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Published: Sunday, 12/12/2004

Restriction on imports to expire at year's end

BY JULIE M. McKINNON
BLADE BUSINESS WRITER
Clothing made in other countries, such as jeans made in Russia, are predicted to flood U.S. markets and drive prices lower after decades-old import quotas are lifted at the end of the year.  Clothing made in other countries, such as jeans made in Russia, are predicted to flood U.S. markets and drive prices lower after decades-old import quotas are lifted at the end of the year.
ALLAN DETRICH / BLADE Enlarge

Quotas in place for decades that have limited the import of foreign blouses, pants, and other apparel will expire Dec. 31, allowing U.S. retailers to buy boatloads of cheaper clothing.

Clothing prices in this country, which have dropped on average for several years, are expected to fall further. But experts disagree on how much shoppers will save and how much store chains will pocket.

At JCPenney, for example, its purchase prices are expected to decline 8 to 18 percent in the next two years, depending in part on whether a recent effort by U.S. textile makers to put new limits on Chinese imports succeeds.

Clothing at the chain's 1,000 U.S. stores either will be cheaper or be improved without a boost in prices, such as socks and underwear made from odor-destroying material, said company spokesman Tim Lyons.

The chain also expects to keepsome profits from the change, he said.

"We're not talking about a situation where people are going to wake up Jan. 1 and see dramatically lower prices on apparel," Mr. Lyons said.

Apparel prices that have dropped annually since quotas

started to be eliminated in 1995 are expected to go still lower, but how much lower and how fast is in dispute among experts. When the last big import restriction ends this year, it could produce a surge of low-cost clothing from countries such as China, India, Pakistan, and others.

Stores will trim apparel prices 3 to 5 percent next year, followed by 5 to 7 percent cuts in each of the next two years before slowing, predicted Steve Spiwak, an economist with Retail Forward Inc. in Columbus.

J. David Richardson, however, guesses annual declines will be more gradual.

Average apparel prices have declined 1 to 2 percent for the last few years, but the annual drop will increase to 2 to 3 percent, said the professor of economics and international relations at the Maxwell School of Syracuse University.

Upscale retailers likely won't reduce prices, some experts say, instead banking on the demand for their brands to retain prices on the racks and boost company profits.

"The retailers that are really delivering won't have to pass on the savings," said Michele Van Dyke, an analyst at BB&T Asset Management Co. in Raleigh, N.C.

Analyst Eric Beder of JB Hanauer & Co. in New York said a fashion chain such as Bebe Stores Inc. likely will lower store prices by less than 25 percent of its price savings, JCPenney and other department stores may pass along 50 percent, and discounters such as Wal-Mart Inc. may distribute more than 75 percent.

Quotas on clothing and textiles have dominated trade since the early 1960s, when industrialized countries instituted them out of fear that heavy-duty importing would threaten domestic manufacturing.

In 1995, though, the World Trade Organization put in place a 10-year agreement on 770 textile products that limited the amount of such low-cost products entering the United States. That agreement provided for the gradual removal of the quotas, with the last to be gone by Jan. 1.

Some quotas have been removed and replaced by other limits that last through 2008, said Retail Forward's Mr. Spiwak.

Such challenges from WTO countries are one reason why declines in clothing prices will continue for five to 10 years instead of all coming at once, he said.

With just three weeks until the end of the last quotas, the U.S. Commerce Department is considering restrictions on $1.3 billion in pants, shirts, and other apparel from China.

The curbs were sought by U.S. textile and apparel makers, whose employment shrank from nearly 1.6 million a decade ago to less than 700,000 today.

But a coalition of retailers that includes JCPenney has filed a lawsuit in the U.S. Court of International Trade to try to block such limits.

Ending the quotas, experts said, has a variety of implications for the global economy. Poor Americans will especially benefit, for example, but it will worsen the lot of some developing countries, they said.

"For consumers it's good, but it's going to be a lot of pain globally," Mr. Spiwak said.

U.S. manufacturers have much to fear from China, as do countries such as Honduras, Thailand, Bangladesh, Pakistan, and the Philippines, since manufacturers and retailers will consolidate production, some experts said.

India also should benefit, and countries with special arrangements like those covered by the Africa Growth And Opportunity Act should not be harmed.

China, which made 17 percent of the world's textiles and clothes in 2003, has the upper hand because Wal-Mart, Kmart, and other retailers have gotten used to going there, and its government-owned factories will undercut other countries, said Peter Morici, former chief economist for the U.S. International Trade Commission.

"If a shirt cost $7, it's not going to go down to $4. They don't have to," said Mr. Morici, a professional of international business at the University of Maryland.

The WTO said China's market share of the world's textile and clothing trade could jump to 50 percent within three years. When the quotas were removed in 2002 on 29 made-in-China garment categories, such as infant wear and bras, China's share of the U.S. market for those items soared to 63 percent from 9 percent within 18 months, the WTO said.

The American Textile Manufacturers Institute forecasts $42 billion worth of clothing from China by 2006, upping its market share from 16 percent last year to 71 percent.

The end of the quotas spells doom for one-third to a half of the U.S. apparel and textile jobs, Mr. Morici said.

Those jobs paid $12 an hour on average, according to the U.S. Bureau of Labor Statistics, or more than 10 times the amount their counterparts in China earn, said one expert.

But U.S. sewing and cutting jobs most in danger often are held by first-generation migrant Americans who can easily move if they find better jobs, said Mr. Richardson of Syracuse University.

A couple of hundred thousand jobs are held by "traditional" Americans who drive trucks, order merchandise, design clothing, and do other tasks, he said.

"Their jobs may be just as stable as anyone else's, although they may be working with Chinese suppliers instead of Caribbean suppliers," Mr. Richardson said.

In another decade, China will not be manufacturing much apparel, either, Mr. Richardson predicted.

State-run factories in the short term will be replaced with smaller private firms, and Chinese manufacturing is moving into higher-end industries requiring more technology to replace those jobs, he said.

JCPenney buys about 60 percent of its apparel from suppliers such as Levi's and Liz Claiborne, and the rest comes from private brands including Arizona, St. John's Bay, and Stafford, said Mr. Lyons, the chain's spokesman.

Women's jeans from St. John's Bay, for example, may cost $20 to $30, while men's Stafford dress shirts run $15 to $35.

About half of the private-branded apparel is directly imported from overseas manufacturers, he said.

The number of those suppliers has been cut from 50 to 23 and should decrease to about a dozen over the next few years, he added.

JCPenney has no plans, though to source all production in one country, Mr. Lyons said.

Also, he added, the chain buys textile and apparel products made in the United States, such as pants.

It's up to U.S. manufacturers to find a competitive advantage to retain that business, he said.

Reuters and Bloomberg news services contributed to this story.

Contact Julie M. McKinnon at:

jmckinnon@theblade.com

or 419-724-6087.



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