Howard Li is pumping $5 million into a factory in Tianjin, China, that produces a variety of designer-label clothing sold in U.S. department stores.
The investment should allow factory output, now about 2 million to 3 million garments annually, to triple by next year, with almost all of the new clothing heading to the United States as worldwide quotas on foreign-made apparel disappear.
“The quota-free competition will be huge. Prices will be down 10 [percent] to 15 percent or more. The consumer will get the lowest price on merchandise,” said Mr. Li, a New York-based businessman who also runs warehousing and logistics operations that channel clothing made in China, India, Central America and other nations to retailers such as J.C. Penney and Nordstrom.
The World Trade Organization’s 146 members at the end of this year plan to eliminate a global textile-quota system that capped sales from factories in developing nations and shielded domestic industries in the United States and Europe and in some smaller countries. The result is expected to be a major shift in sourcing and production, and new pressure on once-protected companies, with China and India the big winners.
“China is expected to become the ’supplier of choice’ for most U.S. importers … because of its ability to make almost any type of textile and apparel product at any quality level at a competitive price,” the U.S. International Trade Commission said in a January report.
Consumers may see a small bump in apparel prices toward the end of the year as the international system adjusts, but eventually they should deflate by 15 percent to 20 percent, Standard & Poor’s said in a report released last week.
But U.S. and some other manufacturers are terrified they will be driven out of business by low-cost competitors. U.S. textile and apparel-sector job losses will hit 630,000 through 2006 and a projected 1,300 textile plants in the United States will close if quotas are lifted, according to a textile-industry report published last year.
“This sector is about to be wiped out because of unfair Chinese trade practices. But there isn’t a lot of interest in that fact in Washington,” said Cass Johnson, president of the National Council of Textile Organizations, an industry group.
“We believe it will be a very traumatic and chaotic event,” said Steve Dobbins, president and chief executive officer of Carolina Mills, a Maiden, N.C., firm.
Carolina Mills, which makes synthetic fibers used in Polartec products and high-end hosiery, over the past 3 years has closed 10 plants and laid off 1,400 employees as competition from abroad intensified. The firm still has about 1,200 workers in seven plants, but Mr. Dobbins said he is concerned about the future.
“Once the quotas go off, it’s going to go downhill unless something happens,” he said.
Smaller nations also are poised for major job losses as the global industry consolidates. The ITC projected that Mexico, for example, would see apparel exports decline by almost 34 percent after quotas come off and its special market access disappears.
Industry groups in more than 30 nations, including the United States and Mexico, have asked for an extension on the quotas until 2007, citing China’s use of export subsidies and other illegal trade practices, and a potential loss of 30 million jobs worldwide.
But the quota phaseout has been in the works for a decade, and any extension appears unlikely.
“I think we’ve got to stick with our obligations,” Grant Aldonas, undersecretary for international trade at the Commerce Department, said last week.
U.S. manufacturers will face a period of adjustment, but rather than blanket protection of the American market, Mr. Aldonas said the Bush administration would rather concentrate on opening markets and ensuring that foreign competitors are playing by international trade rules.
China did submit to potential new caps on specific product lines when it joined the WTO in December 2001, but Mr. Aldonas said the country has since rejected a broader agreement to slow exports.
So special “safeguards” remain a possibility. The Bush administration late last year imposed such safeguards on knit fabric, robes and bras that allow imports to grow at 7.5 percent for a year — much lower than the double-digit surges that had been recorded in 2002.
But the special mechanism only applies to China, not other nations that also are looking to fill any gap that emerges.
India is especially confident it can take advantage of new opportunities. The ITC projected that the country’s apparel exports would rise almost 100 percent when quotas are lifted.
“Once the quota goes, we will double our sales to the United States,” said Sakthivel, head of Poppys Knitwear, a company in the southern Indian town of Tirupur that sells products including restaurant uniforms to chains such as Pizza Hut and underwear to Hanes.
Sakthivel, who goes by only one name, said the company has invested in good technology, has good sources for raw materials, such as cotton, and makes a superior product. Another major advantage for companies such as Poppys is lower wages. The typical monthly salary for the company’s 2,500 employees is about $100, Sakthivel said.
Despite the pending boom in exports, Sakthivel is not concerned that other nations will try to stop India’s good fortune.
“We don’t believe there will be any extension of quotas. There is no reason,” Sakthivel said.
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