- The Washington Times - Saturday, December 25, 2004

MAIDEN, N.C. - Steve Dobbins in the past four years has closed 10 plants, laid off 1,400 workers and refocused his textile company on products that won’t go toe-to-toe with competition from lower-cost factories in China, India and a handful of other nations.

But he’s still not certain that Carolina Mills, a company that today employs 1,200 in a 30-mile radius around this small North Carolina town, will survive a massive change in the clothing and textile markets slated for Jan. 1.

“We’re busting our cans trying to find ways [to compete]. We don’t know whether or not we will succeed, but we are trying,” said Mr. Dobbins, the company president.

Foreign competition has been creeping up on U.S. companies that spin yarn, weave fabric and sew clothing. The industry has adjusted by consolidating, scaling back U.S. operations and refocusing overseas.

Many believe the worst is yet to come.

Starting Saturday, a global system of quotas that limited foreign apparel sales to U.S., European and other wealthy markets since the 1960s is set to expire.

China is expected to capture about 50 percent of the U.S. clothing market, up from 16 percent, once quotas end, the World Trade Organization estimates. India and a handful of other countries also are expected to prosper. Their gains are expected to come at the expense of companies in the United States, Europe and smaller, less-efficient countries, such as Mexico, Turkey and Indonesia.

Companies in the United States have been preparing on several fronts — sometimes making internal changes to become more competitive, but also petitioning the government for a new round of protection.

Mr. Dobbins’ company has become more automated, refocused on high-tech threads that go into branded products, such as Polartec fleece and Coolmax socks; “made in the USA” goods sold to the government, such as flags; and high-end segments, such as medical bandages.

Still, the future is uncertain.

“At the end of the day, we hope we can still have U.S. operations,” Mr. Dobbins said.

Slashing jobs

The mills that make fabric and thread and the shops that cut and sew clothing have shed more than half of their workers in the past decade — to 685,600 in November from almost 1.6 million at the end of 1994, according to the Bureau of Labor Statistics. That number will drop to 449,800 by 2012, the BLS projects, though other forecasts are more dire.

“I would guess that something like three-quarters of those [remaining jobs] would probably be lost in the next year or two,” said Wilbur Ross, chief executive of W.L. Ross & Co., the global investment firm that acquired and merged Burlington Industries and Cone Mills into the International Textile Group earlier this year.

Burlington and Cone had been industry giants but stumbled badly and filed for Chapter 11 bankruptcy protectionin 2001 and 2003, respectively.

Mr. Ross, who snapped up faltering steel companies and turned them into a profitable conglomerate, said the textile industry will survive in the United States. Some market segments, such as uniforms for the military, are protected, and others, such as trendy clothes, require speed to market that only a local supplier can provide.

But he also touts his textilecompany’s foreign presence, including ventures in Mexico, India and Turkey. The Greensboro, N.C., company has long focused on the Americas, with about 7,000 of its 7,400 workers in the Western Hemisphere, according to Joseph Gorga, ITG president and chief executive.

Mr. Ross is expanding ITG’s overseas operations. On Dec. 10, he announced a partnership with a Hong Kong company to build a dyeing and finishing plant in Hangzhou, China.

“China is by far the single biggest factor in the world in apparel,” Mr. Ross said.

ITG this month also bought a Canadian wool company and plans to build a factory in Guatemala if a free-trade agreement with the country is approved by Congress.

“We feel that we need our map to match the map of our customers. And our customers clearly have decided they want to be able to acquire the fabrics they need on a worldwide basis,” Mr. Ross said from his New York office.

Companies that can’t fill the small, remaining market niches or match that global map are likely to falter. For some, Mr. Ross might be the best hope.

“If we are right about next year’s environment, there probably will be more companies that become ill. And that is generally when we acquire them,” he said.

Fighting to keep quotas

The United States is the world’s biggest textile and apparel importer, buying more than $77 billionin such products last year. More than $60 billion of those imports were subject to quotas, according to a Standard & Poor’s analysis.

Many want it to stay that way.

