A presentation by A. Mark Neuman Global Trade Advisor MGF Sourcing

Transcription

1 AGOA Apparel Benefits: Looking More Attractive than Ever to U.S. Fashion Retail Brands AGOA has many challenges, but the region looks more attractive when one carefully evaluates the alternatives A presentation by A. Mark Neuman Global Trade Advisor MGF Sourcing The views contained in this presentation are the personal observations and opinions of Mark Neuman. They do not necessarily represent the views of MGF Sourcing or its affiliates.

2 When it comes to third country fabric AGOA is the only game in town Aside from small countries such as Haiti and Jordan, AGOA is the only trade program with large scale capacity that allows third country fabric. 3 rd Country Fabric in TPP duty free status for Bangladesh and Cambodia all pipe dreams Nicaragua continuing its TPL? Nicaragua s Tariff Preference Level (TPL) under CAFTA-DR expired December 31, Senate Finance Committee REJECTED legislation to renew the TPL. Vietnam using 3 rd - country fabric in TPP? The Trans Pacific Partnership will be YARN FORWARD. During a speech for NCTO, USTR Froman said that USTR is developing a short supply list, implying that ROO will be yarn forward. Bangladesh getting duty free benefits? If the U.S. is suspending Bangladesh's GSP status (which does not even cover apparel), how will duty-free apparel for Bangladesh be possible? This is a pipe dream. Cambodia getting duty free benefits? With Cambodia s current human rights record, this is also a pipe dream.

3 As the apparel fashion trend toward athleisure grows, AGOA s the value proposition increases because duty rates on MMF are much higher Most athleisure today is made from man-made fiber and not cotton MMF attracts higher duties than cotton Women s or girls blouses and shirts, knitted or crocheted Women's or girls' slips, petticoats, briefs, panties, nightdresses, pajamas, negligees, bathrobes, dressing gowns and similar articles, knitted or crocheted made from MMF or COTTON of MMF (HTS ) 32% of cotton (HTS ) 19.7% of MMF (HTS ) 14.9% of cotton (HTS ) 6.6% MFN Tariff entering the United States AGOA will allow athleisure made from AGOA countries enter into the U.S. market duty free, avoiding high MMF duties.

4 An immediate win: AGOA countries offer customers higher duty savings Example: 100% polyester shirt Garment cost: $5.24 Fabric $1.63 Trim & Packaging $ % Duty $1.27 Embellishment $0.75 If the shirt is made from an AGOA country, the same garment will cost $3.97 that s 24% CHEAPER AGOA country-made athleisure enters into the U.S. market duty free, SAVING $1.27 Freight $0.30 Cut, Make & Trim $0.35 Sewing and freight cost is 50% cheaper in Bangladesh, but that only saves the garment $0.32 cents in overall cost

5 100,000 USD AGOA Benefits MATTER. Case Study: Madagascar Madagascar apparel exports (USD) $323 Million $211 Million In 2009, Madagascar was nearly a quarter (23%) of ALL AGOA apparel exports. $252 Million Exports to the United States COLLAPSED, wiping out a quarter of AGOA apparel exports, while shipments to EU continued to grow steadily U.S. revokes Madagascar s AGOA benefits $18.7 Million Source: U.S. Department of Commerce, Office of Textiles and Apparel; European Commission Market Access Database

6 Madagascar Cottonline: how it started with AGOA then took off on its own Brandot Ltd. founder Martin Trust, the visionary behind the first and only U.S. investor in a vertically-integrated textile and apparel manufacturing operation for U.S. brands in the Sub- Saharan region, helped Cottonline succeed by taking advantage of AGOA benefits. Cottonline s success allowed it to remain strong even when AGOA benefits were revoked during Cottonline has shipped close to $400 million of products over its lifetime. Men s shirt for Zara s Europe stores 100% made in Africa

7 Cottonline was the first and only vertically-integrated textile and apparel manufacturer for U.S. brands in the Sub-Saharan region with a major U.S. investing partner

8 Cottonline: How did they do it? How did they do it? Technical and training staff from Mauritius (French language capability) and from Sri Lanka Global team of investors from U.S., Sri Lanka, Madagascar/Mauritius Strong customer focus with European merchant/design capability to ensure ability to respond to changes in customer needs Indian marketing manager Canadian- Zimbabwe investor Mauritian GM Mauritian board member American HR director French managing factory director Unbelievable patience and willingness to persevere in difficult circumstances (surviving coups, investor pull-outs, customer cancellations, cyclones, and termination of AGOA benefits) Sri Lankan factory manager

9 Cottonline: Management migration UK and German Managers South Africa Indian and Chinese Migrants Mauritius UK and German Managers Sri Lanka Mauritius Managers Madagascar

10 AGOA s challenges seem manageable when considering alternative sourcing options. Just look at Bangladesh. Suspension of GSP benefits Criticism from US Government Lawsuits against retailers sourcing from Bangladesh Largest importer of Uzbekistan s slave labor cotton On June 27, 2013, the White House suspends Bangladesh s GSP benefits over worker rights issues In January 2015, a USTR-led interagency review concluded that further progress is needed [ ] to address serious worker rights issues Retailer Defendants breached their duty to workers in the Rana Plaza building by failing to implement standards and oversight mechanisms designed to ensure the health and safety of workers who manufactured clothing for their stores. On April 23, 2015, Wal-Mart, JCPenney, and the Children s Place were hit with a class action suit filed on behalf of victims of Rana Plaza. Bangladesh is Uzbekistan s largest raw cotton importer and Uzbekistan is Bangladesh s main supplier. Uzbekistan at the lowest level (Tier 3) in the U.S. government's 2014 Trafficking in Persons report.

