Testimony of David Love

Senior Vice President and Chief Supply Chain Officer

Levi Strauss & Co.

Before the House Ways and Means Trade Subcommittee

Regarding U.S. Trade Preference Programs

November 17, 2009

Thank you Mr. Chairman and members of the Subcommittee for the opportunity to provide this
testimony today regarding the operation of U.S. trade preference programs.

As you may know, Levi Strauss & Co. (LS&Co.) is based in San Francisco, California and is a
global corporation with roughly 11,000 employees, more than 3,000 of whom are employed in
the United States. LS&Co. is one of the world’s leading branded apparel companies. We
design apparel and related accessories for men, women, and children under the Levi’s®,
Dockers®, and Signature by Levi Strauss & Co.™ brands. We market our products in more
than 100 countries.

As a truly global company, Levi Strauss sources our jeans and other apparel products from
roughly 50 countries around the world. The supply chain my team and I manage is quite
complex, particularly when you look at the way in which we source for the important U.S.
market.

Over the years, LS&Co. has adapted our sourcing to take advantage of the various U.S. trade
preference programs that have been available to us and our apparel products. These programs
have not been the sole reason for our decision to source from a particular country, but they
have been a key consideration in those decisions -- both to enter a country and to migrate out of
it. I will get to that latter point a little later in my testimony.

Some of the trade preference programs that we have utilized have worked better than others
over time and I would like to take a moment to describe what, in our view, are the critical factors
that make a program workable from a business perspective.

First, the program must be stable and predictable. We need to know that it will be in operation
over a long term. Short term program durations and the need for often shorter-term extensions
are not good for business.

Second, the rules of trade under the preference program must be as simple and liberal as
possible. We as businesses need maximum trade flexibility to structure our operations in
developing countries, which often present other challenges in areas of infrastructure and
capacity.

Third, the rules of trade for the program should be stable -- once we have set up operations to
take advantage of a particular program and it is working, changing the “rules of the road” can
have the inadvertent effect of stifling business.

I would like to take a moment to elaborate a little bit more on these issues with some real world
examples.
Take the issue of duration and predictability. When the Andean Trade Preference Act (ATPA)
took effect in 1991, our suppliers began to take advantage of the program to dramatically
increase production in Colombia. Using U.S. fabric, our partner operations in Colombia were a
win-win for everyone. LS&Co. had a stable base of quality supply for our products, U.S. textile
producers benefited as did Colombian workers and the broader Colombian economy.

At our peak, we were sourcing 60 million units annually from Colombia, and the business may
have even grown more. However, then the ATPA was set to expire in 2006 and the uncertainty
started. We didn’t know if Congress was going to renew the program and that caused us to
doubt our sourcing plans for Colombia. In the end, Congress did renew the program but only for
a short duration and those short-term renewals have continued since. We cannot make
commercial decision based on such 3 to 6 months timeframes, especially when orders are
placed at least one year in advance.

As a side note, since I have the opportunity, I would like to urge you to renew the ATPA as soon
as possible and for as long as possible. I say this because our sourcing from the country has
dropped from 60 million units to one to two million units due to uncertainty regarding the
program’s status. This is a real world example of why workable trade preference programs
must have long and predictable durations.

To my second criteria -- simple and liberal rules of trade -- here too the rules of origin and other
aspects of trade preference programs can really make or break them from a business
perspective. We have had great success working with programs like the African Growth and
Opportunity Act (AGOA) that allow for raw material imports to be sourced from wherever we can
secure the best and most reliable supply.

Simple and liberal rules of origin for products traded under preference programs are critical and
programs that are based on them are definitely the most workable -- when things get
complicated these programs can be very difficult to use. For example, when the first iteration of
the Hemispheric Opportunity through Partnership Encouragement Act (HOPE Act) for Haiti was
enacted, its complicated rules of origin made it extremely difficult for companies like LS&Co. to
use. Over time, Congress has modified the program and now it is one of the most liberal and
easy to use.

However, we are facing other challenges in Haiti that restrict our trade with the country. Political
and social security issues, labor concerns, port infrastructure deficiencies, water shortages and
other capacity issues make Haiti a difficult country in which to do business. I would urge
Congress and the U.S. Government to work with Haitian officials to address these lingering
concerns to help make the HOPE program work better for all stakeholders.

And that brings me to my third point -- you can’t change the rules of the road on trade
preference programs if they are working. If you do, they could very well stop working quickly.
The AGOA program that I mentioned earlier provides a prime example of this fact.

LS&Co. began taking advantage of AGOA soon after the program was created. We steadily
increased our production in southern Africa and the program was working for us. But then
Congress enacted new legislation in 2006 which added a so-called “abundant supply” element
to the program.

We had no idea how these provisions would work in practice, particularly since denim fabric, our
life blood, was arbitrarily listed as being in abundant supply in Africa even though we knew that
it really wasn’t for our needs. As soon as we saw that these provisions had actually been
enacted, we put our U.S. sourcing operations from Africa on hold and began a fight to remove
the provisions. Fortunately, Congress eventually moved to eliminate the abundant supply
provisions, but not for several years and that delay certainly stunted our operations in Africa --
definitely not something I think was intended.

So, the key for success for a preference program from a business perspective and something I
urge you to keep in mind as this Committee and the House of Representatives work to move
forward broader preference program reform is to keep the programs simple, predictable and
with liberal rules of origin that provide business the greatest opportunity to take advantage of
them. I would also note that we need to keep in mind that these programs are designed to
promote economic development and help raise the quality of life for citizens in many of the
poorest countries in the world.

And in our view, as a socially responsible company, upholding labor standards is a key aspect
of these preference programs. We need to make sure that we provide trade preferences to
those least developing countries that not only need a leg up but are committed to improving
respect for worker rights. In that regard, I would like to associate myself with the Minister of
Commerce of Cambodia, Dr. Cham Prasidh who spoke on the previous panel. Those LDCs
that support international labor standards should be able to benefit from trade preferences for all
products, including the apparel products of primary concern for LS&Co.

Fortunately, we have proof that preferential trade arrangements can really achieve the
developmental objectives for LDCs and other developing countries that we hope they can
achieve if structured correctly. Egypt provides an excellent example. While not technically a
trade preference program, the Qualified Industrial Zone (QIZ) program under the U.S.-Israel
Free Trade Agreement has been successful. When it was extended to Egypt in 2004, Egypt’s
apparel industry was miniscule. But now, apparel exports to the United States have reached
nearly $800 million in 2008 and the expanding trade has helped create new jobs for thousands
of Egyptians. Not surprisingly, the QIZ has one of the simplest rules of origin and has been one
of the programs easiest for us to use from a trade perspective.

In short, preference programs can achieve their objectives if they are structured correctly. And
when I say “correctly,” I mean that they must be predictable with long durations. They must
cover all products including apparel products that are the primary exports of developing
countries. They must also have liberal rules of origin that get away from the highly restrictive
“yarn forward” rule of origin in favor of more flexible rules that can actually work for developing
countries and help U.S. companies innovate and compete in a very competitive market. And
finally, any preference reform must include all LDCs that respect international labor standards.
Economically disadvantaged populations need our help and those countries that support labor
standards should be rewarded. Our developmental trade policy should reflect this need.

As you and your colleagues continue to work toward broader preference program modifications,
I urge you to keep these tenets in mind as a recipe for success for future U.S. trade preference
programs.

Thank you again Mr. Chairman for the opportunity to present this testimony today.