Goodbye Monkey, Hello Rooster
December 20, 2004,
There's a Chinese saying, “If you take a step back, you will find the sea and the sky is boundless.” And so, as the Year of the Monkey draws to a close, China's Commerce Ministry has taken a step back and tossed a monkey wrench into the whole quota-free system that everyone agreed would benefit China more handsomely than any other nation.
As of this writing, the Ministry had not placed any home textiles on its evolving list of product categories that will be subject to export tariffs. Nor had it specified the level of tariffs to be levied. And as if the tariff announcement wasn't cryptic enough, a government spokesman told news organizations in China that the tariff program would be but the first in a series of measures China will enact to ensure “a smooth integration” of international free trade in textiles. What those measures might be was left unsaid.
In broad strokes, China has indicted that it will work to keep low-cost goods from swamping the international market. For U.S. suppliers sourcing out of China, the worry now is whether the quota-free prices they set for 2005 orders will carry sufficient margin should tariffs be enacted. Some companies actually negotiated quota-free prices but added just-in-case clauses to cover some sort of government restriction that might boost costs. Those that didn't will have to eat it.
But again, that's assuming some major home textiles categories will become subject to tariffs. Talk to those who are well connected in China and you get three answers: tariffs will definitely hit sheets and towels; they definitely will not; and we have no idea.
If tariffs end up getting slapped on sheets and towels, who's the biggest beneficiary? There was one word on cognoscenti lips last week: Pakistan. But Pakistan has been working furiously to open new and better factories, positioning itself to get out of the low end of the business in what was expected to be a post-quota world flooded with cheap Chinese goods.
So, off we go into new and uncharted territory. For the record, 2005 is the Year of the Rooster, which is said to herald color, drama and opportunity but must be balanced with common sense. Gung-Hay-Fat-Choy, everybody. (Translation: Happy New Year.)