Apparel firms unsure of quota changes

Jennifer Shubinski

Wednesday, Sept. 1, 2004 | 10:43 a.m.

Consumers most likely won't see a decrease in prices when worldwide apparel quotas are lifted at the first of the year.

The elimination of the quota system is a hot topic this week at the four-day, twice-a-year MAGIC Marketplace apparel trade show in Las Vegas.

The World Trade Organization on Jan. 1 will eliminate apparel quotas that regulate how much companies in countries around the world can produce. The quotas try to ensure that companies from around the world -- not just those that can produce goods the cheapest -- have a shot at the world apparel trade.

Most companies "source" their ideas out to manufacturing companies in other countries. So while a T-shirt company may design and market in the United States, it enlists manufacturing companies, usually overseas, to make the final product. International factories produce an estimated 50 percent to 70 percent of the apparel sold in the United States, MAGIC officials said.

While it works on paper, the quota system created a false economy, Ernae Mothershed, public relations manger of MAGIC, said. Companies that produce below their quotas will sell their excess allowance to other companies -- often inflating the price of the final goods.

With the elimination of quotas it will eliminate restrictions on how much an apparel company can produce and export to other countries.

What that means and how it will affect the world apparel market is a matter of debate -- even though the quota elimination has been in the works for the past 10 years.

One thing most industry experts agree upon is that it will increase competition and not all suppliers will survive.

Peter M. McGrath Sr., vice president and director of product development for J.C. Penney Co., said during a presentation at MAGIC that wholesale prices after the quota elimination could decline anywhere from 8 percent to 18 percent.

He said the worldwide capacity to produce apparel is huge -- in China alone one factory that makes sweaters employs 40,000 people -- and that capacity will have a depressing effect on wholesale prices.

But don't expect to see cheaper prices at the mall.

"We want to try to bring the consumer better value by enhancing the materials, using blended fabrics, using a higher thread-count, giving a greater value for the same price," McGrath said. "We're taking advantage of improved product and not going down in price."

While companies and retailers are looking toward the future on how to make the adjustment to a post-quota world, some countries are worried how it will play out politically in their countries.

Rajaonarivony Narisoa, ambassador of Madagascar to the United States, said the quota elimination could have detrimental political and social effects to his country and its fledgling textile industry. Narisoa, who will be giving a presentation on the topic today at the MAGIC tradeshow, said companies will likely turn to more established and dominant producers such as those found in China.

Madagascar is an island country twice the size of Arizona, and is located to the east of Africa in the Indian Ocean.

Narisoa said because of the uncertainty on how the elimination of quotas will affect Madagascar, 50,000 jobs already have been lost. Currently the textile industry in Madagascar employs about 140,000 people, he said.

Narisoa also said the mass layoffs that Madagascar officials fear may be coming could insight civil unrest.

"If there are layoffs, there could be demonstrations and that could be very dangerous for the regime," he said.