From The Editor: KORUS: Singing A Sad Song

By Jim Borneman, Editor In Chief

There are some interesting themes running through textile industry meetings this spring. There is a sense of opportunity, and a sense that demand for domestic textiles of many varieties may be on the rise. Higher costs and prices are generally understood — not appreciated, but accepted, given the high price of oil and cotton. Manufacturing in general is showing positive signs of increasingactivity.

On the apparel side, U.S. and Western Hemisphere supply chain members are being re-evaluated as a source of supply for U.S. brands and retailers. Rising prices and quality and delivery issues with Chinese imports could be changing importers’ minds. These problems increase risk — risk of stockouts while facing an already fickle consumer, which could reduce same-store sales.

On the other hand, some supply chain members can’t help but feel they have been abused — abused by the importers, abused by trade agreements, and abused by a government that feels no remorse in giving away their industry. And abandoned — left behind in favor of cheap imports, priced in a manipulated currency and subsidized by a government focused on neo-mercantilist policies that accumulate U.S. debt instead of gold as in days gone by.

Unfortunately, the abuse might not be over. Just when you thought it was safe to get back in the water, along comes a resurgence of KORUS — the Korea-United States Free Trade Agreement. Originally signed back in 2007, the agreement lay dormant for years, but it has been revived and, with a few non-textile concessions, it is on the agenda once again.

KORUS appears flawed for several reasons — see Bill Jasper’s Executive Forum in this issue. The concerns are many, but it boils down to complete lack of enforcability, fewer tools for enforcement and a tariff schedule that vanishes rather quickly.

In the past, a country that has a high probability of becoming a place for transshipping goods — for example, passing goods off to the United States as “Made in South Korea”  that really are made someplace else but can benefit illegally from Korea’s agreement — have faced stiffer enforcement policies often referred to as Singapore-style rules. That is not the case with
KORUS, and Korea might just become a transshipping mecca — the Khyber Pass for goods made in North Korea and elsewhere.

There are some fairly high tariffs in place on imports from Korea. Historically, even in hurtful agreements, tariff phaseouts have been done over fairly long periods of time to give domestic suppliers a chance to modify their businesses. This is not the case with KORUS, and some may be hurt quickly and deeply.

Will the government stick it to the textile industry again? And after KORUS, will it pursue the Trans-Pacific Partnership (TPP) with eight countries — including Vietnam, with its government-owned textile powerhouse? It just gets more and more ominous.

This is a bright moment in the industry. Opportunity is in the air, with many sectors improving. Companies are expanding and investing. And there seem to be fewer plant closures. This is not the time for a trade agreement kick in the teeth.

May/June 2011