Effects of NAFTA on hosiery industry
Smith supported free trade well before NAFTA, and encouraged his industry to take his advice, which it did, focusing on internal improvements rather than protectionism. Throughout this lengthy excerpt, Smith evaluates this decision and the effects of NAFTA.
Citing this Excerpt
Oral History Interview with Robert Sidney Smith, January 25, 1999. Interview I-0081. Southern Oral History Program Collection (#4007) in the Southern Oral History Program Collection, Southern Historical Collection, Wilson Library, University of North Carolina at Chapel Hill.
Full Text of the Excerpt
JM: What was the Association's position on NAFTA?
SS: Let me go back to our Association's position on all our international trade. Back in 1972, the entire textile and apparel complex was totally protectionist. It was what I always termed knee-jerk protectionism. When I took over in '82 or '83 as the CEO, I remember for that whole ten year period in between, almost every board meeting was a discussion on our position on some international trade treaty or protectionism or whatever. We generally -- by majority vote, not unanimously --voted to hang with the textile and apparel complex and back their positions on being protectionist oriented. Keep them out at any cost. We began to see some market opportunities overseas through exports for our products. We began to see some of the inefficiencies that we were being subjected to from who we were buying from that, we've got great cotton here in the United States. We've got great cotton spinning, but I wonder what price we could get from Pakistan on our raw materials? I wonder what quality we could get? Are we doing ourselves a favor to keep ourselves limited and our friends in the textile industry certainly would like to keep us limited. We don't want to buy overseas. We want to buy domestic, but we also want to make sure we're getting--. Remember this economic environment we're operating in, we're going to have to source our goods where we can get them at the right quality, at the right price. We want that to be our friends and neighbors, but by golly they've got to do their part too. I remember very distinctly, literally the first board of directors meeting when I was the new CEO. I asked the board very bluntly, “Now I want y'all to tell me. I can go to Washington, D.C. and I can get quotas and tariffs, but under international trade law -- which I was totally boned up on by then having lived it for ten years -- they're going to be spotty. They're going to be very ineffective. All of them supposedly have time limits on them. Now if you want us to take all of our Association's activities and resources and efforts and vest it there, we can. Or, we can take that same time, effort, and resources, and we can focus it inside the four walls of our mills. We can try to get our house in order. Where do you want it to be?” Our board stood up and said, “We are shifting to a free trade status. We want the Association's activities and programming and efforts and resources [to be] about how can I manufacture better. What are the human resources factors? Start human resource programs for us. Do more economic studies for us. Focus there.” We made a public, we're all parting as friends kind of presentation to the textile and apparel complex and to retail and to Washington and to the general public. We said, “Listen, we are leaving. The little Hosiery Association is leaving the textile and apparel complex. We are not a member of it anymore. We will support them and work with them cooperatively when and where we can.” I had private conversations with the other associations explaining that, too. “We're friends, but we just have a more free-trade orientation. We're not trying to do you in. We're just going to be free-trade oriented. We have adopted that position.” Apparel moved pretty quickly right there after us. Like [they thought] “Hmm, maybe we ought to rethink this.” Now, the unions didn't go, but the manufacturers did -- the Haggars, the Farrah slacks, those kinds of companies. Many of them had done that anyway. Now there are rumblings and indications that basic textiles are moving that way too. [The textile companies are thinking] that, “The scenario has shifted. The world has changed. We've got to change. Knee-jerk protectionism is not the answer. We weren't winning anyway.” So, we and a lot of our companies during this period of time -- particularly some of these big pantyhose manufacturers -- were looking for ways to cut costs. They could either automate on one side or send the goods off shore to have them sewn. Under the tariff schedule, there's a proviso. It was called 807. It's now 9802. They changed the tariff number. Under that scenario it says that you could send fabric or pieces of garments offshore that were made in the United States from American components. You can cut them and sew them and bring them back into the United States. You only pay a duty on the value that was added while it was outside the country. So, for pantyhose manufacturers the economics worked. We could knit the hosiery blanks here, ship them to Puerto Rico, Haiti, El Salvador, various places, have them sewn, ship them back and pay the duty on the value, and it was still more economical than what we could do domestically using hand sewers. If it was a product or a particular program that you didn't want to buy equipment for, then that was a great way of doing it. So, we began to use that very much so.
JM: I didn't realize that pantyhose today came off the machine in two different cylinders and had to be sewn.
