For apparel importers, there is an ironic upside to the global credit crisis: In credit-default swaps, derivatives and mortgage-backed securities, apparel executives have finally discovered complexity that outdoes even the apparel sector.
Apparel executives know what complexity is all about, and how it can increase risk. Tom Travis, a partner at Sandler, Travis & Rosenberg, the international law firm, said the apparel sector has the most complicated rules of origin of any sector, and all those rules are subject to the vagaries of the political process.
Each garment and each input has its own rules and its own exception to the rules,?Travis said.
Customs compliance is only one of the challenges that apparel importers face during these uncertain times. Because of its central role in the economy, the apparel industry has become a testing ground for a wide range of initiatives monitored by Customs and Border Protection and other government agencies, from supply-chain security (including C-TPAT) and product safety, to intellectual-property enforcement and corporate social responsibility programs.
The textile sector is an unwilling laboratory,?Travis said. It is an unwilling partner to enforce all sorts of programs with laudable goals and unintended consequences.?
For example, Travis said, the apparel sector was the first industry to enact corporate social-responsibility programs that monitor foreign sources of supply to make sure they do not violate global regulations governing child labor.
Laura Jones, executive director of the United States Association of Importers of Textiles and Apparel, said the biggest issue facing importers these days is over-regulation. the government wants total regulation,?she said. It wants importers to know everything about their product even if you are the fifth or sixth person down the line.?
Customs and Border Protection plays the key role in that process, Travis said.
It has been geometrically expanded to become the nexus?for such initiatives ?trade enforcement, security, product safety, intellectual property, and more, he said.
The global financial crisis only makes compliance with such programs more difficult. Jones said apparel companies across the supply chain are at risk, and many may not survive. This affects everyone,she said.
Added Jonathan Fee, a partner at international law firm Alston Bird: People are overstocked. They have too much inventory, and have planned to have too much inventory. They are already canceling orders.
For the first time in eight years, the industry also must deal with the uncertainties of a new administration in Washington. Importers worry that the Bush administration free-trade agenda will be permitted to die a quiet death under a Democrat-controlled Congress.
Although Sen. John McCain strongly defended the pending free-trade agreements with South Korea and Colombia, Sen. Barack Obama has opposed both pacts, which would result in lower tariffs for U.S. importers of apparel from those countries. The next Congress seems certain to be controlled by a larger majority of Democrats, and what doesn't bode well?for the passage of the Korean and Colombian pacts, Fee said.
Colombia is a significant producer of jeans, twill garments and tailored suits. Congressional Democrats have attacked the U.S.-Colombia free-trade agreement, largely on the grounds that the Colombian government has not been forceful enough in its efforts to protect labor unions. But as the pact languishes, the Colombian apparel industry continues to decline rapidly.
I am not sure if it can recover from the uncertainties,Fee said. Even if the next Congress miraculously rescues the pact, it may be too late for Colombia's textile and apparel sector, he said. the Bush administration was so distracted by the war in Iraq, they didn't pay much attention to Latin America,?he added.
Apparel importers also are frustrated by the fate of the bilateral trade agreement negotiated last year between the U.S. and South Korea.
South Korea is a major producer of fabric, including home furnishing fabric and man-made fibers. These products are less labor intensive than low value-added products from China, and they donn't require a lot of cutting and sewing. Under the free-trade agreement with Korea, those imports would enjoy duty-free status.
Lower tariffs would no doubt help importers, as would the successful completion of the Doha Round of WTO-sponsored multilateral negotiations. The average industrial tariff is about 4 percent, Jones said, but the average tariff for apparel imports is 17 to 18 percent. Some importers of man-made fibers even pay tariffs of above 30 percent.
If you were to cut tariffs, it would be a major tax cut for the American public,?Jones said. That logic may sound good to U.S. importers, but American politicians haven't shown interest.
As usual, China is a major source of uncertainty. When the WTO-sponsored textile and apparel quotas expired in 2005, many apparel importers expected China to wrest away most of the business from other low-cost countries in Asia. But that hasnn't happened, largely because productivity has increased elsewhere in Asia.
Although China is the largest supplier of apparel to the U.S., costs in China are rising, and Vietnam has become the darling of apparel sourcing,Fee said.
Recently, however, confidence in Vietnam has declined because of concerns about Vietnamese labor strife, and fears that the Vietnamese government doesn抰 want to restrain its rising inflation rate recause it has invested so much in exports,?Fee said. Sourcing from Vietnam is becoming more expensive and riskier. If a factory shuts down, what happens to delivery??Fee asked.
Vietnam's role as a supplier is also under a cloud because of the U.S. International Trade Commission program that monitors textile imports to see that they don't rise enough to damage U.S. industry. Under the program, the U.S. cannot impose safeguards against Vietnamese imports, but it can impose anti-dumping and countervailing duties against those products if U.S. producers identify damage done to domestic producers.
The monitoring program has produced a chilling effect on some U.S. importers who would otherwise source from Vietnam. Fee said these importers ask themselves, Why should I make a long-term commitment to a sensitive country if the U.S. government says it may take some action.
In mid-October, Rep. Charles Rangel, D-N.Y., asked the ITC to extend the same monitoring program to cover some imports from China, beginning next year. Apparel importers say such a move would discourage companies from sourcing their products in the most efficient locations. But in an age where free trade has suddenly become unfashionable, that sort of argument is likely to fall on deaf ears.
Source: Pacific Shipper