Every day, many Americans are carrying around evidence of an international trade conspiracy that is threatening millions of jobs, government investigators say.
It’s printed on small tags tucked in trousers, women’s blouses, knit tops, sweaters, T-shirts and underwear. They may say “Made in the Maldive Islands,” “Made in Lesotho,” “Made in Oman,” “Made in Hong Kong” or some other exotic locale.
But, for millions of garments, that’s a lie. As much as $2 billion of the clothing was, in fact, manufactured in China.
“A lot of people are walking around with labels that mean nothing,” said one customs inspector.
Why? Because the United States is the most clothes-hungry market in the world, China is the cheapest supplier, and that means big bucks.
“There’s big money to be made in getting around quota restrictions,” said Richard Chrichton, chief of the U.S. Customs Service’s textile division. “It’s like drugs. It’s widespread, it’s lucrative and it’s similarly hard to track.”
And, like drugs, the falsely labeled clothing has an enormous economic impact.
Nearly 250,000 American apparel workers have lost their jobs in the past five years and hundreds of U.S. plants have shut down, in large part because of the flood of cheap, illegal imports from China, Pakistan, India and Vietnam, industry experts estimate.
Foreign textile producers-led by China-are operating massive criminal conspiracies, customs officials say, using a tangled web of falsified shipping records, fake labels, dummy corporations, quotas sold to the highest bidder and retailers who look the other way.
Customs estimates that nearly $5 billion worth of apparel imports was transshipped through 40 countries in 1992. That would mean that 14 percent of that year’s $35 billion in total apparel trade was fraudulent.
The Clinton administration has created a special task force to go after U.S. importers and hit them in the pocketbook. But officials say the fraud is so widespread that it’s difficult to fight.
Some fraudulent importers have been caught. In December, Gitano Inc. pleaded guilty to a scheme involving the import of Chinese blouses labeled “Made in the Maldive Islands.” The company agreed to pay up to $1.8 million in fines and changed top management.
And this month Chinese officials bowed to Clinton administration threats and agreed to crack down on illegal textile transshipments-promising to slash their quotas up to three times if they’re caught.
“We’re trying to send a message to countries that this is a top priority in this administration,” said Rita Hayes, deputy assistant secretary of commerce for textiles, apparel and consumer goods.
“Chinese transshipment is making a mockery of our trade laws,” said Ron Sornini, a U.S. textile negotiator in the Bush administration who is now a vice president at Fruit of the Loom. “It’s hurting profits for producers here, driving employment offshore and putting companies out of business.”
Clothing and textile manufacturers complain the government has been largely unsuccessful in stemming the flood of imports. And they wonder how serious it is about saving the quotas.
They note that in recent General Agreement on Tariffs and Trade talks, Clinton trade officials called textiles a “sunset” industry and agreed to lift import quotas over the next 10 years. They warn that 2 million U.S. textile and apparel workers may eventually lose their jobs to imports.
In fact, many U.S. retailers think the United States should give up on trying to save the jobs and eliminate the quotas. They say the quota system is as outmoded as prohibition and results in thinner profit margins for them and higher prices for the consumer.
Customs agents and industry officials say there were three reasons for the enormous increase in fraud during the 1980s:
– A higher standard of living in Hong Kong, Singapore and Taiwan, the U.S. market’s usual suppliers of cheap apparel, priced them out of the market.
– Mass production of cheap apparel in China, India and Pakistan exploded.
– U.S. retailers in the cutthroat apparel industry, whose profit margins were squeezed considerably by the recession, were desperate to fill mass orders with the cheapest possible goods.
So, in a scheme that customs officials say became commonplace, U.S. retailers would place orders with middlemen in Hong Kong, Taiwan and Singapore, demanding the lowest price possible. The middlemen would buy surplus quota in, say, Hong Kong, where U.S. apparel quotas are handed down through families, often left in wills to children, and sold on the open market, like futures.
Then, the middleman would contract with a Chinese factory to produce the cheap goods, label the goods “Made in Hong Kong” and ship them to the United States.
As customs began catching on to the scheme, transshippers became craftier-faking visas and creating paper companies to avoid suspicion, or shipping goods through countries like the Maldive Islands, or the United Arab Emirates, where there are no quota restrictions.
