By  on September 27, 2005

HONG KONG — There are two key factors to avoiding a safeguard quota-related migraine in the sourcing business here: Shuffle manufacturing sites and diversify business.

Some Hong Kong sourcing firms have complained bitterly about goods stuck at European Union ports or garments being held at factories in China because they can't ship to the U.S. because of the sudden imposition of quotas. Others anticipated what might happen and came up with backup plans well before quotas were dropped in January and then reinstated as safeguard measures by the U.S. and EU later in the year.

Linmark's strategy for E.U.-bound garments was to relocate production of sensitive categories, such as cotton shirts and trousers, out of China to Thailand and Vietnam.

It was in some ways easier but more mysterious dealing with U.S.-bound goods.

"It never occurred to us there would be clear and easy access," said Steve Feniger, chief executive officer of Linmark.

As a result, Linmark just planned on not getting sensitive categories through.

"We were pretty accurate and planned accordingly" on the U.S. side, he said.

But for the EU, the sudden cap was "a surprise" because of the speed of what happened. The EU struck a deal with China, after threatening to impose safeguard quotas limiting annual growth on specific categories to 7.5 percent, that imposed growth caps on 10 textile and apparel categories in June. The deal allowed for graduated growth from 8 percent to 12.5 percent for those 10 categories through the end of 2007.

While hailed as a breakthrough when it was signed, the deal backfired when shipments logjammed at EU customs because some quota categories were already filled, sometimes literally while goods were on boats sailing to port. In addition, retailers were left coping with a shortage of garments for the coming season.

"The European community was caught with their pants down," with no goods for Christmas, said Michael Mankoff, general manager of sourcing firm Lark Apparel Holdings.

A quick-fix deal was reached this month between the EU and China, so that the more than 58 million trousers and 75 million sweaters stuck at customs or in transit could be released.

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