Textile Interests Question Section 301's Suitability in USTR's Nicaragua Investigation

The American Apparel and Footwear Association's submission said that, partly in response to the administration's effort to increase private apparel industry investment in Central America (in an effort to reduce migration), "trade flows between the U.S. and Nicaragua have remained strong over the past few years. This fact alone suggests that the actions that are the subject of this Section 301 investigation, although deeply troubling, may not be actionable as they do not burden or otherwise restrict U.S. commerce. The United States often calls on our trading partners to adhere to the rules and spirit of international agreements. In that same vein, USTR should utilize the mechanisms within [the Dominican Republic-Central America Free Trade Agreement] CAFTA-DR to address labor violations."

Commenters noted that Nicaragua is the ninth-largest supplier of apparel to the U.S., with $2 billion worth of apparel, second only to Honduras in the Western Hemisphere. It accounts for 24% of CAFTA-DR apparel imports. The country was also the ninth-largest U.S. export market in textiles.

While most of the U.S. groups that commented are in apparel, USA Rice also told the Office of the U.S. Trade Representative not to curtail CAFTA benefits for Nicaragua, because: "U.S. rice farmers have come to depend on the Nicaraguan market."

The National Council of Textile Organizations said that Nicaragua also is integrated in Central American apparel trade, with $1.1 billion in trade among those countries.

AAFA urged USTR not to impose import bans or increased tariffs on textiles and apparel.

U.S. Fashion Industry Association President Julia Hughes urged USTR "to consider whether other statutory authorities would be more appropriate and effective at promoting change for the people of Nicaragua."

She said: "Since Congress enacted Section 301 more than 50 years ago, Section 301 has never been employed in an attempt [to] address a general degradation of the rule of law in a trading partner, including violations of human rights and labor rights. This may be because a despot undertakes his or her deplorable activities because they would like to rule as a despot -- not because they are attempting 'to burden or restrict U.S. commerce' as required by Section 301."

Several individual apparel companies with interests in Nicaragua also commented, including Apex Mills, Gildan Activewear and Milliken.

Gildan, which employs almost 3,000 people in the U.S. and uses $500 million worth of U.S.-grown cotton in its U.S. yarn mills, said that it has had Nicaraguan operations for more than 20 years.

"Nicaragua is the primary sewing location within Gildan’s regional supply chain within the CAFTA-DR free trade agreement. U.S. cotton is first processed into yarns in our seven North Carolina yarn spinning facilities. Those yarns are then shipped to Honduras and the Dominican Republic to be knit into fabrics. We operate large, state-of-the-art manufacturing facilities in Honduras -- from there, a significant portion of fabrics are exported to Nicaragua for final assembly (sewing) and the overwhelming majority are then imported into the U.S. as finished goods, duty-free under CAFTA-DR," wrote Marc Doyon, vice president of commodities at Gildan.

"We do not believe the capacity exists in other CAFTA-DR countries to absorb the repositioning of apparel production presently in Nicaragua," he wrote. Even if Haiti's trade preferences are renewed, "it would be difficult to find enough regional production to support U.S. textile jobs depending on regional sewing."

If there are sanctions on Nicaraguan apparel imports, those orders would migrate to low-cost Asian suppliers, he argued.

The Coalition for Apparel Supply Chain Resiliency in Central America, which represents 18 companies with investment and/or manufacturing of textile and apparel products in Nicaragua, said that punishing Nicaragua's textile industry would harm other Central American countries, U.S. textile manufacturers and cotton growers. It noted that the State Department's Report on Human Rights Practices in Nicaragua made no mention of the textile industry.

National Council of Textile Organizations CEO Kimberly Glas also argued that the textile industry is not linked to the abuses of the government, unlike the gold mines, which are controlled by the regime.

She asked that any penalties on Nicaragua spare textiles that meet the CAFTA rule of origin, but did ask the government to either impose an import ban or punitive tariffs on textiles that do not qualify for CAFTA benefits. She said there is "rampant cheating" among non-U.S.-owned apparel firms in Nicaragua, including labeling items made in Nicaragua that were made in Asia.

Milliken is a member of NCTO. Milliken President Allen Jacoby said Milliken does not own any operations in CAFTA countries, but exported fabric to companies there. Milliken is the largest domestic textile manufacturer, with more than 6,000 employees.

Jacoby said Milliken shares the administration's concerns about Nicaragua's labor rights, human rights practices and the degradation of the rule of law. He tied the weak rule of law to tens of millions of losses for his firm.

