World Trade Organization Ruling: More Noise Than Results?

Innerwear executives believe Beijing will appeal the ruling, which could delay any amendments to duties and quotas for years.

China’s Commerce Minister Chen Deming meets with ministers of the World Trade Organization.

The World Trade Organization’s ruling last week that China violated global trade rules on certain raw materials didn’t excite the innerwear industry. The reaction was same old, same old.

This story first appeared in the July 11, 2011 issue of WWD.  Subscribe Today.

Export quotas, export licensing requirements and minimum export price requirements from China have been plaguing wholesalers for decades. And industry executives believe Beijing will appeal the WTO ruling, a move that could delay any amendments to duties and quotas for years. U.S. companies will continue to be impacted throughout the process, said executives.

The WTO’s decision applies to two areas: raw materials such as magnesium, fluorspar, silicon carbide, boxite, and zinc, which are incorporated primarily in the production of steel, aluminum and chemical products, and fiber and textile laminate components used in the apparel and innerwear fields. Microfibers and foundations including shapewear and bras are important segments.

The general consensus is the largesse of China’s sourcing and manufacturing base cannot be ignored, even if the Chinese government decides not to comply with the WTO ruling.

Ray Nadeau, president of Russell Newman Brands and former president of VF Intimates, sized it up this way: “The Chinese government will do what they think is right for China. They won’t take any influence from the WTO decision.”

“Forget about China complying. It’s not going to happen,” said Victor Vega, senior vice president of inventory, production and sales management at Wacoal America, the U.S. arm of innerwear giant Wacoal Japan. “Companies [innerwear, apparel, retailers] are still too dependant on China. I can’t see companies saying ‘I’m not going to buy from you anymore’ because they need product every day, every week.

“A lot of noise is being made over this issue, but the issue began two decades ago and has gradually become much bigger,” continued Vega. “It’s interesting timing because textiles have been entrenched in China for decades, but China is no longer interested in the textile industry…they are interested in an upscale economy for domestic consumption. It reminds me of when textiles in the U.S. moved to the South, then Puerto Rico, Central America, and then China.”

China claims export policies are for the protection of its environmental and natural resources.

But Richard Leeds, chairman of Richard Leeds International, said the “real issue” is supply and demand in the global marketplace versus China’s domestic channels.

“This [WTO ruling] obviously limits the worldwide supply and it can have an upward effect on prices. But I would look more at whether China is strategically looking to inflate the prices of its own natural resources by limiting export supply, or if they are actually more interested in retaining resources for their own domestic use and interests. China is not governed by the rules of free enterprise. China supports free enterprise while at the same time keeping a close watch on it’s current and future national needs and interests. This is what the real issue is all about,” said Leeds.

Meanwhile, executives said technology teamed with the quest for higher living standards underscores the Chinese government’s plan to become an economy based on innovation rather than base manufacturing by 2020.

“The reality is the Chinese market is a very large market just for themselves and they want a higher standard of living with branded products and technology,” said Nadeau. “I believe there will be more migration to technology companies in China because of the higher tax base…it’s come to the point where their energy [electricity] is being redirected to technology companies from [sewing] factories.”

While executives said they hope the WTO ruling will create a more level playing field, some expressed concern about possible ramifications.

Mark Jaeger, secretary, senior vice president and general counsel for Jockey International, stated, “Jockey appreciates the efforts of the [Obama] administration to enforce WTO trade obligations, including the effort to end export restrictions on certain raw materials by China. Tuesday’s decision by the WTO should not, however, have an immediate impact on apparel imports from China since the raw materials involved are primarily used in steel, electronic and chemical industries. One concern though, would be if China resists compliance with the WTO decision. In that case, the U.S. and European Union may seek to place retaliatory tariffs on China imports, possibly including apparel, to encourage compliance.”

Michael Herman, senior vice president of sales, merchandising and production at Natori Co., said, “It’s definitely a step in the right direction. But we haven’t seen the ramifications of it yet. There has to be enforcement and people have to follow the rules…I’m sure China will appeal.”