Fung predicts a time of instability, uncertainty

By Staff -- Home Textiles Today, 2/2/2004 12:00:00 AM

NEW YORK —

Though textiles quotas are set to lapse in 2005, those plans are likely to be shelved amid a hotly contested presidential election, said William T. Fung, managing director Li & Fung Ltd., the $4.8 billion Hong Kong-based company that recently acquired the Royal Velvet license.

If the quotas do disappear on schedule, "We will all enter into a turbulent, uncertain period," Fung told an audience of several hundred executives at the Financo conference. "It means there will be chaos. Total chaos."

Given the current political environment, that's not a realistic scenario, said Fung. "The question is, will the United States government act to stop the surge of Chinese textiles imports, and I am inclined to think they will. The preponderance of evidence is that they will restrict China in some way. And that will put us into a period of uncertainty as the Chinese will want to see the United States show some proof of disruption."

Under trade agreements now in force, the quota issue may be modified if it can be clearly demonstrated that the disappearance of quotas would have a disruptive effect.

During 2004, said Fung, "There is going to be a considerable shortage of quotas, because you can no longer borrow against 2005 quotas. That's going to generate a lot of instability and a lot of uncertainty. It could be complete chaos."

One immediate consequence of the removal of quotas will be price deflation, said Fung. "Prices will probably decline by about 15 percent. And Wal-Mart is probably the only one that benefits from deflation."

If quotas disappear, said Fung, his global sourcing company "will go to the most efficient supplier, not whoever happens to own the quota ... which means a further ratcheting down of costs."

With so much uncertainty in the air, Fung said, "It's a bad time to make sourcing decisions. You just don't know what's going to happen."