submarining

fashion in canada — Danielle on September 8, 2006 at 7:27 pm

One aspect of the world of apparel that I struggle to make sense of is exporting and importing. It’s something I never had much of an interest in and I’m now overwhelmed with how big a part things like quotas, tariffs and politics play in the global fashion arena.

On January 1, 2005, quotas on imports from less developed countries were removed in both Canada and the United States. Six months later, after having its market flooded with 800% more imports from China, the USA reinstated quotas on many categories of garments. Which seems odd, considering how the States championed the WTA agreement from the beginning. This means that once the quotas have been filled, an embargo stops shipments from the country in question.

Some devious types try to get around the quotas by a sneaky practice called submarining, or “transhipment”. This is where garments produced offshore are finished or relabelled in a country whose quotas aren’t restricted. Though the USA is targeting other Asian nations suspected of rerouting goods made in China, Canada is not immune to opportunistic relabeling. Not only can the quotas be usurped, but the Made in Canada label holds sufficient cachet that the goods can even receive a higher price with their new labels. With Canada’s market also flooded with imports and the apparel industry suffering, the greedy or desperate go underground, creating temporary relabeling factories to capitalize on the situation.

Relabeling used to be a hack-job, simply chopping off the label and sewing a new one on top, but with the USA increasing surveillance and spending millions of dollars to inspect imported apparel, the submariners have had to take more care – unpicking seams and carefully sewing in new labels so it is not apparent that the product has been altered.

US customs has responded with an even greater degree of investigation and surveillance – even to the point of chemically testing goods to determine their origin and physically investigating factories to determine where the goods were produced. It’s disheartening to realize that despite this great effort the deterrent for submarining is often a nominal fine absorbed as the cost of doing business.

Some fraud is not so involved – there are many cases where goods are just misrepresented on documents. This type of deception is making it more difficult for companies that legitimately manufacture in Canada to export their goods to the United States – which is unfortunate because the United States market is much larger and more lucrative than Canada’s own.

Even the small packages of made-in-Canada apparel that I deal with are getting stuck in the border backlog. For two countries with a “Free Trade Agreement” there is an awful lot of paperwork and as I am no customs broker I worry about making mistakes. As I find myself trying to understand what all of this means I am overwhelmed with the tangles of policies, opinions and documents.

Lots of it (the stuff that applies to me) is soooo boring, and some of it, like submarining, is a little juicier. Often I’m lost in semantics as I couldn’t tell you the difference between duties and tariffs. I wish there was a book written in plain language that could make all of this stuff more interesting. Much of this article was inspired by one of my favourite industry mentors whose rants really bring these topics to life. Beyond the red tape and the incomprehensible charts and graphs the decisions of our governments and the actions of our industry effect everyone’s life – whether it’s your job, your business, or what is available for you to buy.

Are quotas a good thing or a bad thing? What does the US government’s increased monitering of apparel imports mean for the rest of us? I just don’t know… all I’m sure of is that it is “a little bit more complicated than that”.

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    4 Comments »

    1. Very informative. This practice was commonplace even before quotas were dropped in 2005. It started years ago with US and CDN brands wanting to have an illustrious Made In Canada label in their outerwear and outdoor apparel and they really didn’t want to pay fair local prices for it.

      US Customs employs “Jump” teams to visit overseas and domestic factories to verify and inspect for evidence of transhipment. In Nov 2005, they earmarked 160 factories in Hong Kong. They found 65 “closed” or had filed for cancellation of their HK permit, 48 factories refused US Customs entry, and several of the others were currently under investigation by the Hong Kong government.
      I suppose when they turn up the heat in Hong Kong or other parts of Asia, Canada might seem a little less obvious.

      What some apparel companies will do to squeeze every last cent out of a piece of clothing.

      Comment by big Irv — September 11 2006 @ 12:25 pm
    2. Danielle:

      As a California designer…yes, quotas are a great thing. It keeps the playing field slightly level. The cost of doing business in the US is astronomical and if there weren’t quotas and monitering agencies, us little guys would have even less hope of staying in business or starting one altogether! I am all for a free market, but if you have countries that have a lower cost to do business then you have a monopoly and consequently serious political problems…he(or she) who has the money has the power and if the person that holds the power is less than honorable, we all have problems.

      It’s an interesting study, in all. The US is a world power and is also a policing agent for the world. Something as “small” as a quota on how many units of underwear can enter the country may seem inocuous, but that small practice keeps countries like Nicaragua, Gauatemala and India in the global running and able to make money through exports to the US, not to mention (slightly) protecting its own citizen’s business interests to have a viable textile producing community…tho’ after “deregulation” our cotton mills took a huge dive as well as our domestic production houses. Moreover, this kind of regulation is necessary political leverage. China really and truly has it in for the US. As long as we have control over how dependant we are on their workforce for goods and services, we have a polite stalemate that will never allow them the financial leverage to attack us. I wish I new more about Canada and its place in the political/economic structure of world textile trades. Maybe you can enlighten.

      Great topic!

      Andrea

      Comment by Andrea — September 11 2006 @ 2:38 pm
    3. Did any mention that companies that tranship through Canada into the US circumvent in most cases all duties. Not only is the US Treasury being ripped off bigtime (hundreds of millions)but our local manufacturing industry is taking devastating hits as a result.
      You see at one time, everyone knew what was going on, although not much was done to prevent it.We looked upon it with disdain, shrugged it off. Today, when factories are scaling back,closing or sending people home for lack of work, I wonder if anyone is now questioning this industry wide silence?
      Here in Ontario, our Goverment has set up hotlines so we can report ” irregularities” on someone collecting social assistance. I wonder if US Customs has a “snitch” line, as I do know most legit factories in Canada are absolutely fed up up with this damaging practice.
      I can guarantee most US and CDN designers that play by the rules as well are pissed as well.
      Does anyone know of a reporting procedure for reporting transhipment thievery?

      Comment by big Irv — September 12 2006 @ 10:07 am
    4. THANK YOU for posting this. I’ve been wondering for months and months what a friend was talking about when she said there are “sweatshops at sea” and transhipment is obviously the practice that she was referring to.

      Great topic.

      Comment by stylebites — October 9 2006 @ 8:01 am

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