California Apparel News

Apparel importers bringing goods in from China are becoming a bit like gamblers.

They’re betting a lot of money their clothing will make it through U.S. Customs before quotas on certain items are filled in the upcoming weeks.

In particular, the clock is racing on such categories as cotton knit tops, cotton pants and underwear. Import specialists who monitor the fill rate on these goods predict the import door will slam shut on Chinese-made cotton knit shirts and cotton pants by early July. Underwear imports could be restricted by the end of July. When the quotas are filled, no more items in these categories can be imported from China until the beginning of next year.

The American Apparel & Footwear Association, the Washington, D.C.–based trade group made up of several large apparel and footwear importers, is predicting that embargos will be in place on cotton pants by July 10 and on cotton knit tops by July 11. But the embargos could occur earlier as importers rush to get their goods out of factories and through U.S. ports before those dates.

The sudden quota restrictions on garments made in China are throwing many apparel manufacturers for a loop as they recalibrate their sourcing strategies. “We are in a confused state,” said one Los Angeles apparel manufacturer who asked not to be identified. He said he is shifting his production to other countries and doing more domestic production to get around the quota barrier. But the end result, he predicted, will be higher prices for such items as T-shirts, blue jeans and cotton pants.

The off-and-on-again quota system revved up in mid-May when the Bush administration took the first steps to curtail the surge of Chinese garment imports that occurred after Jan. 1, when apparel quotas were phased out for World Trade Organization members. In exchange for joining the WTO, China agreed to let its fellow members restrict its apparel and textile imports to 7.5 percent over the previous year’s imports if Chinese-made goods caused market disruption. This agreement will expire at the end of 2008.

During the first five months of this year, the import of cotton knit tops swelled 1,570 percent over the same period in 2004. Cotton pants imports surged even more, increasing 1,643 percent during the same five months.

So far, safeguard measures, or temporary quotas, have been imposed on seven categories. The first three categories formally placed under quota on May 23 were cotton knit shirts, cotton pants and underwear. Then a few days later, four more safeguard measures were formally imposed on men’s and boys’ woven shirts, synthetic knit tops, synthetic pants and combed cotton yarn.

The quota for synthetic knit tops and synthetic pants is expected to be used up by mid- to late August. The quota on men’s and boys’ woven shirts should be filled in early September.

An embargo on sock imports from China is already in effect until the end of October.

More safeguard petitions, or requests for Chinese-made items to be placed under temporary quota, have been filed for sweaters, bras, dressing gowns, men’s and boys’ wool pants, and curtains and draperies.

One if by air, two if by sea

That means several importers are opting to ship their goods by air freight instead of ocean cargo to be the first through the door. Air freight costs four to five times more than sea freight, said Robert Krieger, president of Norman Krieger Inc., a Los Angeles customs broker and freight forwarder with several apparel accounts.

“I am suggesting that people look at the times they are bringing in their goods. The most conservative approach is to use air freight, but that doesn’t necessarily guarantee entry,” he said, noting that goods enter on a first-come, first-in basis but U.S. Customs officials can delay entry by days or weeks by inspecting a shipment.

Undoubtedly, U.S. Customs officials will be taking a closer look at apparel and textile imports to make sure the goods truly have been made in the countries listed on the labels. “We anticipate that the use of transshipments will increase, and we are going to be on our guard,” said Janet Labuda, director of the textile enforcement division at U.S. Customs and Border Protection.

The quota situation has kept customs attorneys busy. Richard Wortman of law firm Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt in Los Angeles has been helping his clients use their imaginations when it comes to importing.

“Everyone is cranking to meet quota deadlines,” Wortman said. “We see some people attempting to move production of goods that can’t possibly meet the deadlines. At the moment, the country I see a lot of is Vietnam, which has the manufacturing capability.”

For some clients, Wortman is recommending reengineering the product. “They may be doing underwear, but it can be reformatted into sleepwear and brought in under the sleepwear category,” he continued. “Then we took some women’s cotton shirts, and, by changing the gauge, we changed them into sweaters. Sweaters are under projected embargo, but that embargo period is much longer away, around November.”

Taking the long view

While smaller companies were caught off-guard by the renewed quota system, bigger manufacturers, such as Liz Claiborne Inc., were well-prepared.

“We reached the decision a number of months ago that quota would reemerge,” said Bob Zane, Liz Claiborne’s senior vice president. He directs the manufacturing, sourcing and logistics divisions from the company’s New York headquarters. “We instructed our divisions not to source product in China beyond certain delivery dates with different products.”

He said the $4.6 billion company was sourcing in 35 to 40 countries before apparel quotas disappeared and that has not changed. “We had no difficulty coming up with factories,” he said. “After quota is gone, that number [of sourcing countries] will be reduced by half.”

Another apparel company that planned for safeguard measures was Just for Wraps Inc., a misses and juniors manufacturer based in Commerce, Calif., that sells to retailers such as Dillard Department Stores Inc., J.C. Penney Co. Inc., Wal-Mart Stores Inc., Kohl’s and Bloomingdale’s.Fifty percent of the company’s production is still done in the United States. About 25 percent is done in Guatemala or India, 20 percent is done in Mexico and 5 percent is completed in China or other Asian countries.

“Knowing what was happening, we took a very safe position,” said Rakesh Lal, executive vice president and co-owner of the company, whose labels include Wrapper, a juniors sportswear line; A-List, a misses and juniors dress division; and Love-Squared, a juniors tops line for better retail stores.

Knowing that China might be troublesome, Lal said the company placed its orders for juniors and misses suits in Vietnam and kept cotton knit tops and cotton pants production out of China. “We did more Sri Lanka, Macao, Vietnam and Cambodia than China production,” he explained. Dresses, he said, are still being done out of China because quotas have not been imposed on that category yet.

“I think it is going to be like this for a couple of years as the U.S. and China solidify their relationship,” Lal said. “Once that is done, we will know which way to head.”