HONG KONG (FNS) — Local banks, concerned that American buyers are cancelling orders because of the U.S. country-of-origin rule changes, have cut back loans to small- and medium-sized knitwear manufacturers, textile industry sources said.
They said some banks have stopped honoring letters of credit for U.S. -bound goods, leaving knitwear outfits stuck with partially processed garments and not enough ready cash to pay workers and buy raw materials.
“If the new rules are implemented some knitwear manufacturers will go bankrupt,” said Joseph Wei, director of Oriental Pacific (Export) Ltd., a major knitwear company. “We’re large and we’re receiving cancellations. But smaller firms might not be able to cover themselves for very long.”
“There is a lot of worry in the industry,” said Frank Lin, chairman of Hong Kong Knitwear Exporters and Manufacturers Association. “After Sept. 7 (when the rules go into effect), most manufacturers don’t know how they’ll continue to survive.”
Many Hong Kong manufacturers, particularly smaller outfits, depend heavily on bank loans to run their daily operations, pay salaries, purchase materials and upgrade or repair equipment. The loans are provided against letters of credit overseas customers post with banks when placing an order. The LCs guarantee payment upon delivery of goods.
But bankers are now concerned that the new textile import curbs, which redefind what garments the U.S. will accept, provide U.S. customers with legal grounds to cancel orders placed before the rules were announced earlier this month.
“The feeling is that if a customer can’t get his goods then why should he pay,” said one garment trader. “Also, some customers who want to break their contracts for other reasons are using this ruling as an excuse to cancel their orders.”
Textile experts estimate that up to 50,000 workers in Hong Kong could lose their jobs if the rule are imposed.
The U.S. action also requires exporters to provide detailed documentation substantiating a garment’s country of origin. U.S. customs has the right to deny entry if the information is considered insufficient.
Exporters charged the declaration form reveals confidential business information.
The declaration form contains six columns requesting:
1. Direct costs of manufacturing and/or processing operations
2. Cost-value of materials
3. Descriptions of manufacturing and/or processing operations
4. Country or countries of manufacturer and/or processing
5. Description of material
6. Country or countries of production.
Meanwhile, as the deadline approaches, local garment manufactures and exporters are stepping up their protests.
Kenneth Fang, chairman of the newly formed Joint Committee of Knitwear Associations, said more than $250,000 (U.S.) has been set aside for legal action against the U.S. rules. He said the committee has just hired a Washington lawyer who will be in Hong Kong today.
The committee will also be sending a letter to the Secretary for Trade and Industry, Eric Ho, urging the government to take a tough stand at negotiations with the U.S.
The Joint Committee has about 200 members controlling about 90 per cent of Hong Kong knitwear exports.