The Miami Herald / December 30, 1995
By Larry Luxner
AMERICANA, Brazil -- Americana, just a few miles past the Tropic of Capricorn along the congested highway north from Sao Paulo, looks much like any other mid-sized Brazilian city, with its high-rises, factories, farms and occasional favelas.
Founded in the 1860s by Confederate refugees eager to forget the U.S. Civil War, Americana today has 142,000 people. Its municipal cemetery still bears the names of Southerners with names like Jackson, Davis and Lee. And like the Deep South, Americana is one of its nation's most important centers for lingerie and textile manufacturing. The immediate vicinity boasts at least 700 factories, and the roads all around here are cluttered with Portuguese-language signs advertising Americana's apparel bargains.
Yet with the sudden opening of Brazil's economy, cheap Asian imports have flooded the country -- driving down demand for locally produced garments and threatening jobs in Americana.
Joao Batista Girardi, spokesman for the area's largest labor union, said that before imports from China and South Korea started coming in, Americana had 38,000 textile workers. Today there are only 25,000.
"Factories are now operating at 70% of capacity, though at one point it had dropped to 50%," Girardi said. At one plant alone, Grupo Vicuna's Textile Elizabeth, the workforce was recently slashed from 3,500 to 2,500 due to automation and reduced demand.
The problem in Americana is a reflection of what's happening throughout Brazil. In 1990, the market was finally opened, but tariffs remained prohibitively high. Then in 1994, Brazil's newly elected president, Fernando Henrique Cardoso, slashed import tariffs to 20% and introduced his Plano Real. That controversial program tied the Brazilian currency, the real, to the U.S. dollar and succeeded in bringing down inflation from 20% a month to the current 2-3% a month. Not surprisingly, the greatly reduced tariffs encouraged foreign suppliers -- mainly Korean and Chinese -- to begin flooding the Brazilian market with relatively inexpensive and cheaply made garments.
Even now, apparel imports are negligible compared to total market size -- $50 million, or only 0.2% of the $29 billion pie. Yet this sector "has shown an enormous growth potential," according to officials at the U.S. Commercial Center in Sao Paulo.
"Consumer receptivity to imported products was so tremendous that Lang-Ford, a company which started importing two containers per month in June 1994, is currently importing 70 containers per month," says the U.S. government report, issued in May 1995. "Casas Pernambucanas, one of Brazil's largest department stores, plans to increase garment imports by 500% in 1995 compared to 1994. Mesbla, which is also a leading department-store chain in this market, will double imports of apparel in 1995 over 1994. Makro, a $737 million sales wholesaler, increased the share of imported products in total sales from 3% in 1993 to 10% in 1994 and is expected to grow to 20% in 1995."
Teresa Wagner, the trade specialist who prepared the study, said in an interview that Americana was "severely hurt" by the sudden rush of imports into Brazil. "We Brazilians have been facing a lot of competition from Asia, particularly China. It's very difficult to compete with these companies."
Complicating the problem is Brazil's central role in the Southern Common Market (Mercosur), a customs union comprising Argentina, Brazil, Paraguay and Uruguay. Under Mercosur, the four nations have a common external tariff, aimed at stimulating the region's competitive edge and increasing investment in each other's countries. This means, for example, that Paraguay -- a major cotton producer -- can export threads and finished garments to Brazil for the first time ever, without having to pay duties. Until now, 90% of Paraguay's cotton has been exported to Brazil as raw material, without any value added.
Yet when it comes to retail prices, Brazil is even more expensive than Argentina. Because of Brazil's high domestic prices, it is now cheaper to fly from Rio de Janeiro to the United States, for example, than from Rio to Manaus. As a result, many Brazilians are traveling to Miami or New York to buy garments for resale in stores and boutiques back home. These purchases aren't official imports; travelers simply fill their suitcases with clothes, easily undercutting domestic producers once they're back in Brazil.
"Mercosur is good for Argentina and Paraguay, but not for Brazil," complained Fauzi Nacle Hamuche, director of Norsul Textil & Moda Ltda., which produces 300,000 pairs of blue-jeans a month at an average cost of $7 each. In an interview at his Sao Paulo office, Hamuche also said interest rates were "very high," making it difficult even for big companies like his own to obtain credit for expansion.
In order to protect Brazilian industry from Asian rivals, the government in August boosted tariffs on imported men's shirts and textile fabrics from 20% to 70%. The tariffs are to remain in effect for a year, though Brazilian textile industrialists are demanding even tougher restrictions. Industry leaders have warned Cardoso that unless he takes measures to stop the flood of Asian imports, the sector will show a $4 billion trade deficit.
Luis Americo Medeiros, president of Brazil's Textile Industry Association, says Brazil must "do as other countries have done, including the United States, Canada and Europe" and become more protectionist. Ex-president Jose Sarney, now president of the Brazilian Senate, backs the garment industry's demands, warning that "it must not be a victim of unfair competition, nor of imports that destroy it."
Yet by banning the importation on credit of 42 textile products such as pants, jumpers, shorts, sweaters and trench coats, Brazil has annoyed its Mercosur partners. Uruguay, a major exporter of wool sweaters to Brazil, recently lodged a formal protest over the restriction, which defies all the Mercosur rhetoric about free trade.
Even so, says Wagner, "the Brazilian textile industry wants the government to take anti-dumping measures. Manufacturers are still pressing for more tariffs."