Trade Compliance

GHY discusses changes to international trade regulations and explores cutting-edge compliance strategies.

Manufacturing and the Metamorphoses of Trade (Part II)

Posted May 09, 2015

From modest beginnings as a woolen fabric jobbing firm founded in Portland, Maine shortly following the Civil war, Milliken & Co., continually grew and prospered over the next hundred years, its steadily rising number of woolen, cotton and synthetic fabric mills eventually making the company one of the biggest textile manufacturers in America.

During the first half of the 20th century, Milliken had seen its business boom and profits soar tremendously from the textile industry’s wartime efforts in both the First and Second World Wars, supplying a wide range of products essential to the U.S. military. In the post-war years, the founder’s grandson Roger Milliken, a man widely regarded as “one of the most forceful personalities in the history of U.S. industry,” began a process of modernizing and consolidating the company’s diverse holdings and by 1960 he had combined operations into a single corporation headquartered in Spartanburg, North Carolina.

For a number of years in the decade leading up to that point though, Milliken and other U.S. textile makers had increasingly begun to find themselves threatened by mounting competition from overseas. Not coincidentally, this period coincided with implementation of the first three rounds of the General Agreement on Tariffs and Trade (GATT), a multilateral international trade agreement whose purpose was the “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis.” Under terms of the trade liberalizing agreement, participating countries cut their tariff levels by 25% across the board, granting them “most favoured nation” (MFN) treatment, along with other advantages such as relatively high import quotas.   

During the 1950s, U.S. textile imports had surged rapidly, accounting by 1959 for more than one-third of the American market in several important product categories. As a consequence, not wholly but certainly due in part to completion from lower cost foreign producers, over the course of the decade, close to 700 mills across America shut down and almost half a million textile workers were forced out of jobs, according to the Department of Commerce. The president of the National Textile Association at the time lamented that “one of the country’s principal industries is drifting and loitering on a down grade” and a contemporary report by the Textile Workers Union of America (TWUA) described the troubled industry as being “deeply and chronically depressed.”

The rising tide of imports prompted inflammatory statements against foreign exporters and the occasional congressional legislation imposing quotas or other restrictions to limit imports, but with the cautionary tale of protectionism’s role as a contributing factor to the Great Depression still fresh within living memory and the government firmly committed to GATT, there was little chance such unilateral measures would gain approval. To the contrary, successive administrations viewed trade as an important instrument of foreign policy and sought to increase commerce with America’s trading partners by promoting the interests of farm groups and other export-oriented sectors, sacrificing textiles it was contended by the industry in exchange for greater market access for those goods. “It is no exaggeration,” Senator Herman Talmadge said in 1959, “to conclude that it is the actual, if not officially-expressed policy of the Government of the United States that the American textile industry is expendable and should be forced to help finance its own liquidation.”

Even so, the industry’s size gave it considerable lobbying power and beginning in the mid-50s, it launched a vigorous campaign to protect itself against increasing imports. Though repeated petitions by the American Textile Manufacturers Institute (ATMI) calling for broader import quotas under the Agricultural Adjustment Act or under the national security provisions of the Trade Agreements Act had all been effectively thwarted by the Eisenhower administration, an opportunity presented itself when the Trade Expansion Act became an important part of the new Kennedy administration’s economic agenda. Among other things, the legislation was aimed at strengthening the trade relationship between the U.S. and the burgeoning European Common Market, an early predecessor to the European Union.  

Needing support from the powerful southern delegation in Congress to pass his trade expansion bill, Kennedy pledged to make the textile import problem a priority of his administration, bartering the promise of protections for textile and apparel industry (by far the largest providers of manufacturing jobs in the south) in exchange for the delegation’s backing of the bill. One of the measures in the seven-point program he proposed to help the industry was to convene a conference of textile importing and exporting countries to develop a new international agreement governing textile trade. Negotiations arising out of this meeting eventually resulted in the Long Term Arrangement on Cotton Textiles (LTA), a multilateral deal signed in 1962 operating outside the GATT regulations, which provided for protection from imports deemed to be causing (or threatening to cause) “market disruption.” That same year, acting under authority of the Agriculture Act, Kennedy also embargoed eight categories of cotton textile imports from Japan.

The protection measures appear to have had the desired staunching effect in terms of temporarily halting the industry’s decline by limiting its exposure to foreign competition. Between 1960 and 1970, textile industry employment rose from 924,000 to slightly more than 1 million and in the apparel industry from 1.2 million to a peak of 1.4 million. By the end of the decade, imports as a share of the market was just 4.6% in textiles and 5.2% in apparel. Seeking to win support in the south during the 1968 presidential election campaign and keenly aware of the textile industry’s political influence, Richard Nixon vowed to negotiate an international agreement similar to the LTA that would also include wool and man-made fiber products, a rapidly expanding segment of the market since the advent of new technology in synthetic fibers. 

