: U.S. mills have shown few signs of
cutting back on purchases of new plants and equipment. Indeed, according to the Institute for
Supply Management, a grassroots organization of the nation’s top purchasing executives, textile
mills actually plan to increase capital outlays for the coming year. And the same is true of
apparel producers. To be sure, the spending numbers are not nearly as robust as they were a few
years back. But they do indicate that domestic producers mean to be major players in the global
textile/apparel industries – both for now and over the long haul.


An Improving Business Outlook

There are also indications that demand will continue to edge higher as Washington puts more
emphasis on reducing unemployment. The new budget calls for billions of dollars in new job-creating
measures. Adding to this are proposals to extend federal unemployment benefits and a program to
double U.S. exports. To be sure, not all these proposals will be given the green light, but some
new moves to prop up the economy will almost certainly be approved. The big question: How much can
this help? One hint comes from the Congressional Budget Office estimates on what happened with last
year’s big stimulus package. The group figures this extra spending helped boost employment in the
third quarter of 2009 by between 600,000 and 1.6 million — enough to raise gross domestic product
anywhere from 1.2 to 3.2 percent. And similar results are likely this year if the Democrats and
Republicans can finally agree on some overall strategy. Top business analysts also are cautiously
optimistic. Thus, several polls of these leading prognosticators find all pretty much agreed on
2.5- to 3-percent economic growth for 2010. True, this won’t guarantee any significant pickup in
domestic textiles and apparel. But it will almost certainly prevent any further declines and
hopefully set the stage for some modest pickup by late in the year or early 2011. Another factor
likely to help: After a recession, consumers tend to put replacement of worn-out clothing and
linens at the top of their shopping lists.

bftexindexesma10


A Changing Trade Picture

The past month or so has also raised questions on future trade trends. On the export side,
the Obama administration proposes to double overall outgoing shipments to $2 trillion within five
years. Any such move would hopefully increase export promotion efforts; put more pressure on U.S.
trading partners to open up their markets; and result in more trade agreements. Imports could be
affected by upcoming Washington talks with China, which are now almost certain to include stronger
demands for upward revaluation of that nation’s currency, the yuan. And it makes sense: Many
financial analysts say the yuan is still undervalued by the same 25 to 40 percent as in 2005 when
Beijing okayed small upward adjustments. Latest U.S. import figures would also seem to confirm a
major currency imbalance. Thus, cheap Chinese textile and apparel shipments to the United States
are again accelerating — jumping 13 percent and 27 percent, respectively, in November and December
2009. True, these year-to-year comparisons are with earlier recession levels. Nevertheless, it’s a
trend that can’t be allowed to continue. Add in the fact that other nations are also pressing for
change, and some upward yuan revaluation may not be that far off.

March/April 2010

Effects Of Obama’s Push Questioned By Textile Makers


P
 resident Barack Obama’s goal of doubling U.S. exports in the next five years and creating
two million jobs has been met with considerable skepticism by textiles and other manufacturing
industries. They feel a more productive approach would be an assault on what they say are illegally
subsidized low-cost imports that displace American jobs.

Since the president announced the export-expanding goal during his State of the Union
address, administration trade officials have been making an all-out effort to sell the benefits of
exports. Under a National Export Initiative announced by the president, the Office of the U.S.
Trade Representative, the Small Business Administration, the Export-Import Bank and other federal
agencies have been working on programs to attack overseas trade barriers and facilitate more
two-way trade in other ways. A centerpiece of this effort is Congressional approval of the Panama,
Colombia and South Korea free trade agreements (FTAs), negotiated by the Bush administration, that
have been bogged down in Congress. U.S. textile manufacturers are not particularly concerned about
Panama, as little trade is involved, but they strongly support the Colombia pact, as it has a rule
of origin for apparel imports that presents opportunities for exports of yarn and fabric. On the
other hand, they strongly oppose the Korean agreement because South Korea has a large textile
industry of its own, and they see few opportunities for U.S. exports. They also feel the agreement
could result in a significant increase in imports that under the agreement could enter the United
States duty-free.


