Workers On the Assembly Line at a Handbag Factory in Shanghai China 21 September 2009 Export Oriented Manufacturers in China Are Again Having Trouble Finding Adequate Numbers of Skilled Labor As Christmas Season Orders Pick Up Despite This However Chinese President Hu Jintao Said Recently That China Still Faces an 'Arduous' Task of Maintaining Growth and Social StabilityChina Factory Labor - Sep 2009

Handbags are headed to Capitol Hill, as the fashion industry braces to battle tariff plans set by the Trump administration.

The accessories industry will testify before a U.S. government panel later this month in opposition to the administration’s proposed tariffs on Chinese-imported travel goods and handbags, WWD has learned.

Travel goods — including handbags and wallets — were included in the administration’s third wave of action in its ongoing trade war with China. This third group of categories amounts to about $200 billion in annual imports. Initially set as a 10 percent proposed tariff, the Trump administration ratcheted up action last week by suddenly increasing its tariff proposal to 25 percent.

On Wednesday, the Chinese government escalated pressure in the tit-for-tat trade battle by revealing a 25 percent tariff on an additional $16 billion worth of goods. The tariffs apply to 333 products including cars, some fuels and fiber optic cables.

Synthetic material handbags and accessories produced in China face tariffs of about 20 percent, while leather goods presently see an approximate 9 percent entry levy. Should the revised trade policies be implemented, some accessories categories would see up to 45 percent tariffs, which would go into effect as early as September.

The 15 percent spike sent many industries — fashion and retail included — into action. Accessories Council president Karen Giberson has teamed with the Council of Fashion Designers of America to submit written comments and testimony to United States Trade Representative Robert E. Lighthizer this week.

Giberson plans to take input from members like Loeffler Randall to Washington, D.C., later this month. On Aug. 20, she will testify before the Section 301 committee — comprised of officials from the USTR, State Department and White House — to make a case against the levies.

On Tuesday night, industries facing Trump’s second wave of tariffs, with a total value of $16 billion in imports, received the decisions regarding their applications seeking exemption. Only five of the 284 tariffs to come under consideration received exempt status.

In their attempt to fight the tariffs proposal, Giberson and the CFDA have teamed with accessories brands. Philadelphia-based label MinkeeBlue, founded by Sherrill Mosee, will testify that her company would be unable to absorb the tariff costs. “This leaves me with one of two choices: Pass the costs on to the consumer or close my business,” she wrote in her initial submission to the panel, when the additional tariffs were only proposed at a 10 percent hike. The Accessories Council is also throwing its weight behind the testimony of direct-to-consumer brand Dagne Dover.

Handbag and travel goods company MZ Wallace joined the CFDA and Accessory Council’s campaign on Wednesday. The company’s chief operating officer Kevin Mogyoros said, “Our products are complex, and our customers have come to expect high quality from MZ Wallace. There are not many factories in the world with the level of skill and scale we require, and it has taken us years to build our existing capabilities. That limits our options. A majority of our products are already subject to an 18 percent duty, so an increase to 43 percent is significant. It would be impossible for us to absorb that without increasing prices and other operational changes. Both of which will definitely slow the incredible growth we’ve seen in the last three years, and impact our ability to compete in the marketplace.”

In her initial comments filed to the USTR when the additional 10 percent tariffs were proposed, Giberson said, “Our members will be disproportionately harmed by the imposition of these additional tariffs. The U.S. retail industry for accessories is already under financial stress as sales have been down over the past two years and many of the council’s larger retailers have consolidated or closed retail locations. An additional tariff on these goods would result in further contraction.”

She estimates that under the new tariffs, with an additional 25 percent, a handbag presently priced at $100 retail would increase to $120.

CFDA president and chief executive officer Steven Kolb told WWD: “These new tariffs will threaten the success of many American designers, especially smaller brands, because it will add unplanned expenses to doing business. This can result in the loss of jobs, especially for those designers who will not be able to stay in business. It will also be felt by customers who will be burdened with higher priced goods.”

