Bidding for Quota
The practice of selling quota visas revived
The year 2006 is already shaping up to be an uncertain time for importers bringing in clothing and fabric from China.
Now that textile quotas have been reinstated, the Chinese government has resumed the practice of issuing and selling quota visas to apparel and textile factories that want to export to the United States.
But no one is sure how much the quota visas will ultimately cost. In the past, visa prices have added anything from a few cents to $25 a garment.
For 2006, quota visas could cost a little bit less orhellip; slightly more. No one is sure. “It might be a bit crazy for the short term because no one is clear on the rules,” said Brian J. Murphy, a customs attorney with the Los Angeles firm of Stein Shostak Shostak Pollack & O’Hara. “Before, everyone knew what was going to happen based on historical situations. Now it is more like looking into a crystal ball.”
When apparel quotas disappeared in 2005 for China and the other 148 members of the World Trade Organization, China stopped selling quota visas to factories.
But when China and the United States in November negotiated a new three-year agreement establishing quotas on 34 apparel and textile categories, the Chinese government fired up the old quota-selling system. The quota system will be in place until the end of 2008 on items including pants, socks, sweatersand swimsuits.
This time, the Chinese government is allotting 70 percent of the quota visas to factories that have a history of exporting textiles to the United States. Ostensibly, these quota visas are free and are often given to government-owned enterprises. But quotas can be traded between factories and probably for a fee.
The other 30 percent of quotas is up for bidding, which means the price could go higher than what was fetched in 2004 if demand is great.
Bruce Berton, director of international business consulting at accounting firm Stonefield Josephson Inc., in Santa Monica, Calif., said he heard that the government was issuing quota visas only 30 days before an apparel shipment was made. “You have to apply for it and produce all the proper documentation,” Berton said. “You can’t buy it five or six months ahead.”
Round One
The first round of public bidding was Dec. 6–9, Murphy said. Some of the winning bids included $24 for a dozen men’s wool trousers and $12.50 for men’s cotton pants, said Jason Li, an attorney working with Murphy in the firm’s Shanghai office. By Dec. 26, the quota price on men’s cotton pants had risen to $17 a dozen and was still going up, Li said. Currently the quota visa price adds about $1.40 to a pair of blue jeans, Li pointed out in an e-mail from China. “Will U.S. buyers absorb the additional costs?” Li wrote. “Some Chinese factories told reporters yes.”
In November 2004, quota visas for men’s cotton pants were selling for $20 per dozen, slightly more than the current price. As the year progresses, the quota prices undoubtedly will rise.
A second round of bidding has been put off until the Chinese improve the bidding system. Some factories were unable to submit their bids to the electronic processing center before the original deadline, Li said.
While everyone is waiting for the second round, speculation abounds about whether quota visa costs will rise or fall.
“There are so many variables,” said John Pellegrini, a customs attorney who advises the U.S. Association of Importers of Textiles and Apparel in New York. “People are going to reflect on whether they can get similar goods in places like India that don’t have quota. China is efficient. Their prices are good. But if they try to charge too much for quota, people won’t pay for it.”
Jonathan Fee, a customs attorney in Washington, D.C., said quota visas might end up costing less than in 2004. That’s because in 2006 quota limits for apparel will rise 10 percent over 2005 numbers, and textiles will be able to increase 12.5 percent over the previous year. “From January 2005 through the summer, imports for many or most categories increased without restraints,” Fee said. “The number of imports will be bigger and could dictate the [quota] costs being lower.”
During the first 10 months of 2005, textile imports to the United States from China grew nearly 50 percent to reach $22.4 billion. They would have grown more if the U.S. government had not imposed safeguard measures, or temporary quotas on certain categories.
One thing is certain in 2006. Industry observers note that these days China is more interested in making higher-end goods than cheap apparel because the profit margins are much higher. They would rather leave the T-shirts to Bangladesh and the low-end lingerie to Sri Lanka.
“The Chinese generally don’t want to be the supplier of the cheapest clothing in the world, which is why they slap on these [quota] prices,” said attorney Murphy. “In the past, when quota was expensive, it kept the low-end stuff out.”