Other Actions

The Obama administration is taking preliminary steps to negotiate a Trans-Pacific Partnership
(TPP) that it says will broaden sourcing opportunities for U.S. retailers and increase market
access for U.S. exports. The TPP would include Australia, Brunei, Chile, New Zealand, Peru,
Singapore and Vietnam. U.S. textile manufacturers object to Vietnam’s inclusion, saying that
because of its non-market economy, it will be “another China.”

In a move that could benefit U.S. textile manufacturers, the administration is pursuing ways
to help make financing more readily available to companies interested in exporting. In a recent
meeting with textile executives, Kim Glas, deputy assistant secretary of commerce for textiles and
apparel, said her office is seeking ways to gain access to additional loans and grants to help
bolster exports. This is particularly important where the United States has FTAs with countries
that have financing problems.


Import Issues

While U.S. textile manufacturers welcome these initiatives, they are more concerned about the
high level of imports, which they say can never be offset by increasing exports. In the five-year
period preceding the recession, textile and apparel exports averaged around $18 billion, while
imports rose from more than $83 billion in 2004 to $93 billion in 2008. During that period, textile
and apparel employment fell from 698,000 to 406,000.

Textile industry lobbyists continue to focus on the need for the Obama administration and
Congress to address what they see as currency manipulation by China and other countries, which they
view as an illegal subsidy for their exports. In the pre-recession five years, China’s textile and
apparel exports to the United States rose from $14.5 billion in 2004 to $32.6 billion in 2008. In
addition to the need to address the currency issue, the National Council of Textile Organizations
says other subsidies must be eliminated, and the government needs to help find ways to facilitate
increased access to credit and other financing for exports.


Labor Reform Legislation Sidelined By Congress

One of organized labor’s top priorities, the Employee Free Choice Act (EFCA), has been
sidelined and is unlikely to resurface any time soon in its original form, if at all. With the
election of President Obama and control of both the House of Representatives and the Senate in the
hands of Democrats, organized labor was bullish on the chances for its long-sought legislation that
would bring about major changes in the way union-organizing elections are conducted. The
centerpiece of EFCA is the so-called “card check” that would authorize the National Labor Relations
Board to recognize a union if more than 50 percent of workers signed cards voting for a union. The
legislation also shortens the time for organizing efforts, imposes $20,000 fines on employers found
guilty of violating worker rights during an organizing campaign and provides for federal
arbitration if companies and unions are not able to agree on certification.

In 2007, the House passed a form of free choice legislation only to have it blocked by a
Republican-led filibuster. Following last year’s election, supporters of the legislation felt they
might have the votes to get the legislation passed in the current session, but nothing happened, as
the Obama administration had higher priorities. Hopes for passage of the legislation were further
dimmed by the Democrats’ loss of their 60-member margin to override filibusters, but in the case of
this legislation, support from conservative Democrats is not a sure thing. Business opponents of
the legislation say it would deny workers’ rights to privacy and violate the democratic process of
a secret ballot. On the other hand, the bill’s supporters say it would prevent intimidation of
workers during an organizing effort and stop efforts to thwart elections with delaying tactics.

There were reports late last summer that supporters of the legislation were willing to give
up the card check in order to get other elements of the bill, including the establishment of
timetables, arbitration and stiff penalties for violations of worker rights. That did not exactly
fly with labor leaders, and nothing happened. The fact that President Obama did not even mention
EFCA in his State of the Union address was a matter of additional concern, but Eddie Vale, a
spokesman for the AFL-CIO, says the act is still one of labor’s top priorities, and “we still think
we can get it done.”

