Importers Scramble to Avoid Safeguard Limits

U.S. importers have rushed to beat embargoes on Chinese goods by moving up production, taking to air freight and filling bonded warehouses.

"They're going to be net importers of everything sooner or later," he said. "We should be figuring out how to sell them stuff, not close them off."

As much as importers see restrictions on China as a hindrance, the domestic textile industry views them as a matter of survival and has vowed to keep petitioning the Bush administration for new safeguards. Domestic trade groups have requested safeguards on another $944 million in imports, which the government is reviewing.

"This has really thrown a monkey wrench in the gears for a lot of these companies that thought they had gone over the final hurdle to no quotas," said Kevin Burke, president and ceo of the American Apparel & Footwear Association.

For instance, back-to-school goods that got stuck in embargo and are set to be released early next year will likely be held until fall 2006 when they will be seasonally appropriate or liquidated through the off-price channel.

"Somebody's going to have to pay for that mess," Burke said.

And that means manufacturers are living with lower profit margins to maintain good relationships with their retail customers, he said. Retailers that do their own importing or are compelled to accept higher prices from their vendors will have trouble passing on the costs to customers.

"There's very little price elasticity in the retail industry because of the competition," said Tracy Mullin, ceo of the National Retail Federation.

In almost every regard, large, well-financed firms are better positioned to weather the risks of safeguards than smaller companies. Tying up credit lines with goods either shipped earlier than usual or caught in embargo may lessen a company's ability to flow more goods though the system smoothly.

"If the goods wind up sitting in a warehouse someplace, it's going to compromise credit," said Andrew Jassin, managing director of the consulting firm Jassin-O'Rourke Group.

There is hope that the Bush administration will cut a comprehensive deal similar to one the European Union and China reached in June, which would bring more predictability and flexibility to sourcing plans. The EU agreement allows for 8 to 12.5 percent growth on 10 categories of goods through 2007 — ending a year earlier than the safeguard provision China assented to when it joined the World Trade Organization and allowing more growth than the 7.5 percent safeguard cap.

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