By and  on August 28, 2007

Sourcing executives in the U.S. apparel industry believe that existing quality assurance and testing programs will prevent the Made in China label from becoming a liability, although the troubles of other industries may translate into higher costs.

Most of the fallout from the recall of Chinese-made goods because of safety and environmental hazards has centered on other market segments, such as toys and pet food. However, the fashion industry's exposure is significant, with about $21.6 billion worth of Chinese-made apparel being imported to the U.S. annually. The situation has already spurred the accessories industry to action. The Fashion Jewelry Trade Association is pushing for national regulation for lead levels in jewelry.

The negative publicity, including toys with lead-based paint and formaldehyde in children's clothing, does not appear to have sent sourcing executives into a crisis mode. A sourcing executive at a major apparel manufacturer, who asked to remain anonymous, said his company did not see the need to increase its auditing of overseas facilities, adding that testing of fabric and garments was "far-reaching" and conducted on a regular basis.

Another sourcing executive, who also asked not to be identified, said brand-name clients for whom he manufactures product had sent out alerts regarding safety and environmental issues but that the alerts were more informational than a call to reevaluate suppliers.

Retailers and apparel manufacturers have devoted their resources in the last two decades to establishing programs to improve factory conditions and the treatment of the workers who manufacture garments. Corporate social responsibility positions have proliferated throughout the industry, and companies such as Nike Inc., Levi Strauss & Co. and Gap Inc. are considered to have some of the largest and most developed CSR programs. Wal-Mart Stores Inc., Gap and other companies release reports that detail their ethical sourcing efforts. Consumer watchdog groups pinpoint when companies fail to keep a close enough eye on their supply chains. However, without a universal set of industry guidelines on issues such as wages, overtime and health and safety practices, foreign factory owners have to meet the sometimes widely differing standards of each of their clients.

"The brand names and retailers all along have taken the stand that you have to meet our code of ethics and social responsibility issues and sign a certificate," said John Eapen, chairman of the American Apparel & Footwear Association's environmental task force. "A lot of people have signed the certificate, I'm not sure how truthful the contractors are when they do that so that seems to be the problem."The attention being focused on China at the moment — both The New York Times and The Wall Street Journal have run front page stories about environmental issues in the country in the last week — may force the apparel industry to tighten requirements for suppliers and intensify scrutiny of the supply chain. This translates into higher costs.

"The retailers and brand names are struggling," Eapen said. "It's a cost issue because you now have to physically check everything."

Seismic shifts in China's red-hot economy are at least partly to blame for the safety and environmental concerns.

"Rapid growth brings about pressure on the system," said Andrew Bernard, director of the Center for International Business at Dartmouth's Tuck School of Business.

Although brands and retailers have long known the ramifications of being associated with tainted products, Chinese officials are beginning to recognize how the nation, too, can have its image tarred.

"The Chinese are realizing that, if they want to be world-class players, they're going to have to take into account American consumers' concerns," said Bernard.

Now is the time to act, he said.

"Smart business leaders in the U.S. will put pressure on their suppliers because they have an opportunity to change now," Bernard said. "Two years from now, no one will be cutting them any breaks if this comes up again."

Sean Cady, senior manger of environment, health and safety at Levi Strauss, said chemical regulations issues extend beyond China.

"There are challenges, not only in China, but throughout the developing world in terms of knowledge around the hazards of certain chemicals and that's why, for Levi's, we work directly with chemical suppliers all over the world in all the countries where we source our products," Cady said. "In many developing countries, the focus on chemical safety is less intensive and regulation is less robust than in places like the U.S. or the European Union, so consequently awareness is lower."

Chemical usage and disposal procedures are likely to be among the major issues with which the apparel industry will be forced to contend. It's a reality that often the most effective and cheapest chemical can be the worst for the environment. Phillip Goodman, president of textile chemical supplier Boehme Filatex Inc., said China in particular is behind the times when it comes to chemicals."It's like the paint industry," said Goodman, noting that lead-based paints were popular because they performed better. Like lead paint, certain dyeing and finishing chemicals perform better but have negative health and environmental consequences.

"Using chlorinated solvents, these things were great for dyeing and finishing, but there's problems with the effluent," Goodman said.

Stringent regulations in the U.S. and in the EU forced chemical companies to develop more eco-friendly products, but they are more expensive to use. China's government, Goodman said, did little to regulate chemical suppliers and also kept foreign competitors out, leaving mills to seek out the cheapest resources. He added that the U.S. has far less influence over China's government, especially when compared with our influence over countries in Central and South America that receive trade benefits through the North American and Central American Free Trade Agreements.

China is changing on the chemical front, however. Foreign chemical suppliers are now getting access to China, and Goodman said a slow transition is under way.

"Technology-wise we're way ahead, and if it costs them more they don't really care because they want to make a cheap product," Goodman said.

Ultimately, Goodman believes the apparel industry isn't capable of monitoring the chemical industry in China. Instead, he said brands and retailers will have to start dictating what chemicals can and can't be used at the fabric or even yarn level. Boehme Filatex chemicals all meet the Oeko-Tex 100 standard, meaning they pose no health threat. The Oeko-Tex certification has found wide acceptance in Europe and is gaining traction in the U.S.

Eapen said brands will need to be more willing to pay a fair price for the work they want done.

"You have to honor and reward suppliers that have the know-how, that have the knowledge level and have the resources to do the right thing," he said. "You go for the cheap stuff, this is what you get. When you don't have the relationship and you don't pay them properly, they're trying to cut corners and you can get into trouble. When you have 2,000 suppliers, somebody's going to cheat you."

The Fiber Price Sheet
The last Tuesday of every month, WWD publishes the current, month-ago and year-ago fiber prices. Prices listed reflect the cost of one pound of fiber or, in the case of crude oil, one barrel.
FiberPrice on 8/27/07*Price on 7/30/07Price on 8/28/06
Cotton63.74 cents56.27 cents53.39 cents
Polyester staple88 cents88 cents85 cents
Polyester filament84 cents84 cents82 cents
July Synthetic PPI113.5114.9107.9
Crude oil$71.09$77.02$72.51
*The current cotton price is the July average on fiber being delivered to Southeastern region mills, according to Agricultural Marketing Services/USDA. The wool price is based on the average price for the week ended Aug. 24 of 11 different thicknesses of fiber, ranging from 15 microns to 30 microns, according to The Woolmark Co. Information on polyester pricing is provided by the consulting firm DeWitt & Co. The synthetic-fiber producer index, or PPI, is compiled by the Bureau of Labor Statistics and reflects the overall change in all synthetic-fiber prices. It is not a price in dollars but a measurement of how prices have changed since 1982, which had a PPI of 100. Oil prices reflect last week’s closing price on the New York Mercantile Exchange of future contracts for light, sweet crude oil to be delivered next month.

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