Bobbin / April 1996
By Larry Luxner
Americana, just a few miles past the Tropic of Capricorn along the congested high-way north from São Paulo, looks much like any other mid-sized Brazilian city, with its high-rises, factories, farms and occasional favelas. What makes Americana different is its unique history -- and the important role it plays in Brazil's apparel and textile industry.
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.
João Batista Girardi is public-relations chief for the area's largest labor union, the Sindicato das Indústrias de Tecelagens de Americana, Nova Odessa, Santa Barbara d'Oeste e Sumaré. He said in an interview 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%," according to Girardi. He said that at one plant alone, Grupo Vicuña'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, a vast nation of 160 million inhabitants whose economy was closed to foreign markets for many years. In 1990, the market was finally opened, but tariffs remained prohibitively high. Then four years later, 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 still negligible compared to total market size -- repre-senting $50 million, or only 0.2% of the pie. Yet this sector "has shown an enormous growth potential," according to officials at the U.S. Commercial Center in São Paulo.
In 1995 the total value of Brazil's apparel/textile production stood at $29 billion, up from $27.5 billion in 1994. That represented more than 90% of the Brazilian domestic market. Nationwide, the industry counts 14,000 companies employing around 780,000 people, from Belém along Brazil's northern Atlantic coast to Porto Alegre in the south.
With two cotton crops a year, Brazil is a competitive producer of cotton fiber garments such as jeans and circular knitted products. According to industry statistics, the Itajai Valley in the southern state of Santa Catarina -- which consists of Blumenau, Join-ville, Brusque, Jaragua do Sul and 40 other cities -- has around 6,500 textile companies producing 100,000 metric tons of cotton knitted garments, towels, tableclothes, bedsheets and other cotton products per year.
Brazil's largest companies by category include integrated mills conglomerates São Paulo Alpargatas ($767.6 million in 1994 sales) and Tatuape ($376.0 million); knitted-items producer Hering Textil ($253.4 million); garment-maker Hering Nordeste ($128.5 million); underwear producer De Millus ($80.2 million) and sock manufacturer Lupo ($39.4 million).
The industry's overall production is expected to grow by 20% per year from 1996 to 1998, though that won't be because of investments in new factories or more employees. Rather, the increase will result from better productivity. Industry experts say production per worker in Brazil grew from 3,888 pieces in 1989 to 5,090 in 1994 and should reach 6,000 pieces by 1997.
"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. Embassy 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. In numerical terms, Mercosur's economic strength is formidable. Its member countries cover 12 million square kilometers, or 59% of the land area of Latin America, and encompass 190 million people, or 44% of Latin America's population. More importantly, the four nations have a combined gross domestic product of $437 billion, with annual exports of $47 billion and imports of $25 billion.
Mercosur's program for the reduction of trade barriers had called for the elimination of most tariffs by Dec. 31, 1994, though Paraguay and Uruguay -- smaller countries with much more vulnerable economies -- got an extra year to comply.
Under Mercosur, the four signatory nations also have a common external tariff, aimed at stimulating the region's competitive edge and increasing investment in each other's countries. This means that, for example, Paraguay -- a major cotton producer -- can export threads and finished garments to Brazil for the first time ever, without having to pay duties.
Up until now, 90% of Paraguay's cotton has been exported to Brazil as raw material, with-out any value added. Mercosur will not, however, immediately erase the large differences between per-capita income levels or average labor costs in the four member countries. According to the World Bank, Paraguayan factory wages come to $242 a month, compared to $626 in neighboring Brazil.
Yet when it comes to retail prices, Brazil is even more expensive than Argentina. Since the Plano Real took effect, São Paulo has in fact become one of the most expensive cities in the world. 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 São 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 for 1995.
According to Brazil's Textile Industry Association, more than 80,000 workers have lost their jobs since the beginning of 1994 in 3,700 textile companies employing close to three million people. Luiz Americo Medeiros, president of the association, says Brazil must "do as other countries have done, including the United States, Canada and Europe" and become more protectionist.
Ex-president José 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, which exports wool textiles to Brazil, recently lodged a formal protest over the restriction.
Even so, says Wagner, "the Brazilian textile industry wants the government to take anti-dumping measures. Manufacturers are still pressing for more tariffs."