Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, August 12, 1994 TAG: 9408120074
SECTION: BUSINESS PAGE: A9 EDITION: METRO
SOURCE: The Washington Post
DATELINE: WASHINGTON LENGTH: Long
Consumers may not think twice about whether a shirt or dress label says ``Made in China'' or ``Made in Hong Kong.'' But the distinction matters to William Farley, chairman of Fruit of the Loom.
Farley and other clothing-industry and union officials want Congress to rewrite the ``rules of origin'' that help govern the amounts of clothing that can enter the United States from China and other major foreign apparel-manufacturing centers. That would impose a sizable cut on imports from China, this country's leading foreign supplier of garments.
But leading U.S. retailers are fighting back, warning that clothing prices will rise if there are limits on China's low-cost imports.
``Preliminary indications are that [the rule change] could be disastrous for the retail industry,'' said Tracy Mullin, president of the National Retail Federation.
The House Ways and Means Committee agreed to the changes, but a similar provision, proposed by Sen. John Breaux, D-La., last week failed in the Senate Finance Committee on a 10-10 vote. The issue will be resolved by House and Senate negotiators as part of legislation changing U.S. laws to conform with a global trade pact reached in December.
The maneuvering on clothing quotas is a key part of the ongoing struggle over the trade pact, a sweeping expansion of the General Agreement on Tariffs and Trade that offers a revealing view of the rough-cut politics of trade.
In a half-dozen years, China has surged to prominence in the world's apparel industry because of its labor rate of 40 cents an hour and a dynamic collaboration with state-of-the-art fabric-cutting factories in Hong Kong - and leading U.S. retailers.
China supplies about $7 billion, or nearly 18 percent, of the $40 billion in annual clothing imports to the United States. Chinese factories also do preliminary stitching on a large share of clothing imported from Hong Kong, Singapore and other Asian countries. About 10 percent of the $4 billion in clothing entering the United States from Hong Kong is assembled in China, according to Clinton administration estimates.
The goal of the U.S. apparel industry is to force those garments from Hong Kong and other Asian countries to be counted against China's quota. Because China already is at its quota limit, adding the additional garments to the Chinese allotment would, in effect, keep Chinese clothing out of the United States.
The weapons in this duel are complex Customs Service rulings that determine the origin of a garment for labeling and quota purposes.
Beginning in the mid-1980s, a series of Customs decisions held that a garment's origin was based on where its fabric was cut. Before, the origin was based on where a garment was sewn and assembled.
But in 1984 U.S. sweater manufacturers, trying to restrict imports of Hong Kong sweaters, lobbied successfully to get the rule changed so that the origin was based on where the fabric in a garment was cut. In this case, the Hong Kong sweaters were cut in China and stitched and embroidered in Hong Kong.
Soon, however, Customs obliged U.S. retailers by extending the rule to cover many other kinds of clothing in addition to sweaters.
Cross-border partnerships sprang up between such leading U.S. retailers as the Limited Inc. and sophisticated factories in Hong Kong employing high-speed lasers to cut fabrics for assembly in China. These garments were counted against Hong Kong's quota, not China's.
The U.S. clothing industry saw the opportunity to change the rule back to the ``sewing and assembly'' standard this summer, when the GATT legislation went before Congress.
Farley and Chicago-based Fruit of the Loom Senior Vice President Ron Sorini called on Breaux, whose state is home to about 10,000 Fruit of the Loom workers, asking he support the rule change. In the House, Rep. Benjamin Cardin, D-Md., a member of the House Ways and Means Committee and a staunch supporter of labor interests, responded to a similar request from the textile and apparel union leaders.
When Cardin offered his proposal before the Ways and Means Committee on July 20, Rep. Bill Archer of Texas, the committee's ranking Republican, protested, saying such rule changes normally are made by Customs and Treasury officials after a full set of hearings.
Jennifer Hillman, the U.S. trade representative's chief textile negotiator, and Deputy U.S. Trade Representative Rufus Yerxa said that while the administration had not sought the change Cardin was offering, it was logical. Retailers said the change would cost them - and consumers - millions. Leslie Wexner, chairman of the Columbus, Ohio-based Limited chain, said the change could add more than $500 million to his company's yearly costs for purchasing clothes. ``We know we're talking about hundreds of millions of dollars a year,'' said Julia K. Hughes, vice president of Associated Merchandising Corp., which owns Carter Hawley Hale, Dayton Hudson and other retailers.
``There is no question it will cost consumers more money,'' said Laura E. Jones, executive director of the United States Association of Importers of Textiles and Apparel.
Sorini, a former chief textile negotiator, argued that returning to a ``sewing and assembling'' rule brings it back to reality.
``For our T-shirts, for example, only 2 percent of the work is cutting,'' he said. When China is doing 90 percent of the work, the label should read ``Made in China,'' he said.
Hong Kong, where labor rates have risen to $8 an hour, can no longer assemble clothing at competitive costs and thus is left with quota allotments to the United States that it cannot use, Sorini said.
The joint ventures between Hong Kong's cutting factories and China's assembly shops are an end run around U.S. quotas, Sorini said. Other countries are copying that approach and that is adding to the flow of lower-priced imports, he said.
by CNB