US Textiles Importers Eye 2005 Nervously

US importers and retailers of textile and apparel are now focused on the shift in market dynamics post-2004. Speculation is mounting as it looks ever more likely that quotas will end for WTO members.

Members of the United States Association of Importers of Textiles and Apparel (USA-ITA) recognize the tremendous commercial potential that an end to quotas will bring. However, they also harbour deep concerns about the uncertainties surrounding the changes that will come into place on 1 January 2005. Looking at the likely market outcome of quotas elimination from the point of view of US importers, there are still many unanswered questions for the industry, making planning for the new status quo difficult.

Given that textiles remain highly political in the US, the 2004 presidential election adds to the uncertainty. There is little question that presidential hopefuls will make promises to the domestic textile industry, promises that will come due in 2005.

Key questions amongst USA-ITA members concern:

the potential use of safeguard measures against Chinese-made goods;
possible antidumping and countervailing duty measures;
the complex rules and compliance burdens involved in doing business in countries with whom the United States has preference arrangements, either unilateral or negotiated; and
the impact of eliminating quota costs. Will these simply bring further price deflation or will there be an opportunity to substitute better-quality fabrics and finishes, with prices therefore able to maintain their previous levels?

China textiles safeguard
China was successful in its quest to join the phase-out of quotas on the same schedule as other WTO members. However, the country has had to pay for this by agreeing to the possibility of new quotas on integrated products until the end of 2008.
This does not necessarily mean that all Chinese textile and apparel products will be subject to quotas until that date - such decisions will be made on a case-by-case basis. But, depending upon how the United States implements the new safeguard of further quotas, the most import-sensitive products may be the most vulnerable.
To date, the US domestic industry has targeted five 'integrated' products - manmade-fibre luggage, brassieres, gloves, dressing gowns and knit fabric - for safeguard actions.
How those products are handled this year may provide some insights for the future and give an indication as to whether other countries will be effectively protected as a result.
Punitive measures
USA-ITA members are slightly less worried about a flood of antidumping and anti-subsidy measures, and suspect that fewer unfair trading allegations will be levelled against apparel than against yarns, fabrics and made-up articles, such as bed linens and towels. With few apparel makers left in the US, there appears to be less risk of such cases being brought.
In addition antidumping (AD) and countervailing duty measures (CVD) cases are expensive to litigate, with petitioners possibly incurring legal fees well in excess of US$ 500,000 to go through the extensive investigations involved. However, were AD or CVD petitions to be filed, it is likely that multiple countries would be named each time to prevent buyers from readily moving to another supplier.
Compliance burdens
As important and as high as they are in this sector, tariffs are only one factor among many in the sourcing decision-making process, so the existence of preferential trade arrangements alone does not mean US buyers are drawn to suppliers in those countries. So long as the United States persists in writing rules that limit the competitiveness of participants in the free trade arrangements, their role in sourcing decisions may be limited.
Obviously, producers from countries in the Western hemisphere have an inherent advantage in the US market by virtue of their location and ability to offer quick inventory replenishment. Western hemisphere producers are an important source for 'basics' as opposed to fashion goods, and are therefore key to quick inventory replenishment strategies. However, the future attractiveness of these countries as supposed preferential suppliers varies in great part according to the commercial viability and manageability of the origin rules and compliance responsibilities - and risks - that apply to them. While USA-ITA members will press for changes, non-preference suppliers may, in the meantime, remain more attractive.
From 2005, the largest American importers and retailers will consolidate their production in fewer countries. None, however, will risk putting too much business in too few countries. It is the smallest importers who may find themselves in the most difficult position, compelled to focus on suppliers offering the lowest prices despite higher risks.
Traditional factors influencing American sourcing decisions will remain constant, such as costs, logistics, plant efficiency, infrastructure (including close proximity between fabric and apparel production), supply chain management, social and government stability, human rights, reliability and relationships. The winners will be those manufacturers who can demonstrate their strength in the traditional factors and also prove that they are prepared to deal with the new issues that emerge, with the agility to make quick adjustments.

Brenda A. Jacobs (bjacobs@sidley.com) is Washington Trade Counsel to US Association of Importers of Textiles and Apparel.
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