Segments of the U.S. textile industry are opposing efforts by The Coleman Company, Inc. to bring more manufacturing jobs from Asia to a company plant in Minnesota, where it has already repatriated about 250 jobs since 2009 by investing more than $2 million in automation.
At a February 24 hearing before the Foreign Trade Zones (FTZ) Board, representatives from South Carolina’s Milliken & Company and three U.S. textile trade associations opposed Coleman’s request to activate FTZ status at the Stearns plant in Sauk Rapids, MN, where personal flotation devices, or PFDs, are made. Coleman wants FTZ status so the plant can import fabrics at the same duty rates – 4.5 percent – as competitors pay on finished PFDs imported into the U.S. Without approval, Coleman would have to pay the standing 14.9 percent duty rate on imported polyester and nylon fabrics – even though it wants to use them to create up to 40 new manufacturing jobs at the plant.
Manufacturers refer to this as a “tariff inversion,” a quirk of the U.S. tariff code that Foreign Trade Zones have been remarkably effective addressing. That is, until recently.
An Unusual Delay
The FTZ Board is not expected to rule on the application until August, months after Coleman had hoped, because it agreed in December, 2015 to delay the hearing for two months at the request of Milliken, the National Council of Textile Organizations (NCTO) and two other textile trade groups. The postponement marked the first time in 20 years and hundreds of such applications that the FTZ Board delayed such a hearing, a government spokesman told Sports Executive Weekly. In fact, the hearing marked only the fourth time in the last 20 years that the board even needed to schedule a hearing, because such applications are rarely opposed.
The delay in the case is contributing to growing anxiety in U.S. manufacturing circles that FTZs are under attack.
“There is a growing perception in some industries that inconsistencies in the approval process in the face of opposition by competing interests is making pursuit of Foreign-Trade Zones Board approval too risky,” the National Association of FTZ wrote in a letter to U.S. Secretary of Commerce Jacob Lew last October. “This perception may result in corporate decisions to offshore production and jobs, undermining the very purpose of the Foreign-Trade Zones program.”
A Manufacturing Renaissance in Sauk Rapids
The Stearns plant in Sauk Rapids has been operating since 1952, but employment levels dropped steadily in the late 1990s and early 2000s as competitors and retailers began shifting to lower cost Asian imports. Stearns kept the plant open to supply industrial and U.S. military customers, who are required to source certain products from U.S. factories under the Berry Amendment. The plant also continued making PFDs, immersion suits and survival gear for fishing boats, oil rigs, fire rescue and other professional markets. By 2008, employment had declined to 60 workers.
“We had a big factory that was underutilized and could not fully absorb overhead costs,” explained Jeff Schmitt, SVP of global operations at Coleman, which took over the plant in 2008 when it acquired Stearns Manufacturing Company.
Coleman saw an opportunity to bring back some manufacturing work from Asia through automation, but while the Stearns team found U.S. sources for foam and other components, U.S. mills were not able to provide competitive quotes for certified fabrics that met required specifications. It was determined that even after importing those fabrics at full duty rates, the Stearns plant could manufacture Puddle Jumper PFDs sold by Walmart, Costco and other mass merchants for $12 to $35, so prices could compete with Asian made PFDs.
The company invested more than $2 million in the plant, which has since added about 250 jobs. Schmitt estimates three to four times as many jobs were eliminated in Asia. The plant still sources about 60 percent of its materials and components from the U.S., including 210-denier, Teflon coated fabrics used in some of its military and industrial grade products.
Addressing Inverted Tariffs
In 2014, Coleman determined that the plant could bring back more production and create 40 more jobs. To get the numbers to work, Coleman would need to address the tariff inversion issue, so it filed its application to expand production at the Stearns plant as part of FTZ 119. Nearly a dozen of the factory’s suppliers wrote letters urging the FTZ Board to approve the application, saying the project would help bring PFD manufacturing back to the U.S.
An executive with Pregis Corp., which supplies the Stearns plant with foam manufactured in Tupelo, MI, noted that relief from inverted tariffs was crucial to “leveling the playing field between Coleman and the foreign suppliers.”
However, Milliken and the textile groups opposed the application, arguing it would harm the U.S. textile sector.
Schmitt said Coleman sought quotes from U.S. mills on the nylon and polyester fabrics it requires for the project, but all came back with prices that were 3.5 to 4 times higher than Asian competitors. After months of back and forth discussions with Milliken last year, Milliken could not provide competitively priced certified nylon that met specifications set by the U.S. Coast Guard.
“We worked with them more than any supplier in Asia and were still not able to get a competitive quote for a certified material,” said Schmitt.
Despite multiple emails and phone calls since late December, Sports Executive Weekly has been unable to reach Milliken or NCTO officials for further comment.
Looking for Net Economic Benefit
The FTZ Board – comprised of officials from the U.S. Departments of Commerce and Treasury – must now determine whether Coleman’s plans for Sauk Falls will have a net economic benefit on the national economy.
From James F. Henderson Jr.’s point of view, that’s a no brainer. His company, Henderson Sewing Machine Co. Inc. of Andalusia, AL has provided hundreds of thousands of dollars in sewing machines and automation gear to the Sauk Falls factory in recent years.
“We are trying to help them streamline their production process and compete on a more equal footing,” Henderson told Sports Executive Weekly in February. “They are competing with people importing goods from companies that don’t have the same EPA and other standards.”
Henderson employs about 30 people, or half of what it did in 1998, when many U.S. apparel and footwear brands accelerated offshore sourcing. He is excited to see Under Armour, New Balance and other footwear companies harnessing 3D printing and flexible automation to develop closer-to-market manufacturing models, but also notes that a collapse in oil prices and global trade have reduced container shipping rates to their lowest level in years. While Henderson laments the loss of hundreds of thousands of U.S. apparel jobs, he sees tariff inversions as one of the bigger obstacles to repatriating some of those positions.
“There is tremendous push to manufacture near market today,” he said. “We are in an age of disruptive technology. But when you yoke companies so that they can’t compete equally, you make them uncompetitive.”
