Final cut for textile quotas: Poor nations no longer guaranteed work
By Alwyn Scott; December 13, 2004; Seattle Times business reporter

  From his sweeping view of Lake Union, Steve Ritchey sees storms gathering over factories around the world that churn out his company's trendy jeans and tops.
  As head of Seattle Pacific Industries, which sells more than $300 million worth of garments a year under the Unionbay, Reunion and Sergio Valente labels, Ritchey is preparing for the demise of international trade rules that have governed the textile market since 1974. Those rules, known as the multifiber arrangement, expire Jan. 1, ending a quota system that gave dozens of poor nations a guaranteed slice of the $82 billion U.S. market for clothes and cloth.
  The agreement helped spread textile jobs to countries like Bangladesh and Honduras but also limited how much the U.S. could import from the least-expensive producers, such as China.  Without quotas, Ritchey and other importers and retailers will be able to buy as much as they want from any country that offers the best price. Eliminating the quota could cut importers' costs by 15 percent or more, Ritchey said.
  A lot of work is expected to move to China, where low-cost labor and efficient factories could mean lower prices at the checkout, fatter profits for importers and retailers, and better quality.
The change is expected to prompt factory closures and thousands of layoffs in many developing countries as production moves to China.
  And last month it sparked a legal battle between U.S. textile producers, who want a new set of import restrictions to protect their industry's jobs, and the retailers and importers that are eager for the lid to be lifted.
  But the storm probably won't hit Seattle or Portland.
  Seattle Pacific, for example, buys from 17 locations, mostly in Asia, Ritchey said. That is likely to narrow substantially as he buys more from China after quotas go away. "To have things a little more centralized would be better," he said.
  However, the process of importing goods from Asia, whether from China or other countries, won't really change. And competing countries will try to hang on to his business after quotas end, by making their products more competitive.
  "China will be a big winner, but I don't believe other countries will let it go without a fight," he said. "They'll have to get better."
  Similarly, Columbia Sportswear, the Portland maker of waterproof coats and apparel, expects very little impact even if lots of production shifts to China.
  "We have strategically located offices throughout Asia and as a result are flexible in our ability to source products in a multitude of locations competitively," said Rick Carpenter, vice president of manufacturing operations. "Ultimately, the absence of quotas will allow us to further consolidate our production base, which will help us to gain better efficiencies."

Sewing in Seattle
  Sewing machines are still humming at the comfortable brick building near Safeco Field that houses CC Filson, the outdoor-clothing maker that got its start outfitting Klondike fortune seekers in 1897.
  Visitors to the lodgelike flagship store can see the factory floor where some of the company's 130 employees are busy sewing. Filson's goods, such as $189 sweaters and $80 merino wool long johns, don't face much competition from Wal-Mart or other retailers that source their goods from low-wage factories around the world.
  As a result, the change in the quota system isn't even on CC Filson's radar.
  "We're not keeping up on it," spokeswoman Terri Young said.
  The company imports some fabric from Asia, she said, but so far it hasn't encountered problems related to quotas. "It could end up being an issue for us, but it isn't at the moment."
The high-end garments that CC Filson makes, she said, "have a certain niche that we fill."
  Good thing, too. In the broader apparel market, consumers are very price sensitive.
  And because the cost of setting up sewing machines is relatively modest, jobs can move quickly to factories where labor rates are cheapest.
  At $1.50 to $2.50 an hour, wages in Central America and Mexico are two to three times higher than the average in China, Cambodia, Pakistan and other parts of Asia.

Ports to benefit
  Shifting production to Asian countries from places that typically ship through southern or East Coast ports should be a boon for West Coast ports, including Seattle and Tacoma.
  Apparel was the top import for the Port of Seattle in 2003, registering $2.34 billion in value, and nearly $690 million of it came from China, said Kent Christopher, general manager of the port's container operations.
  The port is predicting as much as 10 percent growth in overall traffic in 2005. Others predict even faster growth. Some forecasts say West Coast port traffic will rise 14 percent next year, said Bob Watters, vice president at SSA Marine, the giant Seattle stevedoring company that runs Terminal 18 in Seattle and operations around the world.

Looming domestic fight
  The shift in garment work isn't just hitting poor workers in Asia and Central America.
It is hitting at home — in California, the Carolinas, New York, Georgia and other states that host the nation's remaining mill and garment work.
  Production in the U.S. has fallen sharply over the past decade after other trade agreements, notably NAFTA, made it easier to import from Mexico and elsewhere.
  Now, the end of global quotas has pitted groups trying to protect textile jobs against retailers and importers seeking more open trade.
  The garment industry has petitioned the Commerce Department to keep restraints on certain Chinese imports, fearing a flood that could wipe out what remains of the industry.
  Earlier this month, a group representing 200 retailers and importers, including Seattle Pacific, J.C. Penney and Liz Claiborne, filed suit to stop the government from restricting such imports.
  They argue that opening the U.S. to more clothes from China and other countries will provide better products and lower prices for consumers. "The main effect of quota policy is to keep store prices for clothes high," the group, known as the U.S. Association of Importers of Textiles and Apparel, said in a study earlier this year.
  In one example, the study cited a pair of blue jeans that cost $10 leaving the factory, but incurred a "quota surcharge" of $5.75. As the jeans moved through the supply chain, that 58 percent cost increase was magnified by tariffs, retail markup and sales tax. At checkout, the jeans cost $29, nearly twice as much as jeans starting without a surcharge.
  Ritchey, at Seattle Pacific Industries, said quota surcharges on his products can raise prices 15 to 18 percent. He said the savings from ending quotas outweigh the cost of losing a dying U.S. industry. The number of people who sew and assemble garments has dwindled to just 283,000 from 857,800 a decade ago. "Why are people worried about an industry that doesn't even exist?" he asks.
  But others say those jobs are a vital part of the economy — and part of a viable, important industry. Losing U.S. factories will cost the nation both jobs and its edge in textile research and development, since innovation often come from the factory floor.
  "The industry is not a dinosaur," said Lloyd Wood, spokesman for the American Manufacturing Trade Action Coalition, a Washington, D.C.-based group representing domestic manufacturers. "This is not a buggy-whip industry."
  Counting a wider group that includes textile-mill workers, Wood said, the industry employs 686,800 people. Over the past decade, this broader industry has lost 869,700 jobs, or 56 percent of the total.
  At Seattle Pacific, Ritchey expects efforts to protect those jobs will result in some sort of temporary measures to curb Chinese imports. So he's keeping ties with his existing supplier factories even as he looks at how to buy more from China.
  The question is "how we're going to not disrupt the flow," he said. "That's what we're watching."

Alwyn Scott: 206-464-3329 or ascott@seattletimes.com