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The Coleman Company

FTZ Docket B-53-2015

Preliminary Recommendation

 

INTRODUCTION

Under the FTZ Board’s regulations (15 CFR part 400), applications requesting

production authority (15 CFR 400.23) are approved if the application is not inconsistent

with the threshold factors of 15 CFR 400.27(a) and the application demonstrates that

approval of the requested authority would result in a net positive economic effect (15

CFR 400.27(b)) and a significant public benefit(s) (15 CFR 400.27(c)). The burden of

proof is on the applicant (15 CFR 400.28(a)). If the examiner recommends not to

approve authority requested in the application, that “preliminary” recommendation of the

examiner is presented to the applicant, which may present additional evidence in

response (15 CFR 400.34(a)(5)(iv)(A)). The same provision states that public comment

may be invited on a preliminary recommendation.

 

Delineated below are the factors considered for the preliminary recommendation of the

examiner regarding the application requesting unrestricted FTZ authority on the use of

certain foreign-status inputs for production activity of The Coleman Company (Coleman)

at Coleman’s facility located within Subzone 119I, in Sauk Rapids, Minnesota.

 

BACKGROUND

The pending application requests authority for Coleman to choose the duty rates during

customs entry procedures that apply to personal flotation devices (e.g., life vests, life

belts, flotation jackets) (duty rates are 4.5% or 7.0%) and flotation cushions (6.0%)

(collectively, “PFDs”) – i.e., enable an “inverted tariff” benefit – for the following foreign status

inputs: certain nylon and polyester woven fabrics; webbing of man-made fibers;

neoprene fabrics; knit polyester fleece fabrics; and, water soluble sensing elements

(duty rates range from 5% to 17.2%). The application estimates resulting FTZ savings

of up to $255,000 per year.

 

The current application follows the applicant’s 2014 submission of a notification for

production authority (FTZ Board Docket B-31-2014). In that case, the FTZ Board

approved unrestricted FTZ authority for the use of imported plastic buckles, plastic

carrying bags, and PVC cellular foam but, based on concerns regarding the potential for

adverse economic impact on domestic industry, determined that further review would be

needed before the Board could potentially authorize inverted tariff benefits on foreignstatus

textile inputs (fabrics, webbing, and carry bags) used in production of PFDs for

the U.S. market (see 79 FR 43390, 7/25/2014).

 

OUTLINE OF ANALYSIS

After review of the primary evidence and arguments presented by Coleman and other

parties regarding the threshold factors, it does not appear that approval of the Coleman

application would be inconsistent with the threshold factors. Therefore, the examiner

assessed the evidence and arguments on the record as they pertain to whether the

applicant has demonstrated that the proposed activity would result in a net positive

economic effect and a significant public benefit(s).

 

Coleman produces PFDs for three separate market segments: recreational, industrial

and military. Coleman is not requesting to use unrestricted FTZ procedures on its

production for the military market segment because PFDs sold to the U.S. military are

subject to the Berry Amendment which requires the use of domestically-produced textile

materials. Coleman’s primary economic argument has been that without unrestricted

FTZ authority (inverted tariff savings on imported textiles and water soluble sensing

elements – duty rates range from 5% to 17.2%), the company would be unable to

competitively produce the PFDs (duty rates range from 4.5%-7%) for the recreational

and industrial markets in the United States. Coleman’s arguments focused primarily on

the need to lower the duty costs of imported UL certified nylon and polyester fabric,

which it indicated were not available at a competitive price from any domestic producer.

With unrestricted FTZ procedures, Coleman argued that employment and production

would increase significantly at the Sauk Rapids plant. Without unrestricted FTZ

procedures, Coleman argued that it would need to import more finished PFDs rather

than produce them domestically, and consequently cut production and employment at

the Minnesota facility. Coleman also asserted that its competitors would not likely

pursue FTZ authority – and, therefore, that there likely would be no additional industry

impact from potential approval of FTZ authority for those competitors – because its

competitors’ PFD production for the recreational market is mainly located abroad.

Coleman’s application is supported by certain elected officials, certain suppliers (Tape

Craft Corporation (webbing); ACR Electronics, Inc. (water activated rescue strobe

lights); RR Donnelley (brochures and catalogs); SPSI, Inc. (ink supplies);

Pregis, LLC (low density polyethylene foam); American Cord & Webbing Co., Inc.

(plastic hardware and webbing)) and the Outdoor Industry Association. The application

is opposed by certain elected officials, certain domestic manufacturers that indicate that

they produce the type of fabric that Coleman proposes to import (Highland Industries,

Inc., Milliken & Co.); and, the American Fiber Manufacturers Association, the National

Council of Textile Organizations, and the U.S. Industrial Fabrics Institute. The parties

opposing the application expressed concerns that the effective reduction in duty rates

applicable to foreign-sourced textile inputs used to produce PFDs for the U.S. market

would place domestic producers of like textile materials at a disadvantage, leading to

increased imports of foreign textiles and subsequent losses of U.S. employment and

production at U.S. textile plants.