March/April 2010

Wetekam Monofilaments US Opens In Spartanburg

Germany-based Dr. Karl Wetekam & Co. KG has opened Wetekam Monofilaments US Inc. in Spartanburg
to serve the North American technical monofilament and artificial grass markets. Wetekam
Monofilaments has begun importing products from Germany, but also will begin production on 10
monofilament lines it purchased from Spartanburg-based Teijin Monofilament US Inc. last year after
Tokyo-based Teijin Group liquidated its U.S. monofilament subsidiary as part of its restructuring
measures
(See ”
Teijin
Restructures Polyester Fibers Business, Consolidates US Film Production,” August 18,
2009). Production likely will be established in the Spartanburg area, although an exact
location has not yet been determined.

The company will manufacture technical monofilaments for polyester, polypropylene,
polyethylene and varieties of nylon, as well as artificial grass yarns based on various polymers
and polymer blends. Those yarns can be produced in a range of colors and shapes and may be
texturized or twisted to meet customer specifications.

Michelle Diaz and Bruce Stroupe, former employees of Teijin Monofilaments US Inc., will lead
Wetekam Monofilaments US.

March/April 2010

Trützschler Acquires HOW’s US Business, Expands In Greer, SC

Trützschler GmbH & Co. KG, Germany — represented by Charlotte-based American Truetzschler Inc.
and Trützschler Card Clothing (TCC) — has acquired all production facilities, patents, and
copyrights of John D. Hollingsworth on Wheels Inc. (HOW) — a Greenville-based designer,
manufacturer, servicer and tester of textile equipment, which shuttered its operations on Dec. 30,
2009, as a result of the impacts of the U.S. textile industry’s continued decline.

The takeover will enable TCC to continue HOW’s production at its existing facilities. TCC,
founded in 2003, manufactures a full range of card and roller card clothings for the spinning and
nonwovens industries. The company has introduced new manufacturing processes with integrated
in-process quality controls and runs a global service network.

HOW specialists have joined Trützschler’s U.S. sales and marketing team and American
Truetzschler’s field service.

American Truetzschler also is investing $3.5 million to expand its operations in Greer, S.C.,
and will create 30 jobs in the process.

“Our operations in Greer are an important part of our company’s total manufacturing capacity,
and we are pleased to expand our production capabilities with a facility there,” said Detlef
Jaekel, vice president, Technical Division, American Truetzschler. “South Carolina will provide us
with an excellent business environment and a skilled workforce to suit our needs.”

The investment in Greer will enable American Truetzschler to expand both its textile
machinery and card clothing manufacturing operations. It will immediately begin adding equipment to
the facility.

In 2003, Trützschler acquired all of HOW’s activities outside the United States and Canada,
including production facilities in Brazil, Mexico and Germany, as well as HOW’s European service
stations. Those activities have operated under the name Trützschler Hollingsworth Card Clothing and
Service, while HOW continued production for its U.S. and Canadian operations at its Greenville
headquarters.

March/April 2010

Members Of Congress Seek Chinese Currency Reform

As Chinese Premier Wen Jiabao denied that his nation’s currency is undervalued and claimed that
efforts to pressure China to revalue it amounts to “protectionism,” a bipartisan group of 132
members of the House of Representatives has urged the Obama administration to “urgently address”
what they see as growing problems resulting from China’s currency.

At a news conference following the annual session of China’s legislature, Wen said: “I
understand that some countries want to increase their exports, but I don’t understand the practice
of depreciating their currencies and forcing others to increase theirs in order to accomplish this.
I think it is a type of trade protectionism.” In addition, Wen said he does not think the Chinese
yuan is undervalued.

A letter to the Obama cabinet secretaries — drafted by Reps. Mike Michaud, D-Maine, and Tim
Ryan, D-Ohio, and signed by 130 of their colleagues — said: “The impact of China’s currency
manipulation on the U.S. economy cannot be overstated. Maintaining its currency at a devalued
exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign
competitors.”

