NEW YORK — Manufacturers of lingerie, sleepwear and robes are bracing for 2005, when quotas on all garments and fabrics are scheduled to be terminated among World Trade Organization countries.

China, whose imports of apparel and textiles have exploded 140 percent over the past year with a 15 percent share of the U.S. market of foreign-supplied textiles and apparel, is poised to gobble up more production from around the globe. Innerwear companies have come to rely on more than half of their total fabric sourcing and manufacturing in China.

But for a majority of intimates vendors, the pending exit of quotas brings up more troubling questions than answers.

A number of firms have been feverishly preparing for a free-market environment for the past several years in a number of ways: solidifying partnerships with contractors and factory owners; setting up joint ventures or independent facilities offshore; opening offices and hiring more on-site specialists in Hong Kong and Taiwan, and beefing up technology, whether it’s video conferencing, CAD design resources or quick-response production.

But at the same time, manufacturers are questioning whether quotas will be lifted on all categories or whether the U.S. government will instead take measures to deflect the Chinese impact at the last minute with quotas. Under the terms of China’s WTO membership, countries can impose category-specific limits for up to one year if Chinese imports are causing a domestic problem.

But Peter Klestadt, a customs and international trade law attorney at Manhattan law firm Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, who has represented clients such as Victoria’s Secret, said China is not a clear-cut issue for U.S. manufacturers.

“There’s a lot of misinformation out there,” said Klestadt. “Come Jan. 1, 2005, there probably won’t be any changes in China. But Hong Kong quotas come off, no strings attached, and it’s coming off in places like Taiwan, which is very significant for sleepwear.”

Josie Natori, chief executive officer of Natori Co., said, “I’m sure there won’t be any immediate changes in China. There are too may people there making tons of money bartering quotas like a commodity. They don’t want to see that disappear overnight.”Natori said her company, which owns two factories in the Philippines with 1,000 operators, has no intention of moving the manufacturing of the high-end Natori sleepwear and daywear collection and the better-price Josie line of intimates to China.

“We have highly skilled and sophisticated workers in the Philippines who work on designer merchandise,” she said. “We also have one of the largest [innerwear] quotas around. We started looking into partnerships in China and central Asia a year and a half ago. That would be the area to manufacture our [moderate] Cruz line, as well as private label.”

Natori said the firm also manufactures volume goods in Turkey.

U.S. manufacturers who have had close ties to contractors and factories in China for 10 to 20 years or more aren’t sweating over establishing alliances in China. However, smaller companies that are fairly new on the scene or financially strapped will have difficulty outsourcing in China.

Todd Demakos, ceo of St. Eve International, a maker of women’s and girls’ daywear and sleepwear with ties to China for the past 30 years, described it this way: “Some companies will do their first venture in China in 2005 with factories you never heard of. All of these guys will be coming out of the woodwork with silly prices. They’ll overbook and the companies won’t be able to ship.”

Despite the lure of cheaper labor and costs, innerwear makers generally said they are wary of dropping operations in countries where quality control and shipments have been reliable and consistent. Those places include Bangladesh, Pakistan, Turkey, Sri Lanka, Thailand, Indonesia, the Philippines and the Caribbean Basin, as well as Mexico and five Central American countries — Honduras, El Salvador, Costa Rica, Guatemala and Nicaragua.

Richard Leeds, ceo of Richard Leeds International, a specialist of licensed character sleepwear, said diversification is the key to adapting to changes in 2005.

“We’ve hired several technical textile engineers to help us become more efficient and effective in quality assurance and consistency in areas we buy fabrics from, such as China,” said Leeds. “We will soon add six to seven specialists to travel to China and work with the mills on everything from dye stock to testing and compliance issues.”With plans to open an office in India, the Leeds company currently maintains offices in Hong Kong with 28 employees; six workers in Taiwan; 11 employees in Bandung, Indonesia; a staff of seven in Turkey, and in Guatemala, where four workers interact with the New York headquarters.

