California Apparel News

Quota restrictions on Chinese-made apparel and textile imports don’t expire until the end of 2008, but already the winds of a trade war are gusting.

The latest protectionist salvo was fired in late March when the Bush administration made a preliminary decision to impose tariffs on Chinese-made coated paper allegedly subsidized by the government.

This is the first time in 23 years that these tariffs, known as countervailing duties, have been applied to China. And now experts are worried the Bush administration may start applying countervailing duties to apparel and textiles made in China. Countervailing duties are tariffs imposed on products receiving government subsidies in the form of low or no-interest loans, direct grants or tax exemptions.

“This could be a template to go after other industries if it works,” said John Clark, executive vice president of production and import administration for Paul Davril Inc., a Los Angeles manufacturer that makes most of its private-label and branded sportswear and apparel overseas. “If quotas go away, people look for other creative ways to maintain protection.”

Already the National Council of Textile Organizations, a lobbying and trade group in Washington, D.C., is examining how countervailing duties could be applied to protect the U.S. textile industry. “Our safeguards [on textiles] expire at the end of 2008, and we have nothing to replace them with,” said Cass Johnson, NCTO’s president. “This is a tool we will look at to replace them.”

Johnson noted that China is in its 11th five-year plan for the textile industry, which means factories are being subsidized. “China is infamous for letting manufacturers borrow as much as they want and not pay it back,” he said. “If you could start going after them in that area, it would have quite an impact.”

Others note that China’s currency, the yuan, is artificially undervalued compared to the U.S. dollar. “There have been some rumblings about looking at the Chinese government’s handling of exchange rates of its currency and how it helps the apparel industry,” said Michael Heimbold, an attorney in the apparel division of Steptoe & Johnson, a law firm with offices in Los Angeles.

But many free traders argue that tariffs aren’t the answer. Tariffs only mean manufacturers move their production to other countries with low labor costs such as Bangladesh, Cambodia, India, Indonesia or Egypt. Protectionists counter that China’s rock-bottom apparel prices lower apparel prices all over the world.

Who moved the cheese?

This cat-and-mouse trade game is affecting how companies such as Fortune Fashions Industries, a Vernon, Calif.–based apparel company that does almost all its production overseas, makes its sourcing decisions. “We’ve been expecting this for the longest time,” said Daniel Barcenas, Fortune’s vice president of logistics.

The company gets frequent trade updates from its customs attorneys, who have been warning about doing business in Vietnam, which could be the subject of anti-dumping measures. The U.S. Department of Commerce started monitoring apparel and textile imports from Vietnam on Jan. 11, when that country became the newest member of the World Trade Organization. Monitoring will be done for at least six months before the Bush administration will decide whether to impose duties on Vietnamesemade garments allegedly sold for cheaper prices in the United States than in Vietnam. A Department of Commerce hearing is scheduled April 24 in Washington, D.C., for anyone to comment on the Vietnamese issue.

If Vietnam becomes the target of antidumping measures, China could be next.

Fortune Fashions, which produces a lot of T-shirts for Wal-Mart Stores Inc., Kohl’s and other clients, had contemplated going to Vietnam but has shied away from doing business there right now. About 45 percent of the company’s production is done in China, and the rest is done in Mexico, Central America and other countries.

If China became a difficult area to produce garments, Fortune would probably move to another foreign country for its sourcing. Barcenas said his staff is already exploring possibilities of producing in the Dominican Republic or Haiti. “I go where I have the least amount of headaches,” Barcenas said.

Politics as usual

Industry observers see the 2008 presidential and congressional elections playing a major role in establishing any protectionist policies. Currently, the Democratically-controlled Congress is more anti–free trade than the previous Congress.

“If you look at the political scenario for the 2008 elections, you have a presidential campaign and politicians from the textile states up for reelection, and they will be asking the administration to help themout,” said Julia Hughes, a vice president at the United States Association of Importers of Textiles and Apparel, a nonprofit industry group in New York.

Sen. Elizabeth Dole (R–N.C.) and Sen. Lindsey Graham (R–S.C.) pushed for antidumping monitoring of Vietnam. The politicians, up for reelection, are trying to protect their states’ textile industries, which have been helped by the recent Dominican Republic–Central American Free Trade Agreement, which grants duty-free status to apparel made in Central America and shipped to the United States if the apparel is made with U.S. yarn. Obviously, those states would rather see apparel sourcing go to Central America than to China or Vietnam.

“Certainly, we would like to see something addressed on the China issue that would take place after 2008,” said Lloyd Wood, spokesperson for the American Manufacturing Trade Action Coalition in Washington, D.C. “That has been an important issue to us all along.”