The letter urges Secretary of Commerce Gary Locke to levy countervailing duties on Chinese
imports, saying China’s actions meet all of the basic criteria for applying the law to illegally
subsidized imports. It also called on Treasury Secretary Timothy Geithner to designate China as a
country that manipulates its currency in the department’s upcoming report on currency manipulation.
After labeling China as a currency manipulator, the congressmen said, Treasury should enter into
negotiations with China regarding its currency regime. They said these actions would “signal the
U.S. government’s willingness to take decisive action against China’s currency manipulation,
including the potential filing of a formal complaint with the World Trade Organization [WTO].”

The congressional letter won high praise from members of the Fair Currency Coalition (FCC),
which includes textile members.

Claiming that Chinese products are frequently priced at less than the cost of materials, FCC
Executive Director Charles Blum said: “This is illegal government subsidization, pure and simple,
and it destroys American jobs. Applying Countervailing Duties is a must have if America is to
achieve sustainable recovery.” 

The Coalition pointed out that export subsidies are prohibited under WTO rules, and, when
subsidies cause injury, WTO rules mandate countervailing remedies.

March 16, 2010

Obama Outlines International Trade Agenda

After weeks of talking in generalities, President Barack Obama has unveiled his strategy for
attempting to double exports over the next five years and create 2 million jobs.

The far-reaching program calls for financial assistance to companies wishing to export,
knocking down overseas barriers to trade and ordering a number of federal agencies with direct or
indirect involvement in trade to focus their efforts on how they can help achieve the president’s
goals. Obama’s proposals say little about problems with imports faced by textile and other
industries, except to say overseas countries must “play by the rules” of international trade, and
that countries that have a large trade surplus with the United States, such as China, should be
encouraged to place less emphasis on exporting and more on domestic consumption.

Obama calls his National Export Initiative “an ambitious effort to marshal the full resources
of the United States government behind American businesses that sell their goods and services
abroad.” He issued an executive order instructing the federal government to use “every available
resource in support of the mission,” and he created an Export Promotion Cabinet made up of the
Secretaries of State, Treasury, Agriculture, Commerce and Labor along with the U.S. Trade
Representative (USTR), the Small Business Administration, the Export Import Bank and other senior
officials. He also reactivated the President’s Export Council, which has been the principal
national advisory committee on international trade.

Calling for export promotion initiatives throughout his administration, Obama said, for
example, that Secretary of Commerce Gary Locke is issuing guidance to all senior government
officials who have foreign counterparts on how they can best promote exports, and Secretary of
State Hillary Clinton is developing a “commercial diplomacy strategy,” directing every U.S. embassy
to create a senior visitors business liaison who “will manage our export advocacy efforts overseas
and when ambassadors return home they will be expected to travel the country to discuss export
opportunities in their countries of assignment.” He said the Department of Commerce will sponsor
more than 40 trade fairs this year.

Pointing out that many businesses do not have the resources to identify new markets or set up
shop, Obama said he is planning to increase funding to set up “one-stop shops”  across the
country and in 250 embassies and consulates abroad to help businesses gain a foothold in the most
promising markets for exports. He said more funds will be available from the Export-Import Bank to
make loans to small and medium-size companies to help them enter new exports markets.

Obama said USTR Ron Kirk has been doing an “extraordinary job” and that he will continue
working to knock down trade barriers that he said “unfairly keep American companies from markets we
belong in.”  On the day after the president announced his program, Kirk met with leaders of
the U.S. apparel and footwear industries in Washington, and emphasized the importance of
eliminating trade barriers and gaining greater overseas market access. He also discussed the
administration’s efforts to combat counterfeiting and piracy of U.S. designs. He said that
protection of intellectual property rights is “critical to our future product development.”

Both Kirk and the president called for congressional approval of free trade agreements with
Panama, Colombia and South Korea, for negotiation of a Trans-Pacific Partnership and for renewed
efforts to bring about a successful conclusion to the Doha Round of trade negotiations, all of
which they believe are key elements in the program to expand exports.