He alleged that the Nicaraguan government has facilitated fraud by Chinese textile companies who that are claiming CAFTA benefits but not meeting the rule of origin.

"Based on our analysis of margins and raw material costs, we suspect many of these companies are purposely operating at a loss to deliberately harm US industry, thereby eliminating competition from US companies," he wrote. "In two years, we have lost over $50 million in sales, or roughly 61 million square yards of fabric. This loss of business, coupled with strong macroeconomic headwinds in the textile industry, has meant a 29% decline in our apparel volumes, 15% reduction in our textile workforce, and the closure of three plants, all in the last two years."

Jacoby said the administration should consider imposing tariffs on Nicaraguan apparel and textiles.

The Council of the Americas commented, saying they are "enthusiastic promoters of enhanced trade with Central America," including CAFTA, but said that "credible regional trade policy requires a re-think for Nicaragua."

COA Vice President Eric Farnsworth wrote that the organization is "profoundly distressed by the direction that Nicaragua has taken under Daniel Ortega and Rosario Murillo."

He called it "unseemly" to maintain free trade with Nicaragua, when democracies like Uruguay and Ecuador don't receive such privileges, saying it devalues U.S. efforts to use trade "to encourage continued political and economic reforms across the region, because even the worst offenders continue to benefit without consequence."

He added: "While we recognize that this is not a review of Nicaragua’s eligibility for CAFTA-DR privileges per se, nonetheless it is our hope that this effort will expose and highlight ongoing abuses that can contribute to a necessary near-term re-evaluation of Nicaragua’s broader trade privileges."

Two U.S. investors in Nicaragua told USTR about the appropriation and persecution of their employees, which they said demonstrated how the erosion of the rule of law is burdening U.S. commerce.

Mountain Gateway Order, a Christian organization that operated a commercial coffee farm and sold Rootline Coffee Company from Nicaragua, had more than $5 million in property and assets seized. "On December 20, the Ortega Government announced that it had revoked the legal status of Mountain Gateway, alongside several other faith-based and humanitarian organizations, purportedly for obstructing the Government’s 'control and vigilance,'" the group wrote. The government also wrongfully detained and later exiled 11 of Mountain Gateway's local ministers, and issued arrest notices for three American employees.

Riverside Coffee, headquartered in Colorado, said it had invested in Nicaragua for more than 25 years. It said in 2018, its Hacienda Santa Fe was seized without compensation. "This violent expropriation was accompanied by death threats against the management of the U.S. investment, assaults, arson, looting, and the wholesale destruction of Riverside’s longstanding investment, including the destruction of its Hass avocado plantation and its significant hardwood forests," it said, a loss of more than $200 million. Riverside is engaged in a CAFTA investor state dispute over the matter.

The vast majority of nearly 150 comments in the docket were descriptions of political oppression. A few were from human rights organizations, but most were individuals, some describing their own detention (or repeated jailings), torture, or expulsion from the country without a passport, making them stateless.

Expediente Abierto, Fundación del Río, and the Patrol Campaign told USTR about human rights violations in small-scale gold mining and in cattle ranching on illegally deforested and stolen indigenous land. They warned that it is difficult to trace the source of almost 50% of Nicaragua's gold exports, but said, "it is imperative that international importers of Nicaraguan minerals take measures to ensure the traceability of these resources, verifying that they come from legitimate sources. Importers must avoid contributing to the displacement of Indigenous and Afro-descendant communities, the destruction of the country’s rainforests and water sources, the worsening of Nicaragua’s totalitarian state, and the erosion of the rule of law."

They said that Nicaraguan beef exports globally have increased fivefold, and exports to the U.S. from January through October 2024 topped $200 million. "The U.S. government must demand greater transparency and accountability in Nicaragua’s beef supply chain to ensure that imported products are not linked to deforestation or human rights abuses," they wrote.

The Nicaraguan government didn't make a submission, but Nicaraguan resident John Perry did, on behalf of the Nicaragua Solidarity Coalition, which he said "is an international coalition of organizations and individuals in solidarity with Nicaragua, supporting its sovereignty and affirming its achievements."

He said that Nicaragua cannot be removed from CAFTA without all the member countries agreeing, and that if there are trade sanctions imposed on Nicaragua, it would violate CAFTA.

He questioned how the Section 301 statute fits. "The purview of the USTR is not political posturing, but the rights of workers, the climate for US business, and the existence of fair competition," he wrote. "In our experience, Nicaragua is exemplary in all of these respects."