End of textile quotas to further hurt industry; mills appeal for more time

Coming into and going out of Cheraw, S.C., billboards ask the question, “Lost your Job to Free Trade & Offshoring Yet?” Vote.

The signs call attention to what has happened in the last several years to the textile industry. More than 300 mills in the Southeast have closed their doors, victims to free trade and China.

The remaining 1,300 U.S. textile mills fear a like demise once quotas are removed on 65 categories of textile and apparel on Jan. 1, 2005.

In a sense, that's D-Day for the U.S. textile industry. It could take a couple of years before the full ramifications take effect, but estimates of U.S. job losses in the sector are as high as 650,000. It's also expected to devastate the economies of developing countries as well. The magazine Business Week estimates that 30 million jobs worldwide could be lost after quotas are eliminated.

For Malloy Evans, president of Cheraw Yarn Mills, it's a pretty straight-forward scenario. When the World Trade Organization (WTO) lifted quotas on 29 categories of manufactured goods in 2002, China's share of the U.S. market in those products went from 9 percent to 65 percent. “If the past 27 month's history is any guide, you can see the devastation we're facing.”

Prices from China dropped by an average of 48 percent after those quotas were removed.

In its report, the U.S.-China Economic and Security Review Commission earlier this summer recommended that Congress press the Bush administration to work to extend the Multi Fiber Agreement until 2008 to give industries additional time to adjust to the surges in imports from China.

The report follows many of the same recommendations mentioned in the Istanbul Declaration, which called for an emergency WTO meeting on the impact of the quota phase-out and strong use of China safeguard provisions.

In an ironic twist, many of the same developing countries who once clamored for repeal of the quotas have now signed the Istanbul Declaration. When their voices were loudest in support of repeal of the quotas, the developing countries did not anticipate Chinese dominance and China was not yet a member of the WTO.

U.S. textile firms were quicker on the draw to recognize what was happening, and lobbied for the so-called China safeguards in 2000. The law gives the U.S. government an option to intervene with quota limitations if textile products from China caused disruption to the U.S. textile industry. “They just haven't, for whatever reason, initiated the safeguard provisions that were in place,” Evans says.

Loopholes exist

Evans also fears that China, India and Vietnam could exploit loopholes in the proposed Central American Trade Agreement to ship textiles and apparel into the United States. He also lumps discounters such as Wal-Mart as part of the problem that has decimated the U.S. textile industry.

Textile groups have already made these points to the administration. “Nobody seems to be listening,” Evans says.

Cheraw Yarn Mills has led a letter-writing and voter-registration effort of its 185 employees and in educating the local community to point out “the China threat.”

Employees have written individual letters to President George W. Bush in the past year. The effort is now aimed at political advisor Karl Rove.

“The power that we have is between now and election day and everybody recognizes that,” Evans says. “A lot of negative things will happen to the textile industry if the Bush Administration doesn't address this issue.”

Fred Craft, director of employee services at Cheraw Mills points out that it's not just a textile issue. “It's manufacturing in general.”

China is able to under-price competitors by suppressing the value of its currency, creating a 40-percent advantage. Export subsidies, access to free capital, and direct state subsidies to the textile industry also give it unfair advantages.

Artificial advantage

“The reason it's offensive to us is that the advantage China has is an artificial one,” says Evans Tindal, Cheraw's director of operations. “It's not that they are under the same rule and the same system and are just more efficient than everyone else. It would not be so bad just losing out to somebody who's better than you. But losing jobs to artificial advantages, that's tough.”

Amid the China threat, Cheraw Yarn Mills is surviving, however. There are reasons.

Members of the Cheraw community in 1917 took out what would today be the equivalent of home equity loans to start the mill.

Edwin Malloy was a cotton merchant who sold to the mill. When funds were low in the Great Depression, the mill began paying him in shares. He eventually became the majority stockholder.

After a number of challenging years, Malloy guided the company back to financial stability. He then established a no-debt policy which holds to this day.

His son, Manning, ran the firm for 55 years. Evans became president in 1995. Bill Malloy, a grandson, is vice president.

Evans points out that Cheraw's no-debt policy is unusual in the industry. In the past couple of years, he's been pointing out the company's policy to politicians in Washington.

“We wanted to let people know that one company doesn't have the debt burdens that many companies have…and we're still struggling,” Evans says.

Has stayed modern

Staying modern is another reason the relatively small Cheraw Mills is still in business. When times were good, there was the temptation to expand. Again, the mantra of not borrowing money kept the company small and flexible.

Walking through the four mini-mills that occupy the manufacturing complex, Evans Tindal points to a spinning machine. “That's one of four or five in the country, the latest in technology.”

Since 1990, the employees at Cheraw have been “empowered” to make decisions on the floor.

“We have every advantage I can think of and our backs are against the wall,” Evans says.

The president of Cheraw Yarn Mills keeps coming back to the estimated 650,000 U.S. textile jobs that could be lost after Jan. 1, as well as the estimated 30 million jobs worldwide. “The issue is going to become, ‘What happens when many of the countries already in poverty are hurt by this?’” Evans says. “We've heard comments that it's going to breed unrest and insurrection and make it easier for terrorism to move into these countries.”

As for the town of Cheraw, S.C., population 6,000, they've already lost 1,000 jobs since 1996. On average, they've lost 125 jobs annually since 1996. It has had an impact of $45 million annually in lost wages alone.

“We're doing everything we know to do to be competitive,” says Tindal. “Given our best efforts, our very survival is still in doubt due to these issues beyond our control.”

“Our destiny is in Washington,” Evans says. “Under the scenarios that are likely to happen once these quotas are lifted, we don't have a mathematical chance.”

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