Europe's Embargo Crisis Brings Balance

When millions of sweaters, bras, trousers and blouses were seized and held hostage in European customs warehouses last August, it hardly resembled the end...

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PARIS — When millions of sweaters, bras, trousers and blouses were seized and held hostage in European customs warehouses last August, it hardly resembled the end of the quota regime everyone had imagined.

But it did serve as a wake-up call to an industry already heavily dependent on imports from Asia, particularly China, that had hoped the abolition of quotas earlier that year would be an invitation to unfettered cheap production.

Executives said it behooved them to reevaluate their sourcing strategies and redistribute the mix, moving away from an overdependence on China and balancing it by bulking up in countries such as Bangladesh and India.

"We were all incited to recalibrate our sourcing," said Richard Simonin, president of France's Etam fast-fashion chain.

"It taught us that we needed to have a more balanced and diversified sourcing strategy," added Glenda Wee, senior vice president of global sourcing at French cataloguer Redcats Group. "We didn't want to be stuck with all of our eggs in one basket."

Companies likewise worried a drawn-out snafu would dent margins considerably or, worse, result in empty shelves. Others saw it as an ominous sign that politics in the socially volatile European Union is always just one small step away from impeding business.

Yet, after a whirlwind of high-profile negotiations between Chinese and EU trade ministers, which ended the reintroduction of quotas on certain sensitive categories, the situation blew over. When the dust settled, there seemed to be surprisingly little impact or lasting ramifications. It was — politics aside — a return to the status quo, albeit with different semantics.

"There has been very little impact since the small one in August 2005," said Simonin. "It hit margins a bit last year, but the new quotas are so high that no one has a problem producing to his heart's content in China. Really, [what happened] was a false debate because those that suffered from the end of quotas were China's real competitors, as Morocco and India. We haven't been sourcing in France for years. To reinstate quotas wasn't going to move us back into France."

Nils Vinge, head of investor relations at Hennes & Mauritz, also minimized the effect of last year's trouble, saying that the Swedish fast-fashion giant may have been forced to move production of some sweaters from China to Bangladesh, but with minimal impact on margins.

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