HONG KONG — The uncertainty surrounding U.S. and China textile and apparel trade has executives here in a quandary.
During a seminar at Hong Kong Fashion Week, the question of whether the U.S. and China can work out a deal that softens the blow of safeguard quotas was the focus of discussion among industry insiders. Most manufacturers in the region have already shifted some production to other countries, such as Vietnam, and are holding off on making shipments of targeted categories to the U.S. for fear the goods will be embargoed.
“No single industry would go through such change from the government,” Felix Chung, chairman of the Hong Kong Apparel Society, said last week. “How can we as manufacturers keep up with all these changes?”
Representatives from the U.S. and China discussed how to move forward, but there wasn’t an agreement, said Daniel Poon, assistant chief economist at the Hong Kong Trade Development Council.
So far this year, after the dropping of quotas by World Trade Organization countries, the U.S. has put a 7.5 percent annual growth restriction on seven categories from China. This was allowed under China’s WTO entry agreement. If a deal can’t be reached that will give China more leeway, that cap will stay at 7.5 percent for the rest of the year.
“By the summer, all the quotas [for the seven categories] will be done” with the exception of cotton yarn, which has utilized almost 13 percent of the quota (as of July 11), Poon said. In addition, the U.S. has outstanding petitions for six other categories.
Cotton knit shirts and blouses, and cotton and man-made fiber underwear are two categories that have already filled quotas. Others that are nearing completion: cotton trousers at 98.8 percent and man-made fiber knit shirts at 91.6 percent.
“The situation is a bit better” with the European Union and China, Poon said. The EU and China agreed on June 10 to limit the annual growth of 10 categories made in China to 8 to 12 percent until the end of 2007.
The EU and China “have created a more stable trading environment,” Poon said, adding that only one category of the 10, bras, had growth of 8.5 percent in 2004. The others grew about 3 percent or less.
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“In the European market, because we have an agreement, there will be less uncertainty,” Poon said.
This is in comparison to the U.S., where there still are a lot of unknowns, such as whether the U.S. and China will strike a more flexible quota deal, whether further safeguards on other categories might be applied and whether antidumping duties will come into play. Antidumping cases can be brought by U.S. companies that claim countries allowed goods to be exported below the cost of manufacturing.
For the time being, Poon suggested four alternatives:
- Use Outward Processing Arrangements in Hong Kong or Macau — where goods are cut in China but assembled in Hong Kong or Macau — to give the garment a “Made in Hong Kong” label to avoid the quota.
- Move production from China to another country.
- Sell merchandise to mainland China and other emerging markets.
- Use alternative materials.
Chung conceded that “the future outlook isn’t that bad,” even with so much uncertainty. Part of the reason stems from Hong Kong firms being flexible and prepared.
“All the companies [here] knew this was going to happen,” he said.
The limitations on China also allow Hong Kong to promote itself as a key production center, even if there are some issues with an aging and less qualified labor pool, he said. Nevertheless, the territory needs to continue concentrating on growing as a design and sourcing center and can’t rely on the production business, he said.
In the meantime, companies continue to wonder what they should do. One member of the audience asked for advice about a shipment en route to the U.S. that might be embargoed.
It was risky to even send the shipment, given the embargo threat, Chung responded. Poon gave a couple of options: Ship it back to Asia and find another client that wants it, or store it for six months in the U.S. in a bonded warehouse if the original client still wants it.