“We also are getting involved in a joint venture in Indonesia where we have 8,000 operators and a 25-year relationship,” Leeds said. “We’ll be investing in the manufacturing of yarn through finished garments. By 2006, we’ll have 4,000 operators in southern China.

“The real question coming up isn’t about the labor rate, which really is not that different in China and Indonesia. The big difference is the textile cost. We’ll have the yarns and finished fabrics from China and export it to Indonesia,” said Leeds.

Steve Kattan, president and ceo of Madison Intimate Brands, said he believes manufacturers of better-price and high-end intimates will be open to paying higher prices for goods because of more sophisticated styling and faster turns on product made in Central America.

“We are not in the chain side of the business, where nickels and dimes are important,” Kattan said. “If you’re a $10-an-item business, price is very critical. But styling and quality are the most important issues for us.”

Madison Intimate Brands produces better-price sleepwear bearing the Via Nicci and licensed Jones New York Intimates labels for department stores. Kattan said his company buys fabric in China, but has “methodically developed” a regional relationship at a company-owned plant in Sri Lanka over the past 20 years. The lead time for deliveries is four months, he said.

Ocean freight deliveries from Central America average 90 days, while ocean freight shipments from Asia are four to five months, said vendors. The exception is replenishment items, which can be shipped within six to eight weeks.

“We’re currently manufacturing in China in a limited way,” said Mel Knigin, president and ceo of Movie Star Inc., which produces Cinema Etoile daywear and sleepwear. “There are certain categories that are out of sight moneywise right now, like category 650 for women’s sleepwear and pajama sets, and category 651 for women’s panties, daywear pieces and adjustable-strap slips.“Robes were lifted from quotas in January 2003. What happened was a lot of people ran to China to make robes. Everybody will probably take a greater position in China in 2005 if categories 650 and 651 become exempt. But then, China probably won’t be able to absorb it all.”

With this scenario in mind, Knigin said the company has “developed very strong relationships” in the Philippines, Cambodia, Bangladesh and Pakistan.

“I guess we all as manufacturers have to worry about the competition getting into China ahead of us and underpricing us,” Knigin added. “But at the same time, we don’t want to put all of our eggs in one basket.”

Demakos of St. Eve said a 30-year partnership with Hong Kong-based American Phil Textiles Ltd., which operates nine factories in China, has been “invaluable.” St. Eve’s sourcing and production is split in five areas: Hong Kong, China, Bangladesh, Cambodia and Turkey. The firm soon will be part of the Hong Kong partner’s expansion into Thailand.

However, he added, “We’ve had a relationship with six large factories in Bangladesh for 10 years. They rely on raw material from China. But the owner is very concerned about his ability to compete with China once it’s quota free. Right now, his prices are just about as cheap as China.”

Bruce Cahill, co-president of Jaclyn Apparel Inc., maker of sleepwear by I. Appel and the licensed Vanity Fair sleepwear, addressed an issue vendors have characterized as tricky: Quotas for 2004 will fill in at yearend and waivers will be sought to allow borrowing against the following year’s quotas. But there will be no 2005 quotas from which to borrow.

“We are trying to consider all options. It’s really a tough call,” Cahill said. “I don’t think anybody has an answer. The only strategy is for everyone to be prepared and ship goods as quickly as possible.”

Attorney Klestadt said, “This is definitely an issue and there’s no definitive answer. It’s the producing countries, not the importers, who will be affected by this. There usually are provisions for borrowing from a prior year for an underutilized category or a subsequent year, just like borrowing from Peter to pay Paul to facilitate the importation of goods that may be over the quota unit. I would expect quotas to be tighter the second half of 2004.”Robert Eisen, a customs and international trade law attorney at Manhattan law firm Coudert Freres, said, “If you are the country or factory in one of those countries, you would want to delay importation into 2005. It comes down to what do you really need in 2004 and what do you want to push out in 2005?”

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