Looking at the overall global trade picture, Obama said: “I know the issue of imports and
exports, the issue of trade and globalization, have long involved passions of a lot of people in
this country. I know there are differences of opinion between Democrats and Republicans,
differences between business and labor about the right approach. But I also know we are at a moment
where it is absolutely necessary for us to get beyond those debates.”

March 16, 2010

CPSC Chairman Calls For More Proactive Safety Practices

Speaking at the American Apparel & Footwear Association’s (AAFA’s) annual Executive Summit in
Washington, Consumer Product Safety Commission (CPSC) Chairman Inez Tenenbaum urged manufacturers
to build safety into their designs and quality control programs in order to protect consumers and
avoid the necessity for product recalls.

“Being proactive and reaching the highest levels of safety is an imperative that I believe
the CPSC and industry need to achieve,” she said.

Tenenbaum, who has overseen a major reorganization and revitalization of what had become a
moribund agency, said a basic goal has been to “restore consumer confidence  in buying
products that would not harm their children.”

She said that for the first time in years, the commission has its full complement of five
commissioners, its staff will be increased from 385 employees in 2008 to 530 by the end of this
year, and its 2010 budget is double what it was four years ago. She also said CPSC is working with
new technologies to collect and distribute information, is working closer with consumers and
manufacturers, and is encouraging a new openness in its deliberations and actions.

“Over these past months,” she said, “I have made the commission as accessible to the public
as at any time in history. Our public meetings are online — you can watch our commission meetings
every Wednesday morning — we have hosted public workshops to collect input from the public on
major issues and our staff members are presenting useful information to groups like this around the
country. At the same time I have made myself accessible to associations such as AAFA.”

Tenenbaum outlined steps she believes manufacturers should take in order to be “proactive’
with respect to safety. They are:

  • Make products that go well beyond the performance standards for ASTM or other voluntary
    standards. Don’t just meet standards. Go above if you can.
  • Consider potential safety problems in the design phase, well before certification or entry into
    the marketplace. CPSC is concerned that safety problems may not be detected during existing tests
    and that’s how recalled products end up in the hands of consumers.
  • Have a robust quality control process in place for your factories and your manufacturing
    line.
  • New thinking is needed for hybrid children’s products such as those with unique components.
    Products like these do not fit nicely into one particular testing or certification program.

Tenenbaum said the CPSC does not want to stifle ingenuity; it just wants to build safety into
designs and have “robust conforming and testing processes.”

Tenenbaum warned that “we are a commission that has new powers. If you do not meet your
obligations to safety and you resist our efforts to conduct a recall, be forewarned this commission
stands ready to be creative in the use of our enforcement authorities.”

March 16, 2010

The Rupp Report: OC Oerlikon Still Under Pressure

Since the start of the financial crisis, OC Oerlikon was fighting problems. On Dec. 8, 2009, the
group announced: “As part of its commitment to strengthen the balance sheet and regaining a
sustainable financing base, Oerlikon Group submitted a comprehensive financial restructuring
proposal to its syndicate banks on November 25, 2009. The proposal, designed to ensure long-term
financing for the company, … includes a substantial reduction in current equity capital followed
by a capital increase.”

Financial Problems

However, there is still no quiet moment for OC Oerlikon: Within a few weeks, major
shareholder Viktor Vekselberg and the now 28 creditors must come to an agreement; otherwise, the
group will end up in probate court. At stake are about 16,000 jobs. For weeks, new details
referring to the financial problems have surfaced. Now, Vekselberg and the banks argue about
Oerlikon shares. Experts are not sure if the Russian investor can keep control over the enterprise.
The result will be seen within the next weeks.

A Fight To Survive

On Feb. 26, 2010, the Oerlikon Group released a message that “negotiations with its lending
banks on the restructuring of the Group’s finances are progressing. Oerlikon believes that it will
be able to reach an agreement with its lending banks by the end of March 2010.”

