California Apparel News

U.S. apparel importers are hoping they don’t get caught with their pants down as the quota on Chinese-made cotton trousers is swiftly filling up.

Trade experts predict that men’s and women’s cotton slacks and shorts could be embargoed from China as early as Oct. 22.

Even though China is a World Trade Organization member that shouldn’t be governed by quotas, the United States imposed special safeguard measures on that country in late 2005, slapping quotas on 34 categories of textiles until the end of 2008.

Last year, none of the apparel quotas was used up. But this year is a different story.

Currently, about 65 percent of the cotton-pants quota has been gobbled up, with prime shipping season still set for October. That has led to a run-up on the quota prices to export pants out of China. In early January, quota was priced at a little less than $1 a pant. That recently zoomed to about $4 a pant, putting financial pressure on companies to source cotton pants elsewhere.

“We’ve been watching this all year,” said Michael Weisberg, chief executive of Second Generation Inc., a $35 million Los Angeles company that makes clothing for teenagers and children under the Be Bop and Fishbowl labels. “The quota usage has been much higher since January. We moved more goods to Vietnam, and we are doing a lot more domestically this year.”

Now Second Generation produces about 15 percent of its woven pants domestically compared with zero percent last year.

Still, the early fill date for the cotton-pants quota is leading several local apparel manufacturers scrambling to relocate some of their sourcing to other Asian countries.

“We are concerned,” said one sourcing manager from a major apparel retailer that produces its own private-label garments. “We have to find alternatives. The worst thing for us is not to get our deliveries.”

The sourcing manager, who wished not to be identified, said it is difficult to quickly switch orders for denim pants because denim factories need to be near a good wash house. In addition, sourcing people need at least three months to commit to a denim fabric selection before production even begins.

So this retailer is taking to the air to beat the mid-October cutoff date. “We can afford to air our private-label stuff,” said the sourcing manager. “The margins [for private label] are huge.” Air freighting can add about $2 to the cost of each pant.

Because shorts are included in the embargo cutoff date, retailers trying to ship Spring goods before the end of the year may be affected, said John Clark, vice president of import production administration for Paul Davril Inc., a 33-year-old Los Angeles company that produces private-label goods as well as clothing under the Kenneth Cole and Ecko Red labels in overseas factories. “For those big people who need to ship their Spring goods early, it screws them up,” Clark said.

Socks, shirts and underwear

Cotton pants are just the first of several Chinese clothing categories whose quotas are expected to fill before the end of the year.

According to calculations by the American Apparel & Footwear Association in Arlington, Va., cotton and synthetic underwear should embargo by Nov. 21, cotton knit shirts by Nov. 23, synthetic men’s and women’s pants by Dec. 7, socks by Dec. 14, and synthetic knit shirts by Dec. 24.

The thought of cotton knit shirts being embargoed by the latter half of November has forced manufacturers to reorganize their sourcing strategies.

Dean Wiener, chief operating officer at Stony Apparel Corp., a Los Angeles firm that makes childrenswear and juniorswear, has shifted even more of his cotton knit shirt manufacturing to Guatemala and Mexico, making up 60 percent of production. China accounts for the rest.

“I should be fine,” Wiener said. “I’m costing goods out in India, Vietnam and Indonesia.”

Imports of Chinese-made clothing this year have grown as fast as a newly planted bamboo forest. Underwear imports have zoomed 343 percent. Cotton knit shirts imports have mushroomed 237 percent while cotton pants imports have grown 173 percent, according to the AAFA.

Nate Herman, the AAFA’s director of international trade, noted that U.S. importers pushed to bring in goods earlier this year because a rebate on the 17.5 percent valueadded tax imposed on Chinese apparel was reduced from 13 percent to 11 percent as of July 1.

New territory

For many apparel importers trying to diversify beyond China, Vietnam has become an attractive manufacturing site ever since it joined the World Trade Organization on Jan. 11. WTO membership meant that just about all apparel quotas into the United States disappeared.

Or so it seemed. Early this year, the U.S. Department of Commerce announced it would monitor apparel imports from Vietnam to ascertain whether that country was dumping goods at below cost. Monitoring will take place until the end of the Bush administration. The government is scrutinizing five apparel categories: trousers, shirts, underwear, swimwear and sweaters.

The first analysis will occur when six months’ worth of data is available by early September.

Experts say the threat of anti-dumping measures creates more uncertainty than apparel quotas. That’s because importers are the ones liable for paying any antidumping penalties that can be imposed way after items clear customs, fill a store’s shelves and have been purchased by customers.

Meanwhile, the threat of anti-dumping measures has curtailed manufacturers’ enthusiasm for using Vietnam after the first six months of this year.

“We know they are monitoring certain types of apparel imports from Vietnam, but we won’t know how they will make the analysis,” said attorney Thomas Vakerios of Sandler, Travis & Rosenberg in Washington, D.C., who represents the Vietnam Producers/ Exporters Group.

“It’s hard to read the tea leaves,” said Julia Hughes, president of International Development Systems, aWashington, D.C., company that monitors quotas for U.S. importers. “It’s hard to interpret what will be the trigger that will set off an anti-dumping measure.”

While people are eyeing Vietnam cautiously, manufacturers such as Liz Claiborne Inc. are keeping their production there for now.

“We have relations with vendors that have multi-country facilities. So in the event there is a self-initiated anti-dumping action, we have the ability to move quickly to ensure there is no disruption in the product,” said Gary Ross, Liz Claiborne’s corporate vice president of global manufacturing and sourcing. “But the cloud of dumping has negatively impacted our ability to expand there.”

Ross and 11 other apparel importers, retailers and industry lobbyists met with Vietnamese President Nguyen Minh Triet when he visited Washington, D.C., in June. They urged him to ask President Bush to abolish the anti-dumping measures when the two met. It’s not known what became of that request.

Vietnam is prized for its skilled work force and is considered the next little China. Many of the factories in the small Southeast Asian country are owned by Chinese, Taiwanese or South Korean businesspeople who install apparel factories wherever free trade leads them. “Nobody wants to leave Vietnam,” said one apparel importer who wished not to be identified. “They are like China. They get it. They are savvy, and they have a good needle.”