As a teenager growing up in Mexico, Yolanda Diaz almost had her high school scholarship revoked for wearing a new outfit every day. The award was intended to help poor students attend high school, and school administrators, noting her extensive wardrobe, told Diaz she “had too much money” to qualify for a scholarship.
“I had to tell them that I made my own clothes — sometimes out of old clothes,” Diaz said.
Not surprisingly, more than 30 years later, Diaz, 53, is still designing clothes — and for her own label, Little Miss Fashion, a line of girls' apparel in sizes 1 to 10.
Diaz, now an Omaha resident who employs three part-time workers, would like to expand her business but says trade barriers have put a ceiling on her company's growth.
She is not alone. The Small Business Administration and the Office of the U.S. Trade Representative are inviting small businesses to weigh in on the challenges they face on trade involving the European Union and elsewhere. But easing trade restrictions is controversial and can take years to work out.
Diaz began showing her designs at Omaha Fashion Week in 2009. Last year, her work drew the attention of Zulily.com, a Seattle-based daily deal website that offers merchandise for “moms, babies and kids.” Suddenly, Diaz needed to produce her designs in quantity and ramp up the selection of girls' dresses, skirts, pants and tops to fill the orders she received from Zulily. Her monthly sales average about $10,000.
At her studio near 50th and L Streets, Diaz has begun working on next spring's collection. Bolts of fabric —- stripey-knits, machine-embroidered cottons and flowery fleeces — lean against the walls. Sequins, thread and bits of confetti-size fabric speckle the floor. On the cutting table, yards of fabric covered in rosettes await her scissors.
“My goal is to make a collection of 100 styles,” said Diaz, whose latest designs, pencil drawings, are tacked to the wall. “My designs are about the little girls feeling fashionable, but at the same time comfortable.”
But the billowy, rosette-covered fabric is made in Korea. The fleece is made in China. There are import taxes built into the wholesale price of those fabrics, but where it really gets expensive is using those materials to create finished garments.
To manufacture clothing in quantity, Diaz buys the raw materials for a design and ships the materials and patterns to a small factory in Mexico owned by her brother. There, her designs are made into the finished garments and then shipped back to her Omaha showroom and warehouse.
There is no tax on the finished goods if they are manufactured from textiles made in the United States, Mexico or Canada. If Diaz uses fabric or appliqués made elsewhere, such as Asia or Europe, sends them to Mexico to be sewn, and then imports the finished pieces to the U.S., she must pay a stiff fine.
Diaz, whose clothing sells for $15 to $50 a piece, says she would have to raise prices more than 30 percent to cover the fees, which could put her clothes out of reach for her target market. “There is a lot of competition, a lot of different brands out there,” Diaz said.
To avoid paying the fines on designs that incorporate Asian or European-made fabrics, Diaz or her employees must sew the garments at her Omaha studio, a more costly, less efficient process. She can make only 10 rosette-covered girls' dresses at her studio instead of 100 or more if they were manufactured at the factory in Mexico, she said.
Larger companies, she said, can often absorb those costs but, for now, her small business cannot.
To comply with the rules, Diaz must provide proof of a fabric's origin, including the lining material and interfacing, used to give structure to a garment. Uncovering that information can be difficult and costly, particularly when Diaz buys “remnants,” small pieces of fabric from wholesalers that may not be labeled.
Under the North American Free Trade Agreement forged in the mid-1990s, finished garments that are sewn in the United States, Canada or Mexico using textiles manufactured in any of the three countries are not subject to the fine.
Even small businesses face trade barriers when trying to import or export materials and finished products, said Michael Foutch, economic development specialist with the Nebraska District Office of the U.S. Small Business Administration.
“While NAFTA has made her business possible, a lack of similar trade deals with Europe and Asia put a ceiling on the line of clothing she offers,” Foutch said.
Officials estimate that for each additional $1 billion of goods the U.S. exports, 5,000 U.S. jobs are created, said Dario Gomez, associate administrator at the U.S. Small Business Administration in Washington, D.C.
“This is the time for businesses to express the issues they are having with any country in the world,” Gomez said. A panel is taking comments on trade issues through Oct. 15, and business owners can submit statements to email@example.com.
But eliminating trade barriers is a controversial topic. On the surface, lifting trade restrictions might appear to boost the fortunes of small businesses, but such changes could prove detrimental to some industries and workers, said Hendrick Van den Berg, an economics professor at the University of Nebraska-Lincoln.
Predicting whether such changes will spur competition and better technologies or put people out of work is both a complex and imprecise exercise, Van den Berg said.
Van den Berg said the current regulations were put in place in the mid-1990s to protect the textile industries within the three NAFTA countries — the United States, which has a very robust textile industry, and Canada and Mexico.
“The transition from protectionist policies to free trade must be done very carefully,” Van den Berg said. At the very least, any change should be “gradual,” he said.
In response, Foutch said: “All of those are concerns and should be part of the discussion when expanding trade. It's possible the economist is correct. But I'm looking at it from the perspective of trying to help small businesses. The average exporter is a small business with 499 employees or less.”
Increasing the opportunities for small businesses, such as Little Miss Fashion, to sell their goods and services, “beyond our borders clearly not only will have a direct impact on small-business growth in Nebraska but also will be responsible for creating new jobs,” Foutch said.
“Yolanda's business is challenged by these rules,” he added.
Diaz says she wants to see a deal to relax some trade restrictions outside NAFTA so she could expand her Omaha-based business and hire more employees. “I would like to have my own website with an online store and someday a bricks-and-mortar store.
“If this comes true, it will help all small businesses in Omaha that rely on imported materials or on exporting finished products.”