California Apparel News

HANGZHOU, China—The 87 apparel importers who set out on a two-week trip to China on May 20 arrived just as the United States government installed temporary quotas on several categories of apparel imported to the United States.

The importers’ mission was to seek out clothing factories to make their wide assortment of T-shirts, sweatshirts, blouses, pants, leather coats and uniforms. But barely a week before their arrival in Shanghai on May 21, the Bush administration said it would approve safeguard measures, or temporary quotas, on seven apparel categories and that more were on the way.

Days later, the U.S. government announced quotas would kick in immediately on three of those seven categories. Many industry observers say quotas could be exhausted within eight weeks. That means there is probably only a month or two to bring in cotton knit shirts, cotton pants and underwear from China before the import door slams shut until Jan. 1, 2006. (Safeguard measures for manmade-fiber knit shirts, men’s and boys’ manmade-fiber woven shirts, manmade-fiber trousers and combed-cotton yarn have been approved but not yet enacted.)

“This is going to affect everyone’s business,” said Elias Moosighi, president of All Star Marketing & Promotions Inc. in Vernon, Calif.His company imports moderate and off-price men’s and women’s casualwear.

Indeed, several buyers on the ASAP China Buying Trip, organized by El Monte, Calif.–based Cyber Merchants Exchange (C-Me), were saying the same thing. The safeguard measures were going to put a crimp on doing business with China this year. But they all agreed that the two-week trip taking them to five Chinese cities for factory visits was a good introduction to the region, which by the end of 2008 will probably be free of any apparel quotas. “I won’t count China out for my sourcing, but for right now I’ll still probably be getting my T-shirts out of Bangladesh. This trip is very educational for me,” said Alan Tiegen, chief executive of White Lava Trading of Laguna Beach, Calif., which does T-shirts and sweatshirts for the surf, skate and snowboard industries.

For many of the buyers, who came from California, Illinois, New York, Georgia, Florida, Sweden, Germany, Italy and Canada, this was their first foray into a country that’s quickly becoming the apparel factory to the world.

The 16-day trip organized by C-Me chief executive and founder Frank Yuan, who puts on the ASAP Global Sourcing Show twice a year in Las Vegas as well as in partnership with Material World in Miami Beach, Fla., was a real bargain that many couldn’t pass up. For $1,800 they received roundtrip air fare to China, hotel, meals, interpreters and transportation between five major apparel centers: Shanghai, Hangzhou, Suzhou, Guangzhou, and Shaoxing.

The bargain-basement price was possible through contributions by several sponsors. Cotton Council International donated $50,000, eager to promote Chinese apparel factories because they buy about 26 percent of the United States’ cotton crop. Maersk Sealand donated $20,000 and Gerber Technology gave $4,000. Several local Chinese business organizations and companies organized lavish lunches and dinners for the entourage. One evening, Hempel International, a $150 million company in Hangzhou whose 6,000 workers make apparel for several well-known labels such as Liz Claiborne Inc., Jones New York, John Paul Richard Inc., H & M and Zara department stores, had an elaborate dinner at its vast headquarters. Inside a tall reception area with towering bamboo trees, chefs wearing white toques carved salmon, braised duck and sides of beef while buffet tables topped with white plates piled with various Chinese dishes were ready for the crowd of nearly 200 people.

Musicians attired in typical Chinese dress played the Chinese violin and harp while a fog machine emitted wisps of airy clouds behind them.

Meet and greet

During their visit to Hangzhou, a city of about 5 million, apparel buyers attended a two-day trade show at the five-star New Century Grand Hotel Hangzhou, where they were staying. The show, one of three trade shows being organized by Yuan for the two-week trip, gave them the opportunity to meet about 135 medium-sized apparel manufacturers. Some buyers went to visit the factories in cars sent to pick them up.

But the business climate at the show was mixed; factory sales representatives and general managers complained of an uncertain business climate and diminished profit margins now that the Chinese government is raising its export tax sixfold on each garment. The new tax will be about 12 cents a garment, which puts a crimp on many Chinese manufacturers’ profit margin.

Dexiang Guo, president of Dongyang City Yuxing Dress Co. Ltd., does a considerable amount of business making sweatshirts for action sports brands like Split and Quiksilver Inc.’s Roxy. But the new tax was going to cut into his profit margin. “My company is in a dilemma,” he said, shaking his head.

First there are the safeguard measures that make it uncertain how many cotton tops he can send to the United States, where he does 98 percent of his business.And then there is the export tax he will have to start paying in June. “I’m glad my May contracts have been filled. But I am going to have to negotiate a higher price in June for my goods,” he said.

Guo said he thinks his fashion-forward hooded sweatshirts, which cost $5 to make in China and sell for $50 to $60 in the United States, are bargains. If his U.S. clients didn’t agree to pay a few cents more for his goods, he didn’t know if he wanted to export them.

Benny Cheung, general manager of Nomura Trading Co. Ltd., which sells denim jeans to Japan, thought the new export tax was a big problem and would put a crimp into profit. “We are hoping that the buyers will agree to increase the price they pay or we will suffer. Right now if everything runs smoothly our net profit is 1 percent.”

He said he was glad his company hadn’t started exporting to the United States even though that was one of its big goals this year. In January he took a trip to New York to cast about for new clients.“In some ways we are very lucky not to have gotten any U.S. clients yet,” he said.

The enforcer

While manufacturers at the trade show were hoping to get more U.S. clients, one of the top U.S. customs officials was at the trade show to speak at a seminar about quotas and trade enforcement.

Janet Labuda, director of the textiles enforcement division for U.S. Customs and Border Protection, broke the news to Chinese manufacturers and U.S. and European buyers that on May 23 quotas went into effect for cotton knit tops, cotton trousers and underwear.

Until the end of the year, she said, the United States would allow 56.4 million cotton knit tops, 51.6 million cotton pants and 60 million pieces of underwear to be imported. She expects the quotas to be filled in the next month or two.

Because the Chinese government has dismantled its export licensing system, it has become more difficult to figure out when those quotas will be filled and an embargo on goods will go into effect.

She advised those who want to monitor the daily import numbers to go to two Web sites. One is the U.S. Customs and Border Patrol site at www.cbp.gov. Click on imports and then go to the left-hand side for the textiles link. The other Web site belongs to the National Council of Textile Organizations at www.ncto.org.

She warned manufacturers and importers that her office will be closely watching imports to make sure they are labeled correctly, that the paperwork is in order and that no transshipments occur. “This industry is designated a priority trade issue by my office,” she said.

That’s because textiles and apparel made up 43 percent of the $21 billion in duties collected by customs officials in 2004.