California Apparel News

In the U.S. apparel business, all eyes are on Europe.

American importers of clothes and textiles are closely watching how the European Union handles the end of its safeguard measures, or temporary quotas, which expired Dec. 31 on 10 categories of Chinese-made apparel and textiles.

Practically speaking, this means that European manufacturers and retailers now will be able to import as many Chinese-made goods as they wish without worrying about whether a quota will keep their merchandise floating on some boat in the middle of the Atlantic Ocean or cooped up in a customs warehouse.

In the United States, safeguard measures expire at the end of 2008 on 34 categories of Chinese-made apparel and textiles that range from sweaters, swimwear and shirts to trousers, cotton towels and underwear. In 2008, the quota cap on these 34 categories will inch up 15 percent to 16 percent over 2007.

Many apparel-industry executives question whether quotas or safeguards will truly disappear in 2008.

Michael Weisberg, chief executive of Second Generation Inc., a Los Angeles juniorwear manufacturer, has his doubts. “We are definitely planning on holding off,” said the chief executive of the family-run company, whose labels include Fishbowl and BeBop. “There are just so many surprises out there.”

Everyone seems to be taking the same attitude. That’s why the end of the European quotas is such a telling touchstone. Many industry observers are advising U.S. apparel makers to look toward Europe as a crystal ball for what will happen in the United States.

Already, European Union Trade Commissioner Peter Mandelson has promised to take action if there is a sudden rise in textile imports from China in 2008. And in October, the European Commission confirmed it will monitor textile and clothing imports from China until the end of 2008. Europe, like the United States, is allowed under World Trade Organization rules to implement safeguard measures until the end of 2008.

After 2008, safeguard measures in Europe and the United States get tougher to impose. But with a presidential election in the United States this year, it’s likely that several candidates will promise to protect the apparel and textile industry in states such as North Carolina, South Carolina and Georgia.

“There is no question some of the domestic industry will make efforts to try to extend the quotas or bring quotas back. But I think we are going to see the end of the old quota system,” said Julie Hughes, president of International Development Systems, a Washington, D.C., company that advises businesses about textile and apparel quotas. She notes that standards are higher after 2008 to prove that a local industry is being harmed by Chinese imports and needs an extension of safeguard measures. “But there are other types of trade remedies against China, such as anti-dumping measures or countervailing tariffs.”

Tariffs as tools

If a foreign company exports a product at a price lower than what it charges domestically, that is called dumping. In the United States, companies can file an anti-dumping petition with the Department of Commerce, and the issue is then decided by the International Trade Commission in Washington, D.C. If dumping is found, then a tariff is imposed on the goods.

Another way to curb imports is through countervailing duties, or tariffs imposed on goods whose production is believed to be subsidized by foreign governments. This, however, may be harder to implement because only apparel companies representing 25 percent of U.S. production can petition for countervailing duties. But hardly any clothing is produced anymore in the United States.

Still, apparel and textile importers keep citing those two measures as one reason not to expand in China.

“If there aren’t safeguards, there will be some form of quotas, such as anti-dumping or countervailing tariffs,” noted Weisberg, whose company does about 50 percent of its juniorwear production in China. “So our strategy is not to put all our eggs in one basket and take a wait-and-see attitude.”

Bruce Berton, director of international business consulting at Los Angeles accounting firm Stonefield Josephson Inc., believes safeguard measures will remain in 2009 on men’s and women’s cotton pants, which filled 88 percent of their quota as of Dec. 24.

“The bottoms business is just booming,” Berton said. “The U.S. government is going to be watching it like a hawk.” But government sources said any speculatios about quota restrictions in 2009 are only rumors.

Others are parlaying uncertainty into a move to expand production in China. The theory is that it will take the U.S. government at least six months to a year to take any kind of action on apparel imports from China.

Fortune Fashions Industries, a large Vernon, Calif., manufacturer of licensed and fashion T-shirts for places such as Walt Disney World and Universal Studios, is boosting its Chinese production from 20 percent in 2007 to 33 percent in 2008. “It’s all about getting ready for the 2009 no-quota thing and to get a better position on factory space,” said Daniel Baacute;rcenas, Fortune’s head of production, logistics and compliance.

Fortune’s approach is to expand in China but be ready to get out in six months if any kind of tariffs or restrictions get placed on Chinese-made apparel. The rest of the company’s production is done in Mexico and Central America.

But tariffs and other measures may not be necessary. Rising Chinese labor costs are making it less of a bargain than before, said John Clark, executive vice president of production and import administration at Paul Davril Inc., a Los Angeles maker of licensed apparel under the Kenneth Cole and Ecko Red label. “What is crucial is that China is getting more expensive,” he said. “Benefits and wages and prices are going up. It is quite an expensive place to do business now. I hear stories of people looking to source elsewhere.”

The bottom line is no one is rushing to China to do all their production. Everyone is cautiously watching and waiting.

“It’s a very tough call. There are all kinds of different schools [of thought] about what could possibly happen,” said Richard Wortman, a customs and international trade attorney in Los Angeles for Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt. “I really don’t think we are going to know the answer for another six months.”