Rules and regulations

Labels and Quotas: Give & take

In 2006 the Government announced a new plan to curb the import of cheap Chinese goods in an effort to cushion clothing manufacturers. The controversial plan was met with resistance from big business, which said it would hurt consumers, and some retailers even planned to take government to the Constitutional Court.

However, in a recent about-turn, Trade and Industry Minister Mandisi Mpahlwa has been forced to ease these quota restrictions which were originally imposed to prop up the local clothing and textile sectors and protect them from cheaper Chinese imports.

The quotas have in some cases hurt the very manufacturers whom they were intended to benefit because manufacturers have been prevented from importing fabric not available locally. There has been a dismal effect on factories and hundreds of jobs have been threatened.

The International Trade Administration Commission (Itac) has said that the commission would consider written requests from importers to increase their quotas under special circumstances, notably where specific products were manufactured only in China or not manufactured locally.

This also applies to specialised sports gear. Itac acting commissioner, Itumeleng Masege, has said that the concession was recommended by the monitoring committee that was appointed to track the import restrictions and identify unintended negative consequences.

However, importers will only get the allowance if they show a commitment to help develop the local industry.

These measures would have to include enhancement of, or contribution to, technology and skills development, empowerment, local procurement and building of competitiveness of the local industry.

There are many who feel that the government’s latest move is paradoxical as it flies in the face of the objectives of the quotas in the first place (ie to give local manufacturing companies some breathing space).

A blow for local brands

According to Andrew Baxter, MD of Capestorm, the exemption for imports of international sports brands and branded clothing — such that they can import with impunity — in effect, goes out of its way to penalise SA brands by denying them equal access to the best sourcing opportunities.

"For example, the SA re-sellers of Nike or adidas or The North Face can source their products in China at best price, but a SA registered brand is not afforded the same opportunity to have items manufactured in China, since the import quotas restrict it from doing so," Baxter says.

"How in such instances, where the playing fields are so uneven, can the domestic brand possibly remain competitive? This is particularly so in relation to specialised goods that either cannot be manufactured locally, or for those products where the cost of production is significantly disparate."

Baxter suggests that we use this opportunity to coerce international brands to support local sourcing.

"After all, this is the intention. Furthermore, one has to consider that SA brands, irrespective of their sourcing policies, invest significantly more in the domestic market, pro rata, than their foreign counterparts, in terms of their investment in job creation through design, administration, logistics, head office and other infrastructural support — yet this is not factored into the job creation scorecard."

Playing fields more unlevel

According to a local manufacturer wishing to remain anonymous, people in the industry can choose to remain patriotically SA and hence uncompetitive by comparison to the international brands (but idealistically committed to the cause, which they fundamentally support), or they can sell their brand off to an international buyer and come back into the SA market as a foreign brand with the same advantage as those already outlined.

"On the one hand government says it wants to foster domestic creativity and innovation through the development of SA brands, and on the other hand it kicks these initiatives into touch by actively stifling competitiveness," says the source.

"Perhaps government can advise us what we should do: sell our IP or loose our jobs? Unless there is a common universal policy for all, the domestic manufacturing industry and SA brands will continue to haemorrhage"

Edcon logistics executive Martin Deall maintains that selective application of quota rules cannot be seen as a fair practice.

"There will, however, be minimal impact in the industry, provided there is good governance in the application of the exceptions granted and these should be made public knowledge to ensure transparency in the process," he says.

"Edcon has always maintained that quotas are bad for consumers, and will do little to save the industry unless the industry takes this small window of opportunity to make itself more competitive."

Labels to show Country of Origin

Various sectors are extremely happy about the new country of origin label regulations. Proudly South Africa has welcomed the implementation of Country of Origin Labelling, saying it will greatly assist consumers to distinguish between imported and locally made/Proudly South African merchandise and enable them to make informed decisions when they buy clothing, textiles, leather goods and footwear.

According to Deall the re-issue of the legislation was an indication that government now intends to more actively monitor compliance.

"The legislation will ultimately prevent import of any parcel lot or stock buys as these now have to be correctly re-labelled at point of origin and most sellers of these stock lots will be unwilling to do this as they are merely trying to sell off unwanted product at highly competitive prices," says Deall.

"This will affect mainly the informal sector traders who rely on this kind of sourcing for extreme low price to the poorest consumers. This product will no longer be allowed to be imported without correct labelling."

The Textile Federation is also smiling. "We welcome the introduction, finally, of the textile and apparel labelling legislation," says Brian Brink, Executive Director of the Textile Federation.

"It should provide the consumer with essential information so that informed purchasing decisions may be made and also facilitate the work of the customs department in combating transhipping and other fraudulent import activities."

Ronald Rink, MD of Puma SA, agrees. "I think it will make it more difficult for the informal/counterfeit operators to import products", he says.

Depend on monitoring

The effectiveness of the legislation amendments will depend on monitoring and strict controls. According to reliable industry sources, there are factories in KZN employing upwards of 400 people simply to manipulate labelling on contraband imports. Assuming it takes 20 seconds per garment, that can be a lot of units!

There is a school of thought that view the amendments with caution.

"It is definitely an important step towards administering imports, imposing relevant tariffs and informing consumers both about the fabric content and assembly origin of manufactured goods," says Baxter.

"However, I’m hard pressed to see how the new legislation will make a significant impact on the clothing industry in general. Consumers tend to vote with their wallets first and their sentiments second.

"Consumers have generally come to accept and indeed expect to see that most consumer goods are made in Asia. If there is no discernable quality difference, then price is the overriding factor — irrespective of origin.

"My recommendation is that government’s biggest opportunity rests in building a strong culture to support local brands and local innovation. Brands are the key to differentiation"

As far as the future goes, Deall maintains that the intent behind this legislation was to allow consumers to make an informed choice about country of origin when making a purchase of clothing.

"Our research indicates that country of origin is very low on the consumer priority list when making purchasing decisions — they are more concerned with price, quality, fabric, brand, styling, colour, fit and only then may they consider country of origin ... if at all."