NEW YORK — Despite the uncertain ramifications of two new international trade agreements, the long-term outlook remains bright for U.S. fabric converters who can adapt to the new rules of the game.
That was the consensus of seven converting executives who took part in a recent roundtable discussion on the state of their trade. The focus was on the GATT Uruguay Round, the wide-ranging treaty for liberalization of world trade completed by negotiators last December and awaiting the OK of the GATT member nations, and the North American Free Trade Agreement, which went into effect Jan. 1.
The two landmark treaties will force converters to be more creative — both in the way they style and the way they run their businesses, they agreed.
Participants in the roundtable — held at the offices of the Textile Distributors Association here — were Gerald Greenstein, president of JBJ Fabrics; Ron Loeser, executive vice president, Omega Textiles; Amber Brookman, president and chief executive officer, Brookwood Cos.; Fred Baumgarten, president and ceo, Majestic Mills; Howard Olian, chairman, Westwood Inc.; James Gutman, president, Pressman Gutman, and Isaac Kier, chairman and president of Lida Inc. and president of the TDA.
GATT, they said, is a double-edged sword and of immediate concern. On one hand, the agreement will allow converters to build international partnerships and to exert competitive advantages as foreign governments will no longer be allowed to subsidize textile and apparel companies. Still, the costs of policing copyright infringement, the increased competition in textiles from low-wage countries and the impact of that competition on the converters’ apparel manufacturing customers as well could pose serious problems.
“We’ll have to start thinking in global terms and begin tying in with people from other countries,” said Westwood’s Olian, whose firm has already opened a purchasing office in India. “I’m sure we’ll have to establish offices in other places, and our customers are going to have to do the same thing. That’s the way business is going to have to be done.”
Olian said he sees GATT as having opportunities, “especially for the specialized converter, one that has something to offer that isn’t readily found elsewhere.”
Baumgarten of Majestic, which recently purchased Cone Mills’ corduroy business, said he too sees upside opportunities through GATT — when the subsidies that other textile-producing countries enjoy are cut.
“The U.S. textile industry will then bring to bear its competitive advantages, here and throughout the world,” Baumgarten said. “We must, however, push our government to ensure that other countries are cutting subsidies, and to open up access to foreign markets.”
Omega’s Loeser said because of GATT, converters will look drastically different 10 years from now than they do today, as they link up with companies in other countries to compete on a global level.
Nevertheless, Loeser also noted that because the converters’ chief strength is flexibility, they are equipped to handle sudden shifts in style. This gives them an edge in competing in the domestic marketplace, he said.
“The importers will probably never be as fast as we are in terms of turning something around,” Loeser said.
“I think the key to GATT will be what happens to our customers, as the converter and apparel industries are tied together,” added Lida’s Kier, whose company is a vertically integrated converter. As apparel manufacturers widen their areas of sourcing, converters must follow suit.
“Our industry has shown it is flexible and can deal with new rules,” Kier said. “I’m thinking that this is an opportunity, rather than something that will hold us back. Historically, we as converters seem to go with the flow.
“GATT is basically an elimination of quotas,” Kier added. “Frankly, given the weakened state of the world textile and apparel industry today, quotas are not as big an issue as they used to be.”
Still, a few executives said GATT could hurt converters.
“Even though ours is a relatively low-cost industry, we will be now competing in worldwide market against even lower cost producers from the Far East and Eastern Europe,” said Gutman, adding that some converters may have trouble adjusting to both global competition and the 10-year Multi-Fiber Arrangement phaseout. “And, if our customers locate themselves offshore, they’ll have more suppliers coming to them with a diverse range of products.
“Another negative I have on it is that we can’t depend on the government to act in our best interest as an industry, so we have to help ourselves,” said Gutman. “I’m also a little skeptical about relationships in other countries, as it’s difficult to imagine a coincidence of interests.”
JBJ’s Greenstein said he’s concerned about the protection copyrights will have through GATT.
Greenstein, whose firm is a wet-printer in the better-price market, said, “Making sure my styles or patterns aren’t illegally knocked off is my biggest concern.
“If they can police it, GATT will work out. If not, it’s going to be a big challenge for my company,” he said.
The big question, said Gutman, is who will be doing this policing.
“If you’re going to sue someone for copyright violations, you are going to have to do it in the U.S.,” Gutman said. “We all have to be careful who we send our patterns to.
“If you send your patterns to China to be printed, for example, I think you can assume they’ll be all over the place,” Gutman added. “I don’t see how it’s going to change rapidly. We must be as shrewd as we can be.”
Gutman also said GATT could cause a number of converters to close up operations, “not because they can’t compete anymore, but because they just don’t feel it’s worth it. There will be a shrinkage of those producing commodity goods.”
“There are small converters that carry basic styles, and those are the firms that are in danger of falling by the wayside because of GATT,” said Brookman. “Those converters that have also chosen to become semi-integrated are also going to have a difficult time, because they lack the flexibility.”
As for NAFTA, most converters said they don’t see the trade pact linking the U.S., Mexico and Canada into one free trade zone as the evil they once did.
Still, maintaining a close watch on the border and an improved infrastructure are crucial to success in Mexico.
As reported, the TDA membership was split on whether to support NAFTA, and the TDA, as an organization, took no official stance.
“Originally, I was opposed to NAFTA, mainly because I was concerned how it would be implemented and if many of the rules would be monitored,” Baumgarten said.
“As it stands now, how in the hell can we monitor a yarn-forward rule of origin when we can’t monitor illegal aliens at the border?” he noted.
Still, Greenstein added, “We’ve done business with a few customers, and have gotten paid. As time goes on, more customers in our price points will be able to afford our products.”
Mexico, however, still needs buildings, roads and machinery, Loeser said. Omega attended a government-sponsored trade show in Mexico City last year, “but we aren’t going to go back. We’ve seen what we have to see, and there needs to be a lot of improvement down there.”
Brookman added, “I think there are plenty of opportunities there, but you have to be very careful who you partner with. You have to go in there with your eyes and ears open.
In addition to Mexico, converters said South America and Eastern Europe present opportunities for business, provided they are pursued correctly.
“The European market is beginning to focus on Eastern Europe as a supply channel and is minimizing China,” Baumgarten said. “Ukraine represents a vast pool of cheap labor for Europe.”
“The question is whether Ukraine or Eastern Europe can deal with us,” responded Gutman. “It won’t be easy. China, however, has come a long way in terms of what they can do.”