11 Is Cambodia a stable reputation proposition? Cambodia ranks even lower than DRC on Transparency International s 2014 Corruption Perceptions Index I not only weaken the opposition, I'm going to make them dead... and if anyone is strong enough to try to hold a demonstration, I will beat all those dogs and put them in a cage. Cambodian Prime Minister Hun Sen s response to the 2011 Arab Spring

12 And then Burma. While companies are rushing to explore a supposedly liberalizing Burma, consider this Burma received the same low ranking as Cambodia on Transparency International s 2014 Corruption Perceptions Index. The government of Burma refuses to give citizenship to the 1.3 million Rohingya people, leaving them stateless. Ethnic and religious violence against Rohingya Muslims in Burma s Rakhine state is rampant, and the government does little to stop the violence. More than 200 people have been killed since 2012 and more than 140,000 have been displaced. Aid agency staff have been threatened for assisting Rohingyas who live on displaced camps. Rohingyas are prohibited by the government to move to other regions or support themselves by fishing and other activities. In 2015 alone, 25,000 Rohingyas have boarded boats to flee persecution in Burma. Many fall victim to traffickers and extortionists, and those that survive the journey are denied refugee status by neighboring countries, leaving them in a limbo.

13 Pakistan is unsafe for Western customers. Dangerous for women Unsafe for Americans Worst forms of Child labor According to a 2011 Thompson Reuters Foundation poll, Pakistan was the third worst country for woman (after Afghanistan and Congo) due to practices harmful to women. More than 1,000 women and girls are victims of "honor killings" every year, according to Pakistan's Human Rights Commission. The State Department has a travel alert on Pakistan. Across the country, terrorist attacks frequently occur against civilian, government, and foreign targets. Pakistan remains on the Department of Labor s 2013 Findings on the Worst Forms of Child Labor. Children in Pakistan are engaged in child labor and bonded labor.

14 AGOA countries have a better story to tell on living wage compared to China, Jordan, Bahrain and others Many apparel producing countries have garment factories concentrated in cities. The workers are mostly migrants who cannot afford to live in the city. In order to work in the garment factories, these workers live in dorms and away from their family. Africa has a different story: Madagascar and Lesotho have factories outside the giant cities. Workers are able to live well on salaries and live at home with families instead of in dormitories. This is a reputational ADVANTAGE for AGOA countries such as Madagascar and Lesotho

15 US Dollars Real opportunity: AGOA should fully leveraging its raw materials When AGOA relies on non-agoa (third-party) fabric, it only adds 18% of the value! 5 4 Duty $0.25 Cost Component of a $4 Short-Sleeve $0.75 Cotton T-Shirt Shipping $0.30 To trim, thread & package To sew garment $ $0.90 To dye and finish fabric (medium color) 2 To knit fabric $ THIS IS THE OPPORTUNITY: Cotton yarn is the single largest price component of a cotton t-shirt $ s combed ring-spun cotton yarn (1 lb in an average cotton t-shirt) 1

16 Our vision: Capturing value from ground to garment NIGERIA Extract petroleum Refine petroleum, produce polyester chips Extrude fibers Texturize fibers LESOTHO SOUTH AFRICA Knit fabric Dye and finish fabric Assemble finished garments

17 Our vision: Establishing Inter-African Linkages Togo South Africa Uganda Madagascar FIBER PRODUCERS SPINNERS WEAVERS/ KNITTERS GARMENTS Cotton: Mali Uganda Nigeria Malawi Burkina Faso Tanzania Rwanda Mozambique Benin Zambia Uganda Senegal Chad Namibia Namibia Ghana Man-made fibers Nigeria Kenya Nigeria

18 Takeaways for AGOA apparel The fashion trend towards athleisure will make AGOA countries an attractive place that will offer customers higher duty savings AGOA countries should fully leverage its raw materials that is where the REAL FUTURE OPPORTUNITIES lie AGOA countries have the potential to capture value from ground to garment through regional integration AGOA countries can continue to offer a better reputation proposition for customers compared to competitive countries

19 Thank You A. Mark Neuman Global Trade Advisor for MGF Sourcing The views contained in this presentation are the personal observations and opinions of Mark Neuman. They do not necessarily represent the views of MGF Sourcing or its affiliates.

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