By  on July 7, 2005

HONG KONG — Feeling unsure about what the future will bring when it comes to quotas isn't a new scenario for those in the textile and apparel industries here.

The U.S. enacted emergency safeguard quotas last month. This eliminated part of the uncertainty of when it would happen, but companies here still are wondering, among other things, if the growth cap for seven categories coming out of China will stay at 7.5 percent this year or if the U.S. and China can reach an agreement on how to move forward within the allotted time frame.

According to World Trade Organization rules, the U.S. and China need to begin the first consultation 30 days after the imposition of quotas. The first three category quotas were applied May 23 and the next four were effective as of May 27.

The two sides didn't meet and talk face-to-face, but they did have a video conference on June 16, which fulfilled the 30-day requirement, said Peter Liu, chairman of the textile and apparel committee at the American Chamber of Commerce in Hong Kong. The two sides now have 90 days to come up with an agreement. If they fail to come up with a deal, then the cap will stay at 7.5 percent through the end of the year.

The local press here reported on June 24 that James Leonard, deputy assistant secretary from the U.S. Commerce Department, was in Beijing for formal talks that would include textile exports.

However, there haven't been any reports on formal talks in the following days. Liu said he spoke with Leonard last week and Leonard confirmed he wasn't present for formal talks. Leonard said he would be in Beijing a couple of days before the Sino-U.S. Joint Commission on Commerce and Trade meeting, which will begin July 11 in Beijing, according to Liu.

These emergency quotas are affecting business "big time," said Doug Sheridan, director and general manager at privately held sourcing firm Lark Apparel Holdings Ltd. The company, which has 90 employees in eight offices worldwide, has rerouted 20 percent of its fourth-quarter China business to Vietnam and Cambodia in response to the U.S. move.

In addition, Sheridan said the company won't bring certain categories into the U.S. because the quota will be fulfilled before they can get them shipped.Some categories, such as cotton sweaters, won't last long under the 7.5 percent cap. Liu anticipates this quota already could be filled. This creates a problem for companies that have shipments in route, and for companies who are getting ready to ship.

Companies are no longer able to acquire quota prior to transporting the goods. It's now functioning on a first-come, first-served basis as shipments arrive in the U.S. It is chaotic because no one knows when the last shipment should come out of China, Liu said. "It's a guessing game."

The China Chamber of Commerce for the Import and Export of Textiles, however, recently published for the first time statistics on the clearance rates of restricted categories, according to a June 29 China Daily article.

According to the article, shipments of cotton trousers exceeded 103 percent of the year's quota for the U.S. by June 23. Shirts were at 97 percent and underwear came in at 84.7 percent only one month after the quota imposition.

These figures aren't in line with U.S. figures because the U.S. can only account for what has already arrived, the article said. Updates will be posted on the chamber Web site, according to the China Daily.

In theory, "China is going to be in some trouble. 2005 is going to be a tough year for Chinese manufacturers," Lark's Sheridan said.

Regarding U.S. pressure on China to reevaluate the yuan, the general sentiment here is that it will happen eventually, but China is a country that cannot and will not be pushed.

"It's just not going to happen overnight," because China has a lot of people — 1.3 billion — and needs to ensure the move isn't too disruptive, Sheridan said. The U.S. has to stop pushing and "let the economics of the situation take over."

Liu, however, thinks the most direct reason for the safeguard quotas is because the Bush administration needed textile votes to help pass the Central American Free Trade Agreement. The U.S. Senate passed it 54 to 45 last week, but the agreement is expected to face a tougher battle in the House of Representatives.Hong Kong Customs also has stepped up its enforcement measures since the emergency quotas were issued. The move followed a 17.3 percent drop in illegal transshipments of textiles in the first five months of the year compared with the same period last year, and a 34.2 percent drop in Outward Processing Arrangement abuse cases, according to a department statement. Quotas were abolished Jan. 1.

From the period between May 23 and June 18, officers seized 242,000 textile and clothing products valued at 5.4 million Hong Kong dollars, or $692,308, that were being smuggled in and out of Hong Kong, according to the statement. The seized goods fell under three categories: false declaration, inflation of quantity and false labeling.

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