California Apparel News

Nothing is ever easy in the apparel business, particularly when it comes to importing from overseas.

First, you think apparel and textile quotas are gone. And then before you know it, they’re back again.

That was the message at the California Fashion Association’s membership meeting on May 17 at the California Market Center in Los Angeles. More than 150 people turned out to hear a panel of experts discuss temporary quotas and potential anti-dumping measures that would add tariffs to Chinese-made apparel and textile imports.

Andrew Schroth, a customs and international trade attorney with the New York office of Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, noted that the Bush administration recently approved safeguard measures, or temporary quotas, on three categories of Chinese-made apparel: cotton knit shirts, cotton pants, and synthetic and cotton underwear.

Through April 2005, U.S. imports of Chinese-made cotton trousers increased 1,505 percent, imports of cotton shirts increased 1,346 percent and imports of underwear increased 347 percent, according to the U.S. Office of Textiles and Apparel.Quotas on those categories are likely to take effect at the end of May or in early June and remain in effect until the end of the year. That means imports of the categories will increase by no more than 7.5 percent of what was allotted in the previous 12 months.

On May 18, the U.S. government approved four more safeguard measures against China for manmade-fiber knit shirts, men’s and boys’ cotton and manmade-fiber woven shirts, manmade-fiber trousers and combed-cotton yarn. Those safeguard measures are also likely to take effect at the end of May.

And the U.S. government is expected to enact safeguard measures on six other categories considered to be threats to domestic production, including knit fabric, dressing gowns and robes, bras, and cotton and synthetic sweaters.

Schroth warned that after implementation, quotas on cotton knit tops will probably be exhausted in a little under eight weeks or sooner, given the rate at which U.S. companies have been bringing goods in from China.

“Chinese exporters and producers who have been monitoring this have product ready to go on the water. My guess is that eight weeks is a very conservative guess on this particular category,” Schroth said. “You can use this analysis for all the quota categories. It gives you the sense of urgency of getting product on the water.” Goods that have not already left China at the time of implementation will be subject to quotas.

He said he expects safeguard measures on other apparel and textile categories will become a reality by the end of June.

Preparing for the long term

Safeguard measures are steps the United States and other countries can take until the end of 2008 to curb Chinese apparel and textile imports. They were part of China’s agreement to enter the World Trade Organization in 2001. But there are other separate threat-based safeguard measures that could be imposed until the end of 2013. These are not limited to apparel and textiles but are product-specific and can be applied to anything from agricultural goods and furniture to electronics.

With safeguard measures on the horizon, importers need to decide which apparel categories are important to them and then diversify the countries in which their products are made, not relying solely on China.

“Make sure you know what your vendors are doing and where the product is coming from,” Schroth warned. “U.S. Customs is all too aware that there is general panic and mayhem out there. A lot of producers and exporters may be playing fast and loose with origin and category classification. With respect to safeguard measures, you really have to look at this as a long-term problem for your business.”

But safeguard measures are not the only major issue for importers; anti-dumping measures lasting five to 20 years for Chinese goods could also be imposed. Anti-dumping measures are tariffs imposed on goods the U.S. government believes other countries are selling below cost. These measures impose duties averaging 50 percent to 350 percent.

Schroth said he believes some kind of anti-dumping measures will be implemented because U.S. producers have already used them to curtail imports of wooden bedroom furniture and hand trucks from China. Anti-dumping duties can make a company noncompetitive for years. Schroth said this type of measure is the most serious challenge facing the apparel and textile industry.

Robert Krieger, president of Norman Krieger Inc., a Los Angeles customs broker and freight forwarder, noted that with safeguard measures taking effect, getting goods through U.S. Customs has the same hazards and scrutiny levels as last year. “You should be monitoring your levels of imports and the categories you import, if you are not already doing it. You should estimate when quotas will close,” he said.

Krieger noted that with China’s overcapacity to produce apparel, many goods will get transshipped to other regions to make it look as if they were made elsewhere.“It is a historic fact that many garments were made in China and then shipped to a third country where tags were put on,” Krieger said. “U.S. Customs officials are painfully aware of this. What is going to happen? There were many detentions and seizures last year, and a lot of entries didn’t get cleared quickly.”

To weather customs inspections, Krieger suggested shipping as early as possible, being diligent about whether the goods are produced in legitimate factories, and keeping paperwork and records in good order just in case customs officials request them.

Bruce Berton, director of international business consulting for accounting company Stonefield Josephson Inc. in Santa Monica, Calif., had his own warnings. “Andrew put you in the frying pan. Robert put you in the fire. I’m sorry to say I’m going to throw gasoline on it,” he said.

Berton warned that added expenses are looming for apparel and textile imports. China will probably increase its export tax on apparel and textile goods to 50 cents to $1 a unit in July. Also, there is a bill before Congress that would add a 27.5 percent duty on all imports from China unless the Chinese government adjusts its exchange rate, which is pegged to the U.S. dollar, by 27.5 percent.

Be Prepared

To assess the risk of safeguard measures to your apparel production:bull; Assess project needs. Get orders in to factories and the product on the water.bull; Watch the weekly fill rates on safeguard measures.bull; Participate in the comment period on safeguard measures offered by the Committee for the Implementation of Textile Agreements in Washington, D.C.bull; Watch out for country origin and category fraud. To minimize the exposure to anti-dumping findings:bull; Determine the products and countries likely to be targeted.bull; Improve accounting and record-keeping systems.bull; Allow time for organizational changes.bull; Solidify relationships with U.S. buyers.bull; Consider consolidating production within the target country. bull; Consider the need to find alternative-country supply arrangements.