NEW YORK — As the celebrations of the lunar new year in China and Chinese communities around the world draw to a close on Friday, sourcing managers are thinking less about the Year of the Ram, which started Feb. 1, and a little more about the Year of the Rooster, which begins on Feb. 9, 2005.
That year will also bring the first year of quota-free apparel trade among the 145 nations of the World Trade Organization. Sourcing managers around the country expect China’s share of the U.S. apparel market to skyrocket, as that nation’s low wages and highly efficient workforce are expected to give manufacturers in most other countries a tough run for their money.
Still, many importers are adamant that they don’t intend to shift all their production into China, for several reasons. First, they contend that, even with the quotas gone, there will be some incentive to produce trendy garments and other time-sensitive styles closer to the U.S, notably in Latin American countries that can offer quicker shipping times.
More importantly, many observers in the U.S. and abroad expect some limits to remain on China’s exports. There are several reasons to believe this is likely:
The U.S.-China bilateral trade agreement that cleared the way for China’s entry into the WTO allows the U.S. to limit Chinese imports through tariff-rate quotas and higher duties if the U.S. market is disrupted. The American Textile Manufacturers Institute has already asked the Bush administration to begin limiting Chinese imports in certain categories, though the White House has not yet responded.
A great many developing nations, some of strategic importance to the U.S., depend on apparel exports as a critical source of foreign currency. In some cases, they already enjoy trade advantages with the U.S. These nations are expected to keep the competitive pressure high.
Quota rights are traded as a commodity in China, and the government and some private companies are believed to be making money by selling the right to export. When quotas are taken away, observers contend, the Chinese government will need to replace the revenue it makes by selling quota and may put some other mechanism in place to limit quotas. Some sources also allege that Chinese companies make much of their profits by selling quota and would need to replace that revenue.
The U.S. International Trade Commission has already ruled once that Chinese imports were disrupting the U.S. market. It asked the Bush administration to raise tariffs on pedestal actuators — the devices in the bottom of barbers’ and dentists’ chairs that allow the seat to be raised and lowered with a foot pedal. Bush declined to do so.
The ITC also recently heard a claim on imported wire hangers and has called for a 20 to 30 percent tariff increase. The Bush administration has not yet responded to that request.
Still, the exponential growth of Chinese exports in categories on which quotas have already been dropped, including bras and luggage, suggests that China will pick up a lot of business in 2005. U.S. importers are positioning themselves to prepare.
“Most of us do feel there will be some limits put on China, but we still have to be positioned for the future,” said Nancy Marino, senior vice president of worldwide sourcing and brand development at Sears, Roebuck & Co., based in Hoffman Estates, Ill.
Marino said one of her key focuses over the remaining time before quotas are dropped in 2005 is building up Sears’ presence in China, with its central office in Shanghai, which already has a staff of more than 50.
Similarly, importer Jim Gutman of New York-based Pressman Gutman, which sells fabric and full garment packages, said, “When China opens up, when the quotas are lifted in 2005, we’ll have a lot to think about. We have a big office in Shanghai now for fabric and we are prepared.”
Gutman, who produces garments in Guatemala, said the effect of the end of quotas on neighboring countries will likely catch Washington’s attention.
“The government of the U.S. is going to have to find a way to prevent Central America and other suppliers from being destroyed by China because that’s an important strategic base for us,” he said. “I have a feeling there will be changes in our government’s policies — duty exceptions and things like that.”
It’s not only U.S. companies that are preparing for the end of quotas.
Chinese companies are beginning to open U.S. offices in hopes of being positioned for strong growth in 2005. That was the reason Russell Pacific Corp., a maker of shirts and pants with three factories and 3,000 workers in Zhejiang, opened an office in Manhattan last month.
Weisu Fiore, chief executive officer of the company’s U.S. arm, said at a time when many U.S. importers were choosing new manufacturing partners, having a Fifth Avenue office is “financially symbolic, showing that we have backup. It’s just to give customers the confidence that we are here for them.”
Another reason for Chinese companies to come to New York, she said, is to improve customer service.
“If you have an emergency, you have local people to deal with instead of waiting because of the time difference,” noting that the company hopes to be doing $10 million in sales a year out of its New York office by 2005.
Some U.S. manufacturers are taking an if-you-can’t-beat-’em-join-’em approach to Chinese competition. The Greater Blouse, Skirt & Undergarment Association, a group of contractors from Manhattan’s Chinatown, last month sent an 11-member delegation to China to seek alliances.
The idea, explained Teddy Lai, executive director of the group, is for contractors to serve as local offices for big Chinese factories. Chinatown companies could have closer contact with U.S. customers, while they could use their local factories for sampling and quick-response orders in-season.
“We need to talk with the retailers and manufacturers to work with them to bring the big orders to China to enjoy lower costs,” Lai said. He added that there’s little time left until the end of quotas and said, “We need to get a head start.”