Sources say that accessory powerhouse brands such as Michael Kors and Tory Burch — some of which produce goods in China — are considering filing their own testimony or taking action to stem bleeding from their margins should the tariffs pass. Both labels declined to comment.

There are various courses of action that are being taken. Some firms, such as Tapestry, parent of Coach and Kate Spade, are throwing their weight and findings behind lobby organizations like the American Apparel & Footwear Association, which will present its own testimony at the hearing later this month. Tapestry noted that it will not testify and will instead provide its talking points to the AAFA, but declined to comment further. The AAFA is not expected to identify specific brands in its testimony.

“It’s going to hit businesses big and small,” AAFA executive vice president Stephen Lamar said of the tariffs. “The U.S. has nothing to gain from tariffs being implemented, they are purely a hidden tax on consumers at the end of the day — but the damage can materialize in a lot of different ways — higher prices for consumers, extra cost on the supply chain. If a company can’t pass on a cost, they will have to absorb it themselves, which means less money for innovation or making hires. If this discourages consumers from shopping — then the company loses money as well.”

The AAFA noted that 84 percent of the U.S.’ supply of travel goods are manufactured in China. The fashion industry’s global imports count for 6 percent of total annual U.S. imports, yet account for 51 percent of annual duties, they claim. “We really don’t have the capacity to take on more,” Lamar said.

On the retail side, the National Retail Federation is planning to testify on behalf of its members on Aug. 23. “These tariffs are ultimately an attack on U.S. businesses and consumers. There is a domino effect — that cost is passed to the consumers, the companies — jobs will be lost, consumers will start spending less and retailers will need less,” said Jonathan Gold, the NRF’s vice president of supply chain and customs policy.

Abe Chehebar, ceo of Accessories Headquarters, is not planning to testify, instead choosing a route he feels will be more effective — direct lobbying. The executive — who holds the accessory licenses for brands including Bruno Magli, BCBG Max Azria and Christian Lacroix — is interviewing lobbyist firms, expecting to pay upward of $500,000 toward the cause.

“We are going to go directly to Congress and not wait for the testimony, it’s a formality. More important is to identify the proper congressmen involved in the importation of goods from China,” he said.

In an effort to diversify his company’s production, Chehebar has already reallocated 40 percent of his production to Cambodia. Should the tariffs pass, companies like his might look to shift their production to countries that enjoy duty-free trade with the U.S. — including Cambodia, as well as Vietnam, India and Thailand. That move would take much longer than an early-September deadline.

“It takes between 12 and 18 months to break in a new factory,” Giberson noted. “It would be impossible…to move this volume of business back to the U.S. There are no skilled workers or even the equipment here.”

Chehebar said Cambodian manufacturers are becoming increasingly sophisticated and gaining experience, but their workflow is slower than the Chinese — taking about twice the time to complete a seasonal order.

Still, with 60 percent of his production in China, Chehebar said the 45 percent total tariff “would kill us, it would make it impossible to work in China. It’s an industry challenge — not specifically a company challenge. The retailers would have to adapt, too — it will be a different ball game. We are very concerned.”

Written testimony and comments are due for submission by the end of this week. Those who filed requests to appear for testimony in Washington will be allotted five-minute time slots between the dates of Aug. 20 and 23.

Some 770-plus comments and requests have already been filed to the U.S. regulations web site — submitted by a spectrum of everyday consumers, employees of small companies, conglomerates and watchdog groups, relating to various categories like art, hospital gowns, lighting supplies and more.

In the interim, Giberson said brands have been sent into a state of anxiety. “There is merchandise on its way here now for fall. Some of our companies are already adjusting prices for spring. I have one company I spoke to this week that is working on getting financing — it affects your business plan. Everyone on the financing side is on hold — are you going to invest in a company in the U.S. or somewhere else?”