U.S. industry and labor have pursued two routes, first petitioning the Bush administration to effectively extend quotas on China, and allying with business groups in Europe, western Asia, Africa and the Americas to lobby at the World Trade Organization for an extension of quotas until 2008.

Poorer nations had long urged the United States and Europe to end quotas. A decade ago — when China was a much smaller player in apparel markets — the governments agreed to phase out quotas by the end of 2004, opening up the wealthy markets to fledgling industries in poor nations. But some developing nations have come to regret the system’s end because the system held off the biggest suppliers and ensured at least a small, guaranteed market for smaller players. Those protected niches will disappear.

“The losers in this new trade landscape will be some of the most vulnerable workers in countries such as Bangladesh, Cambodia, Sri Lanka and Nepal. They will be hard-pressed to cope when garment industries there lose their protection,” said Andrew Pendleton, head of trade policy for Christian Aid, a London-based charity.

But the 148-member WTO makes decisions by consensus, so a single nation can block an initiative. China has refused to consider any extension.

China cannot block special safeguards, though, a mechanism that would allow the U.S. government to slow rapidly rising clothing and fabric imports. China agreed to safeguards when it joined the WTO in 2001.

U.S. textile companies last year petitioned the Bush administration for caps on Chinese-made bras, dressing gowns and knit fabric — product lines on which quotas were phased out at the end of 2001 and Chinese imports skyrocketed. Imports of Chinese-made knit fabric, for example, rose 21,307 percent, by weight, from 2000 to 2003. The administration accepted the petitions and limited imports to 7.5 percent growth.

Imports of knit fabric from China reached $42.9 million in 2003 and $41.6 million through October 2004.

The new series of petitions, which the administration is considering, would cover almost $2 billion in imports from China, or about 13.8 percent of all imports from the country. The industry has asked for protection for several types of pants, fabrics, yarns, shirts, socks and underwear.

The Bush administration is expected to decide on the safeguards in February. They would last until Dec. 31 of the year in which they are approved, and can be reapplied for annually through 2008.

Retailers battle back

The decision-making process has become politically charged.

Almost the entire textile industry and more than 100 U.S. lawmakers this year wrote the president asking for protection.

But retailers and many apparel companies, with operations around the world, adamantly oppose any extension of quotas. Importers have filed a court case against the Commerce Department, seeking an injunction to stop the administration from implementing new safeguards at the start of the year.

Importers believe they will be able to more efficiently buy and transport clothing when quotas expire, which would allow them to sell a wider variety of clothes at slightly lower prices.

China, concerned about rising complaints from the United States and Europe, this month said it would tax its clothing exports, effectively slowing overseas sales. China’s government has released few details, so it is not clear if exports would be significantly slowed.

“China has yet to provide critical details of its intentions,” said Mary Brown Brewer, Commerce Department spokeswoman.

On another front, the administration has created a short-term disruption to imports by strictly enforcing 2004 quotas. In past years, a nation that exceeded its quota could borrow from the following year. Now, there is nothing to borrow against, so the Commerce Department-led Committee for the Implementation of Textile Agreements (CITA) effectively embargoed many December shipments — especially from China, India and Pakistan — delaying their arrival until at least February. The December shipments would typically have been for sale early in 2005.

“The action goes far beyond anything CITA has ever done before and clearly constitutes a punitive measure, as well as an attempt to prolong the quota regime,” the U.S. Association of Importers of Textiles and Apparel (USA-ITA), a trade group for retailers, wrote its members earlier this month.

Staying one step ahead

The trade fight has led to tremendous uncertainty.

It appears likely that U.S. textile makers will have some limited protection for a short time. But that may not help the industry for very long — if at all.

“They may get something for China, but not for the rest of the world. That’s a big victory for us,” said Laura Jones, president of USA-ITA.

Some of the biggest companies that cut and sew fabric are not counting on extended help from the government. They have been trying for yearsto stay ahead of changing trade rules.

