WASHINGTON — Saber-rattling aside, the scramble is on as U.S. firms react to the latest squaring off between the Bush administration and China over textile imports.
As reported, the administration moved last week to protect the U.S. textile industry by instituting safeguard quotas on seven categories of goods from China. The effort to protect the domestic industry, and perhaps bolster Congressional support for the stalled Central American Free Trade Agreement, has the Chinese crying foul. China hit back at the imposition of safeguards by the U.S. and by the European Union (on two product categories) by canceling export tariffs on 81 categories of goods.
The safeguards have set off a rush by U.S. importers and vendors to ensure their orders for the products are filled in the months ahead. Embargoes on some products could come as early as mid-July, while vendors already are switching production from China to low-cost nations such as Hong Kong and India to ensure there is no disruption to shipments.
"We have to make corresponding policy adjustments since the EU and the U.S. have set controls on Chinese textile exports," said Chinese Minister of Commerce Bo Xilai at a press conference Monday in Beijing, according to the Chinese embassy's Web site. "We must be fair to Chinese producers."
Xilai said China would look to resolve the issue through consultations, but reserve its right to bring a case disputing the safeguards to the WTO. China agreed to the possibility of such restrictions when it joined the global trade body in 2001, but has said the quotas could have been phased out more gradually, avoiding the sudden rise in imports.
"We do not want to see a trade war," said Xilai. "I do not believe retaliation to be the only way [forward] for us. A healthy trade relationship is good for both sides."
Meanwhile, importers and retailers are trying to gauge the impact of the administration's move. The safeguards bind imports in the seven categories to increases of only 7.5 percent. In all, the U.S. restricted $1.31 billion worth of Chinese imports in the seven categories of goods, including knit shirts, trousers and underwear, all in cotton.
The quotas in principle were expected by the industry, though their reality has turned out to be harsher than some anticipated. Should Chinese imports of cotton trousers, for instance, keep up their pace for the first four months of the year, an embargo would go into effect by July 18. (See the full list of projected fill rates on this page.) Many anticipate imports to surge even more as vendors rush to get their goods out of China, causing quotas to fill even quicker.Vendors, however, aren't projecting a widespread disruption in their shipments to stores as they move production to other countries, where costs might increase or turn times might be slow.
"It brings the gambling element back into the business because you don't know what other companies are doing," said Natalie Hanson, vice president at International Development Systems, a trade consulting firm.
Abhorring uncertainty, vendors are closely watching how quickly the quotas fill up and might soon take some of their money, in the form of orders, off the China table.
"We have to be very sensitive to the quota fill rate so we don't get caught," said Joe McConnell, vice president of strategic sourcing at Kellwood Co., noting the company has prepared for the restrictions.
Since the quotas cover a limited number of categories and are expected to fill at different times, McConnell said the impact at the ports will not be as dramatic as it was in January, after the quota system that regulated world trade for more than 30 years wound down.
As the quotas bar imports from China, Kellwood will move some of its production into other countries in the Far East. The company, however, might still source some of its fabric from China for that production.
"We felt that there would be safeguards imposed; however, we are surprised at the depth of the safeguards," said McConnell.
Now, companies are determining the long-term impact of the safeguards, which have disrupted what was supposed to become a quota-free world.
"Short term, it really hasn't had that big of an effect, but long term, it's going to change the way that we're going to do business in China," said Steven Feinstein, president of M.M.&R. Inc., which makes the ECI brand and has about $60 million in sales. "If [President] Bush really goes ahead and pushes forward as strongly as they're saying right now, it's going to have a lot of effects."
Feinstein said his company will move some of its Chinese production into other areas such as Hong Kong, which is connected to China but treated separately in trade matters, and India as a result of the restrictions."We thought that, if the safeguards were put on, there would be some kind of a compromise [between the U.S. and China]," said Feinstein. "We thought there was going to be some kind of a tax or a larger duty put on these categories to make it more competitive with other places."
For now, Feinstein is anticipating a rush of companies trying to get goods out of China before quotas are put back on. "I'm telling my factories right now that they have to figure three weeks before the projected [embargo] dates that the shipments have to leave," he said.
Companies are already quickly sending through what orders they can on quota categories, which might also account for some of the dramatic growth. Chinese imports of the cotton trouser category surged 1,573 percent during the first quarter, while cotton knit shirts and blouses are up 1,277 percent. Overall imports of Chinese apparel and textiles jumped 48 percent through March to 3.47 billion square meter equivalents.
"Anything that has been in the works we've already been rushing, and we don't really think that we'll have any disruption at all," said Michael Lerner, chairman of better sportswear firm Marisa Christina Inc., which has sales of $22 million.
In some cases, companies simply will tweak the fabric content on styles so they no longer fit into the restricted categories. Vendors said they would be transitioning some looks currently wrought in cotton blends into silk or other blends.
However, there is only so far vendors can go with that strategy, said Lerner. "You're driven by what the customer wants. The days of us telling the consumer what fashion is and what they want to buy are over."
The amount of goods allowed to be shipped to the U.S. under safeguards is determined by an eye-glazing formula — take imports for the 12 months ended Feb. 28 for a given category, add 7.5 percent to get the annual rate and then pro-rate that figure for the balance of 2005.
Assumptions on how quickly goods will be embargoed are difficult to make, though, as vendors rush to ship before the floodgates close.
"There's not a real good way of calculating these fill rates — at best you have to guesstimate," said Erik Autor, vice president and international trade council for the National Retail Federation.Retailers who produce their own goods, such as Gap, double as importers and are every bit as vested in the vagaries of trade as the vendors. Additionally, orders for the goods ready to come out of China soon were placed four or five months ago, said Autor.
"I don't know if anyone has a good idea of what those orders are going to look like in aggregate," he said. "Orders could speed up or orders could slow down because retailers don't want to take the risk."
When Quotas On Chinese Imports Fill (At Import Rate Through April)
Average Daily Imports
Projected Fill Date
Cotton knit shirts and blouses
Cotton, man-made fiber underwear
Man-made knit shirts and blouses
Man-made fiber trousers
Men's and boy's cotton and man-made fiber shirts, not knit
Combed cotton yarn
Average daily imports for first four months of 2005. Quotas on cotton knit shirts, blouses and trousers and cotton and man-made fiber underwear went into effect on May 23. The other quotas were effective May 27. Quantities in dozens, except for combed cotton, which is in kilograms.
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