SS: That may be the next step. But, that 9802 proviso said that you can cut it and you can sew it, but if you do anything else to it -- if you die it or bleach it or package it -- you lose your right to claim 9802. You can't claim it. You have to pay full duty. So, the economics of it did not work for socks, because all you've got to do is close the toe. The economics were not there. Then, NAFTA came up. In our normal free stance on trade, we had backed the Canadian Free Trade Agreement. We were very competitive against Canadian hosiery manufacturers. We figured that [because] we're shipping a lot of goods to Canada, we can really take over that market. A lot of our companies under the Canadian Free Trade Agreement went in and bought up all those Canadian companies. Not all of them, but a large number of them. Hanes did. Kayser-Roth did. Others did. We kind of merged the Canadian market into the U.S. market and looked at it as if it were ours. There were still Canadian manufacturers up there, good ones. Don't take me wrong. But, we became a major factor there. But, the people kept asking us, “What are you going to do when the shoe's on the other foot and you're looking South to Mexico?” We said, “All right, we've backed Canada. We're going to stand and we’re going to Mexico.” We started looking at Mexico City. You know what? Twenty-five million people. That's like adding New York, Chicago, L.A. and San Francisco all together. They're all in one metropolitan area. No, they don't quite have the fashions that we have, but it is a metropolitan area. What a heck of a market. We may start trying to sell some goods down there. Another thing is, this market is going on down south. All throughout Central and South America, Brazil, Chile, Argentina, those economies are coming on. Remember, this is 1980, 1990 and we're saying, “The Mexicans that we know have good business relations. We need to partner with the Mexican industry. So we backed NAFTA. NAFTA had a change buried in it, that has to do with 9802, that you can cut and sew, but as it relates to Mexico, you can also dye and bleach and package and bring [the product] back in. Ultimately all that's going to be duty free anyway. So now, the economics work for socks. So, we're seeing the sock business go down there. This industry has always been an industry that has a very large intra-industry shipments. The old eighty/twenty rule. Produce eighty and buy on the outside twenty. Sometimes it's higher than that; sometimes it's lower than that. We've always had little gray mills out here that we would buy from. We now have more gray mills to choose from. Some of them speak Spanish. Some of them speak French. So, we have broadened the base, if you will. Those imports are coming into the United States dramatically, but it is either us using the 9802 offshore processing or is us shifting our sourcing. The sale is still being controlled by the U.S .hosiery manufacturer. We still control it. Imports from Asia are tapering down. If you back up and look at NAFTA on a big picture, why did the United States want NAFTA? [We wanted NAFTA] to merge our three economies together, to replace imports coming in from other parts of the world, [and] to provide economic development. If we're going to have capital investments, let's keep those capital investments in North America. Guess what? It's working. It is working. We have hosiery companies tell us that if NAFTA didn't pass and they would be able to get duty free shipments back and forth over time, they would be more likely to move to Mexico than they would be if NAFTA did pass. They would have a greater incentive and ability to stay where they are. So I don’t think--. This is an emotional area and an emotional issue, and there are companies that vehemently argued the other side, and there's not a unanimous opinion--.
JM: Did you lose members over the issue?
SS: Not to my specific knowledge that somebody called up and said, “Because of your stance we're quitting.” No, because we were doing a lot of other things too. It wasn't an either or. But, I do not believe any more companies have moved to Mexico than would've moved to Mexico if there had not been NAFTA. In fact, I'm led to believe by some statements that there are possibly less. There is some hardship being put on U.S. knitters if they're not competitive and if a person can provide the quality and provide the price from a Mexican source. But, you've got to be internationally competitive in what we see out there in the future anyway, because you're not going to have protection. The American consuming public is not going to face paying inflated prices just to protect a particular industry. I don’t care if it's automobiles, electronics, or shirts or clothes or computers. They're not going to pay extra at the cash register to keep some American industry in place. We feel that what we have put in place is a far more competitive American hosiery industry. That doesn't mean that they're all going to survive. It's very emotional. So, that's kind of been the international scenario. The flip side of that is the export side. It has been one of my biggest frustrations. When you've got companies that are sitting in the middle of the biggest, most lucrative consumer market in the world, you get fat and happy. They have really not looked up and looked around to the rest of the world to the degree that I would've liked to seen them do that. If this U.S. market is becoming saturated, maybe more of them are going to return to that or take a look at that. I hope so. In in my thirteen, fourteen or seventeen years at the helm, that's been one of my biggest frustrations -- getting people to move into the export side of it.