 

The Office of Textiles and Apparel (OTEXA), as the Department of Commerce’s

industry specialists for matters pertaining to the textile industry, provided assistance to

the FTZ Staff in the review of the Coleman proposal. After conducting its analysis of the

application and information on the record, OTEXA does not support approval of the

unrestricted authority requested for Coleman based on potential negative economic

impact on other domestic manufacturers. The rationale and details that underlie the

office’s findings are discussed in the attached memorandum from the Deputy Assistant

Secretary for Textiles, Consumer Goods and Materials, which has provided key input for

the examiner’s preliminary analysis.

 

Pursuant to the FTZ Board’s criteria for evaluation of production applications, the main

findings taken into account for the examiner’s analysis and recommendation – including

the findings presented in OTEXA’s memo – were:

 

• FTZ benefits do not appear to be a determinative consideration in Coleman’s global

investment decisions for PFD production.

 

• Potential negative effects with respect to domestic textile producers including

Highland Industries, Inc., and Milliken & Co.

 

• No demonstrated causal link between proposed FTZ-related cost savings and a net

positive (national) economic effect and significant public benefit(s).

 

Key supporting elements considered for the recommendation include:

 

• Domestic supply is available for the basic types of textile inputs for which Coleman

requests FTZ authority – nylon, polyester, neoprene, and polyester fleece fabrics

and webbing.

 

• Approving the FTZ (inverted tariff) authority requested by Coleman would reduce the

cost of the imported textile materials, which already have advantages due to factors

such as lower labor costs.

 

• Coleman has already made significant investments to produce PFDs (including for

mass market retailers ) at its Minnesota plant even in the absence of – and no

guarantee of future approval for – FTZ savings on the textile inputs. Coleman

specifically claims, “Originally manufactured offshore, Coleman made the decision to

re-shore a large portion of the Puddle Jumper [Note: a low-priced recreational life

vest for children] PFD manufacturing to the U.S. in the Sauk Rapids facility. In

addition, 2011 saw the commencement of a long-term re-shoring commitment by

Coleman of not only Puddle Jumper PFDs but also boat cushions, and other types of

PFDs, resulting in an increase of manufacturing at the Sauk Rapids facility of more

than 235%.”[1]  Industry articles on Coleman’s re-shoring efforts note, “Coleman has

been able to grow our annual output to about 3.5 million pieces… By taking so

much time out of the production process, we’ve been able to bring a large volume of

products back”[2] [quoting Coleman Senior Vice President for Operations Jeff

Schmitt]. “As a result of the reshoring efforts that Schmitt is leading, Coleman has

expanded the Sauk Rapids factory from about 60 people in 2011 to 270 people to

date, and expects it to grow by another 100 to 150 people in the near future as it

continues to bring more business back to the plant.”[3]

 

• Coleman has argued that inverted tariff savings (up to $255,000 per year over the

entire range of requested inputs, an average of 1.6% of finished product value)

would be the sole reason for future investment and production expansion. “What is

at stake here is not only whether we can continue to expand the factory and create

more U.S. manufacturing jobs, but whether this factory can survive given decreasing

labor costs in Asia, increasing costs in the U.S. and now TPP.”[4]

 

In its arguments to date, Coleman has not addressed the whole range of considerations that have impacted and may continue to impact the cost of U.S. production and which could influence Coleman’s decisions to maintain or increase production and employment

in the U.S. without the use of unrestricted FTZ procedures. A number of these

considerations are listed below: 

 

  • In 2011, Jarden Corporation (then Coleman's parent company) moved production of PFDs back to Sauk Rapids from China citing increasing wages in China, volatility in transportation costs and the desire to be near its largest market (U.S.). Jarden has indicated that there are advantages to producing in the United States that outweigh higher costs of labor for certain products.[5]

 

  • Cost reduction strategies cited for the Sauk Rapids plant include capital

investment in automation and production efficiencies increasing the productivity

at the plant and, at the same time, increasing employment (thereby making the

Sauk Rapids plant more competitive with offshore alternatives regardless of

whether the requested FTZ authority is approved). The “Back to Shore” article

cited above includes the following: “‘The way we were able to bring product back

to the U.S. is by maximizing the benefit of reduced lead time, which results in

increased flexibility to respond to customer demand. You have to be able to have

competitive landed cost, and the way we were able to do that was by taking labor

content out of the process.’ Taking labor content out of the process does not,

 Jarden Corporation, SEC 10K, for the fiscal year ended December 31, 2015

however, mean eliminating jobs. ‘We’ve actually grown jobs in the U.S.,’ Schmitt

says. ’And we’ve done that through the use of automated equipment.’”[6]

 

  • Coleman’s arguments that it needs inverted tariff savings on certain textile inputs

in order to maintain and expand its U.S. production focus on meeting demands

from mass retailers to reduce prices on low cost and low margin PFDs, such as

PuddleJumpers. However, there are programs by mass retailers that encourage

a broader view of cost reduction in their supply chains such as the “Made in

America” program of Walmart, one of Coleman’s key customers.[7] “Walmart has

specifically cited Coleman’s U.S.-made PFDs as one of its “Made in America”

success stories.[8]

