On February 15, 2011, the Foreign Trade Zone Board staff completed the Examiner’s Report concerning the applications of Klaussner Home Furnishings and Max Home, LLC to establish special-purpose foreign-trade subzones for manufacture of furniture using imported micro denier suede upholstery fabric. The report recommended approval of FTZ subzone status. The Report is expected to be adopted and when implemented will allow Max Home and Klaussner to import micro denier suede upholstery fabric duty-free. The report however does recommend that the quanity of duty-free fabric be limited to an amount equal to Max Home’s and Klaussner’s historic level of imports. According to the report:

• The applications are supported by state and local officials. Both of the proposals are opposed by the American Manufacturing Trade Action Coalition, the National Council of Textile Organizations, the American Fiber Manufacturers Association, and the National Textile Association. The Klaussner application is supported by certain U.S. upholstery fabric manufacturers.
• Max Home was founded in 2003 and is headquartered in Fulton, Mississippi. The companyis a small contract manufacturer that operates two manufacturing facilities and warehouses in Fulton (Itawamba County) and one manufacturing plant with a warehouse in Iuka (Itawamba County), Mississippi. Proposed Site 1 (26 acres) is located at 101 Max Place in Fulton, and proposed Site 2 (9 acres) is located at 1509 Paul Edmondson Drive, in Iuka. Proposed Site 3 (26 acres), Max Home’s newest production facility, would be located at 1313 Sandlin Road in Fulton. The privately held firm employs some 350 associates at Sites 1 and 2 (99 of which are cut-and-sew employees), with about 100 additional employees slated to take jobs at Site 3, its newly-opened manufacturing plant in Fulton. The Max Home facilities can manufacture up to 270,000 pieces annually.
• Klaussner was originally established in Asheboro, North Carolina as Stuart Furniture Industries in 1964. The privately-held company was purchased by Hans Klaussner in 1979 and renamed as Klaussner Home Furnishings. Today, the company’s brand is well known for offering high quality, value-oriented home fiunishings. KHF’s annual sales have totaled some $ 600 million in recent years, which equates to about five percent of the $ 11 billion U.S. upholstered furniture market. Klaussner operates multiple U.S. manufacturing and distribution facilities in Randolph and Montgomery County, North Carolina, which employ some 1,400 workers (238 are cut-and-sew specialists). Site 1 would comprise Klaussner’s furniture manufacturing plant and warehouse (77 acres) located at 405 Lewallen Road in Asheboro, and Site 2 would include the company’s upholstery fabric cutting/sewing and furniture manufacturing facility and warehouse (76 acres) located at 4400 State Highway 220 South in Asheboro. Proposed Site 3 would comprise Klaussner’s manufacturing facility (52 acres) in Candor, North Carolina. The application indicates the facilities can produce up to one million pieces of furniture annually. Klaussner also operates a manufacturing facility in Milford, Iowa. The company has licensed four “Klaussner” home goods stores to independent operators and owns over 150 “Klaussner Home Furnishings” galleries located throughout the United States.
• Imports of upholstered furniture reached $ 3.7 billion in 2007 and supplied about 25 percent of the domestic market. Specifically, imports of leather and fabric-upholstered furniture from East Asia have expanded rapidly in recent years and now account for 68 percent of total U.S. furniture imports. Imports of leather and fabric-upholstered furniture from East Asia (primarily China) represented approximately 25 percent of U.S. upholstered furniture production in 2007. Although overall imports of upholstered furniture fell in 2008, the imports’ share of the U.S. market increased due to a larger relative decline in U.S. producers’ shipments.
• Max Home and Klaussner purchase their upholstery fabric from domestic and foreign mills. The companies produce various types of household furniture, including sofas and sleep sofas, living room sectionals, love seats, recliners, and chairs that are upholstered with a wide array of fabrics. The companies purchase a portion of their rolled goods-including chenille fabric-from U.S. mills, such as Chambers Fabrics, Inc. (of High Point, North Carolina) and Kings Plush, Inc., (d.b.a. STI; of Kings Mountain, North Carolina).
• In addition to the companies’ usage of domestic upholstery fabric, they also rely on imported woven and knit fabrics to broaden their product offerings. One such upholstery fabric is micro-denier suede (MDS), which is made predominantly with polyester and acrylic staple or monofilament fibers, using woven and/or knit construction. The MDS fabric is finished with a hot caustic soda “hydro reduction” process that chemically alters the structure of the fabric’s fibers. The finishing process is unique to such fabric and, due to various factors, has become economically unviable to manufacture in the United States. As a result, the entirety of production is now centered in East Asia (primarily in China, and to a lesser extent in South Korea and Vietnam).
• There were three support letters received from Chambers Fabrics, Culp, and Kings Plush/ST1 indicate that the proposed FTZ benefits for Klaussner will also positively impact them, as well. The principal officials at the three companies agree that maintaining cut-and-sew operations in North Carolina will allow domestic upholstery producers to be more competitive in selling their U.S.-made products in competition with imports in the U.S. market.
• The proposed quantitative limits on the amount of foreign-status MDS fabric to be used by Max Home and Klaussner under FTZ status will limit their consumption of such fabric to levels consistent with the companies’ historic MDS fabric usage rates. The annual limits proposed for Max Home (2.23 million square yards) and Klaussner (5.79 million square yards) were developed by adjusting each company’s average annual amount of MDS fabric consumed during its most recent three-year period of highest consumption with a company-specific growth factor (based on each company’s most recent three-year period of highest increases of its use of
  MDS fabric)