VF Corp., the Greensboro company behind brand names such as Wrangler, the North Face and Nautica, steadily moved production to facilities in Mexico, the Caribbean and elsewhere from the United States after passage of NAFTA, the trade deal with Mexico and Canada.

In 1994, total VF employment was 58,000, with 52,000 in the United States and 6,000 internationally. This year, the company has 54,000 total employees, with 19,000 in the United States and 35,000 overseas.

Companies such as VF will continue to adjust.

“The end of quotas is not going to be a big explosion kind of thing. But we expect in time there will be a redistribution of the whole supply chain,” said Boyd Rogers, vice president for VF’s global supply chain.

Ending quotas will allow the industry to buy, ship and sell garments more efficiently, consolidating sourcing and focusing on cost and quality rather than juggling suppliers to stay under the quotas.

Some projections show little or no gain for consumers, while others estimate costs on some garments will fall by as much as 15 percent.

“While the industry is currently widely fragmented, fundamental shifts in trade patterns will drastically change the competitive landscape,” Standard & Poor’s said in an October report.

VF is focusing on three regions: the Americas; South Asia, including India; and the Far East, especially China. Available raw materials, labor costs and logistics make them the most attractive and important sources of clothing, Mr. Rogers said.

A study released this month by the Harvard Center for Textile and Apparel Research argues that the industry will follow strategies similar to VF and International Textile Group — with multiple sources around the world, including traditional production centers in the Americas.

Companies are especially sensitive to tariffs, which will remain in place for China even after quotas fall. And, for high-fashion products, they need to be close to, or inside, major markets.

“The end of the world, and China taking over, it’s not going to happen,” said Frederick Abernathy, an author of the study.

Jobs continue to disappear

The Harvard report does not speculate on jobs.

Southeastern states expect to continue losing positions in the clothing and fabric industries. North Carolina has almost 90,000 workers in the industry; and Catawba County, where Maiden is located, has one of the higher concentrations of textile and apparel workers in the state — about 5,400.

Layoffs in textile and apparel, as well as the furniture and fiber-optics manufacturing industries, have led to a surge in dislocated workers. The county’s unemployment rate was 3.4 percent in January 2001, but hit 9.4 percent by that December. As of October 2004, the number of jobs in the county had declined by more than 10,000 since January 2001.

Most laid-off workers end up working for less money than they made in a textile or apparel factory, according to a December report by the Organization for Economic Cooperation and Development. Two-thirds of re-employed workers earn less on their new jobs than they did on their previous jobs, and one-quarter experience earnings losses in excess of 30 percent.

Many of the jobless have returned to school.

Catawba Valley Community College had 3,712 students in 2000, with fewer than 10 receiving assistance through government programs such as Trade Adjustment Assistance, targeted at workers who have lost jobs to foreign competition, and the Workforce Investment Act, which helps with job training for adults and dislocated workers.

In 2004, the college has 4,710 students, with 901 relying on such programs, according to Mary Miller, director of community relations at the two-year school.

There have been success stories.

Daryl Corvin, 36, a father of two from Maiden, was laid off from a Pillowtex plant in nearby Newton in June 2001. He had worked at the blanket factory for 11 years, most recently as warehouse coordinator.

“It was a shock,” Mr. Corvin said of the layoff notice.

He applied for federal training funds, which cover 18 months of the two-year community college programs, and in August 2003 graduated with a degree in emergency medical services. Now he is a paramedic in nearby Burke County. The salary is less than at Pillowtex, but he enjoys the work.

“All in all, it worked out well for me. But I know a lot of people [for whom] it didn’t,” Mr. Corvin said.

Officials in small towns such as Maiden — with three stoplights and a population a little more than 3,000 — are hopeful that their residents will be able to find jobs in new fields as old ones disappear.

But the community has lost more than 400 jobs through layoffs or closings at five textile and apparel plants since 2001. At least one more factory is on shaky ground, and the town expects more failures.

“People say, ‘You’re a dead duck, why are you still trying to fly?’ ” said Carolina Mills’ Mr. Dobbins. “But it’s important for us to continue to buy time. We will not give up.”

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