Following the election, with a combination of threats and cajoling, the Nixon administration pressured a number of LTA participating countries to expand the scope of goods covered. Several bilateral agreements to this effect were concluded, thereby allowing the U.S. to take unilateral action under LTA Section 204 authority against other exporters. The new agreement, called the Multi-Fibre Arrangement (MFA), replaced the LTA and extended protection to include both wool and synthetics. The new arrangement stated that it sought “to promote the expansion and progressive liberalization of trade in textile products while at the same time avoiding disruptive effects in individual markets and lines of production.” Under the MFA, countries were allowed to restrict imports that caused or threatened market disruption. The import country was left to determine when “disruption” existed or might possibly be imminent.

U.S. textile import restraints under the MFA were administered by the Committee for Implementation of the Textile Agreements (CITA). Acting in response to complaints from the industry, the CITA, usually in conjunction with the Department of Commerce, would issue a statement based on the claim, thereafter following a comment period, by a determination or “call” in those cases where it eventually concluded market disruption was occurring, together with a preliminary quota that would be imposed on the goods in question. According to the terms of the MFA, a complex negotiating process would then be entered into with the exporting country in order to arrive at a final quota level. Industry groups such as the ATMI grumbled bitterly about there being only a “loose relation” between the initial and final quota level, which for an assortment of reasons, was often double CITA’s preliminary figure. The result had the effect of significantly undermining the essential purpose of the quota, as demonstrated by quota utilization rates being, on average, well below 100%.

Moreover, the ATMI claimed that protection was porous, citing evidence showing that less than one-third of imports alleged to be causing market disruption were actually being “called” by CITA. But even taking the system’s alleged shortcomings into consideration, the quota restraint system did provide substantial protection, the equivalent of a 28% tariff on textiles and a 53% tariff on apparel, according to the William R. Cline, Institute for International Economics. In spite of this however, textile imports still continued to capture an increasing share of the U.S. market, reaching almost 60% of the apparel market in 1987, according to the Fiber, Fabric and Apparel Coalition for Trade (FFACT), a joint industry-union group. In 1974, the first year of the MFA, the U.S. imported 4.4 billion square yards equivalent of cotton, wool, and man-made fiber textiles and apparel. Seven years later, that figure had increased to 5.8 billion, with imports in 1981 increasing by 18% over the preceding year.

Though it was subsequently renegotiated and ratified several times, both the textile industry and organized labour felt the haphazard enforcement of the MFA as it had been administered was inadequate. The research director for one garment workers’ union denounced the MFA as “a vehicle to destroy the industry in the United States.” Testifying before Congress, ATMI president James H. Martin, Jr., accused the government of having “caved in to pressure from foreign exporters,” and was he snarled, “apparently willing to continue sacrificing American jobs on the altar of free trade.”

Claiming that cheap imports were causing widespread unemployment, a loss of 440,000 jobs during the 1980s according to FFACT (a figure almost double that estimated by the Bureau of Labor Statistics), leading textile makers such as Milliken, Burlington and Cannon Mills renewed their demands for tighter restrictions. In lobbying Congress, FFACT stressed the industry’s size, its vital importance to national defense efforts and its role in employing large numbers of unskilled workers that would otherwise be displaced if it went out of business, a contention many scholars contend to be lacking in factual or theoretical basis.  

Nonetheless, using its clout as a $50 billion industry employing roughly 2 million workers and supporting that number again in various allied industries it claimed, the textile lobby pushed relentlessly for tougher protectionist trade legislation. From 1985 through 1990, five bills that sought to impose absolute limits on textile imports were put forward by the industry-union coalition. Each bill passed easily in Congress with strong bipartisan support (though predominantly from the more protectionist inclined Democrats), but all were subsequently vetoed by presidents Ronald Reagan and George H.W. Bush.

As Timothy Minchin writes in his book Empty Mills: The Fight Against Imports and the Decline of the U.S. Textile Industry, “These efforts ultimately failed because absolute limits on textile imports contravened America’s long standing economic policy of lowering global trade barriers. They aroused determined opposition from retailers, exporters and the Reagan and Bush administrations. As the industry declined, these forces gradually gained the upper hand and they consistently pushed polices that were detrimental to the textile and apparel industry.”

In the third part of this post, we will look briefly at the phase-out of the MFA that began in 1995 and ended a decade ago and also examine some of the other factors besides imports that contributed to the economic troubles experienced by the textile and apparel industry in the last quarter-century.