Globe and Mail, Toronto
U.S. sock makers wage war on Gildan imports
By Bertrand Marotte
May 5, 2008
MONTREAL — Just two years after launching an ambitious plan to become a major player in the North American hosiery business, Gildan Activewear Inc. finds itself caught up in an international trade dispute over the flood of socks into the U.S. from Honduras.
In a politically charged anti-free-trade crusade, independent U.S. sock makers contend that Montreal-based Gildan is not abiding by the rules of fair trade in shipping most of its cotton socks into the U.S. duty-free from low-cost Honduras.
Gildan has been singled out as the poster boy - the bad boy of socks - by the domestic industry, which says the casual apparel giant from the North is slowly killing them off.
They have hired a former head of the State Department’s textile trade division to press their case in Washington.
For its part, Gildan has its own lobbyist and is countering that its actions have not caused any significant damage to the domestic U.S. sock industry and that the real threat is from much larger exporters like China and Pakistan.
Located in places such as Fort Payne, Ala. - the self-proclaimed Sock Capital of the World - many of Gildan’s trade foes are small, family-owned businesses clustered in the South.
Clinging to survival against cheap imports from low-cost countries, they point out that the sock category is the last area in which domestic U.S. apparel producers continue to hang on to a decent share of the market.
Dennis Martin, the owner of N.C. Sock Co. of Hickory, N.C., doesn’t miss a beat when the name Gildan is mentioned in a phone conversation.
"Dirty word," he says over the line.
He doesn’t like the fact that Gildan bought Kentucky Derby Hosiery of Mount Airy, N.C. - actor Andy Griffith’s hometown - in 2006 and shut its manufacturing facilities one year later, moving production to Honduras.
"We are not anti-trade," Mr. Martin says. "We are just anti-unfair-trade."
N.C. Sock - a niche marketer turning out small batches in special orders - has seen its business unravel over the past 15 years with each new opening of the U.S. market to foreign competition under trade agreements, he said.
The company had about 80 employees 10 years ago but that’s down to about 15 today, he said.
Gildan manufactures most of its socks at a state-of-the-art facility in Honduras and then ships them duty-free into the United States under terms of the three-year-old Central American Free Trade Agreement (CAFTA).
But beleaguered domestic sock makers who say they can’t compete with low-cost producers from offshore have been lobbying fiercely against CAFTA.
In the process, they have made a point of singling out giant Gildan as the villain of the piece.
U.S. sock production has fallen by about 20 per cent and about 30 sock mills have closed since CAFTA came into effect, resulting in the loss of some 6,200 jobs, according to the domestic lobby.
To bolster their argument that Gildan is competing unfairly, they point to the fact that the company pays low corporate taxes because - as a Canadian company incorporated in Barbados - it can take advantage of a tax-holiday treaty Canada has with the Caribbean island.
"Their competitive advantage seems to lie mainly in their tax shelter in Barbados," said James Schollaert, the executive director of industry group Made in USA Strategies LLC and the former chief of the State Department’s textile trade division.
Laurence Sellyn, Gildan’s executive vice-president and chief financial officer, declines to address the specific accusations made against his company, but says it’s above reproach.
"We’re recognized for good governance and good social responsibility and have a reputation as a successful company that competes openly and fairly," he said.
In a submission to the U.S. Department of Commerce’s Committee for the Implementation of Textile Agreements last September, he argued there is no connection between the "relatively small imports from Honduras and the apparent decline in U.S. domestic production."
The erosion of U.S. sock making goes back to before CAFTA and is due to much higher levels of imports from Asia, he said.
He contends that producing socks in places like Honduras ends up benefiting the U.S. because the latter country remains an integral part of the supply chain in such areas as yarn-spinning and raw cotton production.
"As much as 60 per cent of the value of socks knit in the CAFTA-Dominican Republic region is derived from various U.S. inputs, particularly spun yarns composed of U.S. cotton and polyester staple fibres," Mr. Sellyn said in his written submission.
In an effort to address the domestic sock manufacturers’ concerns, the Bush administration recently announced so-called "safeguard" measures that will impose a six-month tariff of 5 per cent on cotton socks imported from Honduras beginning July 1.
But the sock lobby says that falls far short of what they were asking for: reinstatement of full tariffs of 13.5 per cent on all socks imported from Honduras over a three-year period, similar to protection that was in place before CAFTA.
Mr. Sellyn views the U.S. safeguard as a "fair compromise" between the Bush administration’s commitment to CAFTA and the domestic sock manufacturers, whose cause has been led by Republican Representative Robert Aderhold of Alabama.