CFA Kicks Off 2005 Series
The California Fashion Association held the first in a roundtable series to help apparel industry executives prepare for the phase out of quotas for World Trade Association members on Jan. 1.
While some have predicted the New Year will bring an onslaught of cheap goods from China, others, including the panel’s two speakers, are not forecasting immediate, sweeping changes.
“I’m not convinced that anything changes radically on Jan. 1, 2005,” said Richard Wortman, a customs attorney with Grunfeld Desiderio Lebowitz Silverman & Klestadt, whose downtown Los Angeles offices hosted the panel. Wortman and customs broker Robert Kreiger, president of Norman Krieger Inc., led the discussion for a group of about 25 apparel executives including representatives from Pacific Sunwear, Hot Kiss, Santa Fe Finishing, Capital Factors and The Chinese-American Garment Contractors Association.
Krieger opened the discussion with a brief historical recap of the events leading up to the phase out of quotas. The practice of instituting quotas began following World War II, when the newly formed General Agreement on Tariffs and Trade (now called the WTO) established quotas as a way to establish fair trade agreements between first-world countries. GATT members also set the schedule to eliminate the phase out of quotas for its member countries in 2004. As the deadline approached, many countries scrambled to be admitted to the organization, which was renamed the WTO in 1994. Most notably, giant China joined the WTO in late 2001.
China’s huge manufacturing capacity and comparatively cheap labor supply has U.S. manufacturers worried about the competition after the elimination of quotas. But Kreiger explained that there are safeguards and other trade barriers that can be put in place to protect some domestic businesses for several years. Some are already in effect, including provisions that allow China to have quotas reinstated against them up until 2008 for some textile products and up until 2013 for general products.
Setting up safeguards
Safeguard provisions have to be filed with the Committee for the Implementation of Textile Agreements, which then has 15 days to accept the petition before placing it in the Federal registry, which then has a minimum of 60 days to take comments and decide whether to institute the safeguard, Krieger explained. If passed, the safeguard provisions would reinstate quotas for one year from the date of the formal request, he said. CITA has already instituted safeguards for bras, bathrobes and knit fabric.
“When I was in China in February, the place was crawling with customs attorneys. They were falling over each other,” he said. “My sources tell me that safeguards won’t be in place until mid-2005.”
Dealing with dumping
Another option is to file a dumping claim, Wortman explained. Dumping is when an importer brings goods into the United States for sale “at an unfair competitive advantage.” As Wortman explained, “The domestic industry has to make a dumping claim—and it doesn’t take much.” However, it would take at least six months before the preliminary hearing on the dumping charge, Wortman explained, adding that once a dumping claim is made, the case could be tied up in court for years. There are also punitive duties involved, which can range from “20 percent of the FOB (Free-on-Board) value” of the goods to an unspecified multiple of the FOB value, Wortman added.
“The world of dumping creates many market uncertainties,” he said. “You don’t know for one and a half to two years or more how much it’s going to cost you.”
China is not the only country under scrutiny for future dumping incidents; other countries including Taiwan, Cambodia, Laos and Russia are being watched closely as well.
“The Federal government is taking this very seriously,” said Wortman. “The Commerce Department has 35 to 40 analysts preparing for an onslaught of dumping cases.”
Other areas discussed were visa requirements for imports after 2005, the possible effect of the Presidential election in November, the benefits of Customs-Trade Partnership Against Terrorism (C-TPAT) compliance and whether any post-2005 savings will be passed on to consumers.
“Where the prices go, that’s really the million-dollar question,” said Wortman.
Both speakers stressed that companies that are well-versed in multi-country sourcing stand the best chance of adapting and remaining competitive after quotas are eliminated.
“During this time frame, if you have been creative with your sourcing to avoid quota, you have to continue to do that,” Wortman said.
The next CFA roundtable on this issue is set for Aug. 17. The topic will be “Implementation of Duty Savings at the Design Level.”
The CFA has also compiled a Trade Glossary with definitions of frequently used international trade terms. The handbook will be presented to CFA board members at the next board meeting in August. It will then be made available to CFA members. —Alison A. Nieder
