Importers in Holding Pattern as U.S., China Debate Safeguards
To import apparel from China these days, you need the combined skills of a mathematician, a lawyer and a psychic.
Back-and-forth negotiations between China and the United States over apparel and textile quotas have kept retailers and manufacturers in a guessing game that seems to have no end.
Right now, apparel quotas are being determined by a hodgepodge of safeguard petitions, or temporary quotas for various apparel and textile categories, that are alternately in and out of effect throughout the year. On Sept. 28, U.S. and Chinese government officials ended their third round of negotiations in Washington, D.C., to hammer out some kind of bilateral agreement that would establish an across-the-board limit on most Chinese apparel imports into the United States through the end of 2007 or 2008. The two countries were trying to work out uniform restrictions similar to what the European Union negotiated with China in June. Under that deal, apparel imports to Europe will grow between 8 percent and 12.5 percent a year until the end of 2008.
But after three days of talks, no deal was struck. A fourth round of negotiations was scheduled for some time next month. The exact location and time have not been determined.
Up in the air
The delay is both good and bad news for U.S. apparel and textile importers, which increasingly rely on Chinese manufacturers to produce U.S. apparel lines.
More negotiations delay the implementation of pending safeguard petitions filed to block the import of several apparel categories. That means safeguard petitions on sweaters, dressing gowns and wool pants, expected to be approved on Oct. 1, would remain in limbo. Also affected are safeguard petitions on skirts, swimwear, women’s woven shirts, nightwear, knit fabric and socks.
“The biggest problem we have is that there is so much uncertainty,” said Richard Wortman, a Los Angeles customs attorney who works with apparel importers.
The U.S. has already restricted the importing of several categories of Chinese-made apparel. Under embargo are cotton and synthetic knit tops, cotton pants, underwear and synthetic pants.
This scattershot effect of restricting apparel imports has left U.S. manufacturers in a quandary. Many are getting creative about their sourcing strategy.
“It has been very unsettling, to say the least,” said Richard Hirsh, co-chief executive officer of John Paul Richard Inc., a womenswear manufacturer in Calabasas, Calif. The company, whose misses labels include Uniform, John Paul Richard and Studio JPR, does 60 percent of its production in China, down from 70 percent last year.
Hirsh said the company is shifting its sourcing to other countries and even relying more on domestic production.
“Our domestic manufacturing unit is a lot more busy than it was eight months ago,” Hirsh said. Last year, about 5 to 10 percent of the company’s production was done locally. That increased to 10 to 20 percent this year, he said.
The company’s sourcing director, Brad Whiteley, is also doing more traveling to find new factories in countries the manufacturer hasn’t used as much in the past.
“We are using more widespread sourcing out of India, Sri Lanka, Bangladesh, Vietnam and Cambodia, but we are still using Chinese fabrications,” said Whiteley, who joined John Paul Richard in June as vice president of global sourcing and production.
The company is also using different fabrics to bypass quota restrictions. That means blouses are being made with more silk and ramie fabrics.
The safeguard issue is a complicated matter that is all about timing. Safeguards imposed between Jan. 1 and Sept. 30 last only until the end of the calendar year. Safeguards imposed between Oct. 1 and Dec. 31 last for 12 months from the date they are imposed.
That means that if safeguards had been imposed on sweaters on or before Sept. 30, the restrictions would have lasted until Dec. 31. Under that scenario, import experts were predicting that sweaters would have been embargoed in early November, right before the crucial Holiday season.
Now, if safeguards on sweaters are approved later this year, the sweater quota won’t be met until late March or early April next year. That saves this Holiday season but creates a dilemma for the Holiday ’06 season.
“I have clients who are saying, ’Do I ship or do I not ship?’ ” said customs attorney Wortman. “If they ship sweaters at the beginning of next year, what are you going to do for Fall and Christmas?”
If that doesn’t make matters complicated enough, in mid-September several trade groups, including the American Manufacturing Trade Action Coalition in Washington, D.C., resubmitted nine safeguard petitions due to expire at the end of this year on 16 apparel categories. Those include restrictions on cotton knit shirts, woven shirts, cotton trousers, bras, underwear and synthetic trousers.
Safeguard restrictions allow apparel imports to rise only 7.5 percent over the previous year’s level. They can only be applied until the end of 2008 when, under rules of the World Trade Organization, all apparel and textile quotas are to disappear. Imports will still be subject to tariffs and duties.
