California Apparel News

The free-trade agreement with South Korea may not be the biggest boon for the textile and apparel sectors, but some heavy hitters in California’s clothing industry are looking to the accord to boost their export revenues.

Apparel sources said one of those is St. John, the high-end purveyor of knit suits and chic apparel made primarily at the company’s headquarters in Irvine, Calif.

St. John executives did not want to talk about their interest in the South Korean market. But it has been a well-known fact that ever since Glenn McMahon took over as the company’s chief executive in 2007, he has pushed to expand the company’s purview to the overseas arena. Asia has been a successful selling area for the company. It is not only St. John knit suits, with their $1,800 to $2,000 price tags, that go flying off the rack but also a wide swatch of accessories.

Accessories are something relatively new for the Orange County–based company. They were dropped around five years ago to concentrate on St. John’s apparel collection, which had veered away from its core older-than-50 customer. But in 2007, licensed items such as handbags, shoes, eyewear and fragrances were reintroduced with the express intent to capture a wider international market.

St. John’s popularity in the Korean market is seen every season at Hong Kong Fashion Week, where, on the runway, one South Korean designer consistently shows structured knit suits whose DNA closely resembles what comes out of the St. John factory.

Other apparel companies taking an interest in the Korea free-trade agreement are Levi Strauss & Co., Kellwood Co., Liz Claiborne Inc., The Warnaco Group and Hanesbrands Inc. In 2007, they all sat on the Industry Trade Advisory Committee on Textiles and Clothing to counsel the U.S. Trade Representative’s office, which negotiated the free-trade agreement, on what they would like to see in an accord.

Levi Strauss executives said they are strong advocates of international free trade and are glad the free-trade agreement is moving through Congress. “While Levi Strauss & Co. does not source significantly from Korea, we are looking forward to exploring opportunities that arise as a result of this agreement and believe that the benefits of free trade will be shared by both countries,” the executives said in an e-mailed statement.

The companies’ input was incorporated into the United States–Korea (KORUS) Free Trade Agreement, which was signed in 2007 by President George W. Bush. The pact still has to be approved by the U.S. Congress and its Korean counterpart. Two sticking points bogging down the agreement’s approval have been better access into the Korean market for U.S. autos and beef.

South Korea and the United States had hoped to sign a deal during the Group of 20 summit Nov. 11–12, attended by President Barack Obama in Seoul, South Korea. But that didn’t happen. Negotiations are still ongoing.

Textile tariffs tumble

One group expected to benefit from the free-trade accord are textile importers, who like the higher-end textiles and novelty fabrics that are a Korean specialty.

On average, textiles imported from South Korea carry a 5 percent to 10 percent tariff, but some synthetic categories fall into the 15 percent to 35 percent tariff range.

“I think it would help because of the duty-free status,” said Howard Koh, an importer of Korean textiles and owner of ProTextile Inc. “China is strong in cheap fabric, but Korea is stronger in more-expensive items.”

Michael Jahromi, owner of MJ Textile Inc. in Los Angeles, said the elimination of tariffs on Korean textiles would even the playing field with Chinese fabrics, particularly on novelty items.

Under the original agreement signed between South Korea and the United States, many textile tariffs would be eliminated immediately, but there is a 10-year timetable for phase-out of duties for U.S. imports of some sensitive textile products. In addition, the agreement contains a special textile safeguard allowing the United States to reimpose tariffs on certain goods should Korean textile imports surge and harm domestic producers.

South Korea has a long tradition of manufacturing textiles. For years, the textile industry was one of the top employers and exporters. Even in 2009, the textile and apparel industry provided 252,000 jobs, or 7 percent of Korea’s manufacturing industry, with the majority of that coming from the textile side of the business.

But Korea’s market share in textiles has dropped precipitously since China joined the World Trade Organization in 2001, eventually eliminating apparel and textile quotas among WTO members.

China is now the No. 1 provider of imported textiles into the United States. In 2009, it supplied $872 million in fabric and $73 million in yarns. South Korea is the No. 2 supplier of textiles, shipping $419 million in fabric and $65 million in yarns last year.

When it comes to apparel, China is overwhelmingly the world’s apparel factory. Last year, the United States imported $23 billion in clothing from China, compared with only $281 million in apparel from Korea, according to figures from the U.S. Office of Textiles and Apparel.

No one sees a boatload of Korean apparel entering the U.S. market if the free-trade accord is signed. But textiles might be another story.

“There are some benefits, but whether it would be a big boon is another story,” said Nate Herman, vice president of international trade at the American Apparel & Footwear Association, the industry trade group based in Arlington, Va.

Herman noted that there is a yarn-forward provision in the trade agreement. To qualify for duty-free status, fabrics must be knit from yarns from the free-trade region. Yarns cannot come from countries such as China. “It is certainly not the agreement we had wanted,” he noted. “But it has potential.”

Still, people are questioning whether this free-trade agreement will be passed at all. With almost $68 billion in trade between the nations, the deal would be the United States’ largest since the North American Free Trade Agreement in 1994 and would help Obama with his goal of doubling American exports in five years.

The two sides are trying to resolve Korea’s restrictions on beef and auto imports. Sen. Max Baucus (D–Mont.), who represents ranchers in his state, has been fighting to open the beef market in South Korea and was disappointed to hear the issue was not resolved at the Group of 20 summit.

And U.S. labor unions and automobile companies want to see a more open market for U.S.-made cars in the Asian country.

Timing is everything in getting the trade accord passed. With a lame-duck Congress in session until early next year, it is unlikely the trade agreement will get any traction. But there is hope.

“If they can reach an agreement, it can get passed,” the AAFA’s Herman said. “They have until summer, and then everything will get caught up in presidential election politics.”