  • After sizable investments at its Sauk Rapids facility, Coleman has the

manufacturing flexibility to shift its U.S. production easily between types of PFDs,

which could include FTZ production of higher value PFDs, including those sold to

the specialty retail and industrial markets. Such an approach may support a

global supply strategy that would in any case (with or without FTZ procedures)

involve at least some imports of low-cost PFDs while focusing U.S. production on

higher-value PFDs. “The company also recently made a sizeable investment in

direct printing on fabric, allowing it to print fabrics ‘on the fly’ right onto a cutter

and automated sewing machines. ‘That’s going to be the future – highly flexible,

highly customizable manufacturing that is direct to consumer,’ says Schmitt.”[9]

The Newell Group, which recently purchased Coleman, has indicated that Coleman will be "going upscale.”[10]

 

• Approving the FTZ (inverted tariff) authority requested by Coleman would present a

real potential for greater imports of textiles since other PFD producers could want to

follow Coleman’s “FTZ model”. There are PFD producers which manufacture at

least a portion of their supply needs in the U.S.[11]11 In fact, it would appear that U.S.-

manufactured PFDs comprise most of the U.S. market (85% in 2014), based on

Coleman’s estimates of imports.[12]

 

SUMMARY AND CONCLUSIONS

Although the record contains some evidence supporting a positive impact for Coleman

from its requested unrestricted authority on the use of the foreign-status inputs in

question, the record also, in particular, contains evidence of clear reasons for Coleman

to conduct PFD production at the Sauk Rapids plant (regardless of whether the

requested FTZ authority is approved). In that context, the effective duty reduction on

imported textiles that would result from approval of Coleman’s requested authority could

create an additional incentive for the company to purchase such materials from foreign

sources to use in production at the Sauk Rapids plant – rather than from U.S. producers

that have the ability to supply such materials (thereby potentially having a negative

effect on production and employment at those producers’ U.S. plants). As such, the

case record indicates that there are potential negative effects and does not demonstrate

that such potential negative effects would be outweighed by potential positive effects

claimed by Coleman. In total, at this time, the case record does not indicate that the

applicant has met its burden of proof to demonstrate that that approval of unrestricted

FTZ authority for use of the foreign-status inputs in question would result in a net

positive economic effect and a significant public benefit(s). Therefore, the examiner

cannot recommend approval of the unrestricted authority requested by Coleman.

 

Attachment: Memorandum from Deputy Assistant Secretary for Textiles, Consumer

Goods and Materials

 

[1] Coleman Application, p. 17.

[2]  “The Age of Automation”, Barb Ernster, December 1, 2015, http://specialtyfabricsreview.com/

2015/12/01/the-age-of-automation

[3] “Back to Shore”, Sigrid Tornquist, January 1, 2016, http://specialtyfabricsreview.com/2016/01/01/backto-shore/

[4] Coleman Hearing Transcript, p. 10-11.

 

[5] Jarden Corporation, SEC 10K, for the fiscal year ended December 31, 2016

[6] “Back to Shore”, Sigrid Tornquist, January 1, 2016, http://specialtyfabricsreview.com/2016/01/01/backto-shore/

[7] See e.g., “How Walmart Plans to Bring Back ‘Made in America’ ”, Bill Saporito,

http://business.time.com/2013/04/12/how-walmart-plans-to-bring-back-made-in-america/

 

[8] “Walmart U.S. Manufacturing FAQs”,

https://cdn.corporate.walmart.com/51/c5/350e038c4f0cb9f171b5b5171055/us-manufacturing-faq.pdf

 

[9] The Age of Automation”, Barb Ernster, December 1, 2015,

http://specialtyfabricsreview.com/2015/12/01/the-age-of-automation/

 

[10] http://www.barrons.com/articles/more-gains-to-come-at-newell-1474094337

[11] Highland noted that it was supplying the same fabrics to Coleman’s competitors which were producing in both the U.S. and abroad and these customers would seek similar cost advantages with FTZ status, Coleman Hearing Transcript, p. 17, and The U.S. Coast Guard cites 66 U.S. PFD producers, Final Rule, “PFD Labeling and Standards”, U.S. Coast Guard, 79 FR 56491-56500, 9/22/2014, and Mustang Survival (now owned by The Safariland Group), named by Coleman as a main competitor, has a plant in Jacksonville, Florida, “U.S. firm buys Mustang Survival, Burnaby-based company that pioneered marine safety gear”, Tracy Sherlock, Vancouver Sun, 03/26/2013, and Kent Sporting Goods, which apparently is another major competitor to Coleman, reportedly manufactures over 1 million life vests a year in Tyler, Texas, “Kent Sporting Goods adds warehouse and distribution space, more brands”, Tyler Morning Telegraph, November 17, 2016

[12] Coleman Application, pp. 16-17

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In My Opinion

In 2015, I posted more than 425 items of interest for our industry on the BeaverLake6 Report website. In reviewing it all last week, it got me to thinking about putting together a list of influential events, news and trends that I observed during the past year. I have focused primarily on the US marketplace but each of “the things that mattered” to me has global implications.

 

So, here go my thoughts in no particular order of importance. Let me know if you agree or if I have missed some. Click here to read the list.

 

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