By  on February 15, 2005

HONG KONG — The quotas that ruled the sourcing world for the past three decades are gone, but a cloud of uncertainty remains over China’s apparel industry.

The dropping of garment and fabric quotas Jan. 1 among World Trade Organization members was supposed to usher in an era of free trade and competition. But rather than reveling in their new freedom, Chinese executives are fretting over the possibility that the U.S. or European Union could impose safeguard quotas on China. They’re also still figuring out what China’s new export tariffs will mean to their operations and wondering if other nations will act quickly to use antidumping measures or other legal roadblocks to restrain China’s growth.

Henry Tan, chief executive officer at Luen Thai Holdings Ltd., a $500 million apparel manufacturer with factories in China, said, “There has been a lot of concern among our customers regarding the possibility of safeguard action against China.”

China’s WTO accession agreement allowed other members of the trade body to place temporary limits on Chinese apparel and textile shipments if they caused “market disruption” in the importing country. The safeguard quotas are category-specific and can be applied for one year at a time through 2008. They’re already the subject of an ongoing U.S. court fight — a coalition of domestic manufacturers last year petitioned the government to impose safeguard quotas at the start of the year to hold off an expected surge of Chinese imports.

Among Hong Kong executives, the main question regarding the safeguard quotas is not if they will be imposed — which many here regard as a given — but when. Until they get a clear signal as to what the U.S. and EU plan to do, they said most buyers are holding off on boosting their business in China.

“All is very muddied,” said Steve Feniger, ceo of Linmark, a sourcing firm that caters to about 30 customers and has links to 1,000 factories in China for hard and soft goods. “There has been little rush by major retailers or brand owners into China from the U.S. so far, not surprisingly.”

China shipped $14.56 billion worth of textiles and apparel to the U.S. in 2004, a 25.4 percent increase from the prior-year period, which gave it a 17.6 percent share of the import market, according to U.S. Commerce Department data. Commerce is not expected to release January import figures — the first that will show how China performed after quotas were lifted — until mid-March.

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