“Good progress has been made on a comprehensive restructuring solution which will provide a
firm foundation for Oerlikon going forward,” stated Vladimir Kuznetsov, chairman of Oerlikon
Group’s Board of Directors. “We are preparing for the prompt implementation of key measures,
including a capital increase during the second quarter.”

Officially, this is a substantial capital cut, but in reality, it’s an equity dilution.
Vekselberg still holds a 44-percent stake in Oerlikon, but the equity dilution is also a threat to
him because of Oerlikon’s 1.8 billion-Swiss franc debt with the banks, which have been asked to
convert a part of it into shares. But the banks are still struggling against this plan of Group
Director Hans Ziegler — they want cash. But even they say that a solution must be found. The end
of the Oerlikon Group is not the solution for them and only brings little money.

But the handwriting on the wall is not good: Without negotiations in detail, it is clear that
the banks are entitled to 20 to 30 percent of all shares at a 300 million-Swiss franc debt swap.
The financial restructuring is not an easy task for Vekselberg if he wants to keep control. To keep
control over the enterprise, the limit is around one-third. However, one-third is not enough for
Vekselberg to keep control. For this, he must buy subscription rights from other existing
shareholders, too. Vekselberg also agreed to buy those shares that no one wants to buy in the
recent capital increase. However, it gets more and more expensive for Viktor Vekselberg. He already
paid around 1 billion Swiss francs since the takeover.

Sacrifices

The banks and Vekselberg have argued for months about who is to make which sacrifices in
Oerlikon’s refinancing. The conflict has escalated now because a group of Anglo-American banks, led
by the Citibank, are fighting against having to write off their debt. They insist that Oerlikon
must pay the total debt of 2.5 billion Swiss francs. It seems that European banks are more ready to
write off their money and to convert debt into equity capital. On the other hand, Vekselberg is
ready to pay some 300 million to 400 million Swiss francs for the capital increase to save the
Oerlikon Group.

The negotiations have become more difficult than ever: In one year, the number of creditors
has increased from 21 to 28. Obviously, the banks are speculating on insolvency if their claims are
not met. In this case, some financial institutions are on the safe side because their liens on
outstanding accounts are covered. In June 2008, Oerlikon had to pledge securities to the most
important banks by depositing a substantial number of shares of subsidiary companies. If the
parties do not come to an agreement, Oerlikon will not be able to pay back 600 million Swiss
francs, due at the end of March. If a refinancing is not successful, insolvency or even bankruptcy
is possible.



March 16, 2010

Hunstman Introduces ALBAFLOW® UNI-01

Singapore-based Huntsman Textile Effects — a manufacturer of chemicals and dyes for finished
textiles and materials, and a division of Huntsman Corp. — has launched ALBAFLOW® UNI-01, a dye
bath penetration agent suitable for dyeing of both natural and man-made fibers. According to
Huntsman, the penetration agent offers good wetting, defoaming and de-aerating performance. Because
it is silicone- and mineral oil-free, it won’t spot the fabric or leave residue on the machinery.

March 16, 2010

Artextyl Selects Gerber’s YuniquePLM™ Solution

Gerber Technology — a Tolland, Conn.-based supplier of integrated software and hardware automation
systems to the sewn products and flexible materials industry, and a business unit of South Windsor,
Conn.-based Gerber Scientific Inc. — reports that Artextyl — a France-based designer, importer
and distributor of casual and outdoor apparel — is implementing Gerber’s YuniquePLM™ product
lifecycle management solution.Artextyl expects the solution will help it decrease development and
sampling cycles, improve quality levels and increase collaboration among suppliers. According to
Gerber, Artextyl will benefit from YuniquePLM’s process-centric design, which will enable teams to
better manage their activities; collaborative quote-, material- and sample-management features for
controlling and managing costs; and the embedded Pantone® color library.

March 16, 2010

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