THE LIMITED'S REVEALING SUIT

By Adam Zagorin/Washington

What's Victoria's real secret? well, possibly that some of those frilly unmentionables ogled in catalogues and purchased from pink boutiques may be illegally imported from China. That's the allegation being leveled at the Limited, the retail giant that controls Victoria's Secret, as well as at Lane Bryant, Structure, Express and Abercrombie & Fitch. In a civil fraud case recently unsealed in Los Angeles, the U.S. textile industry, which includes manufacturers such as Springs Industries, claims it has revealing evidence that the Limited knowingly purchased reams of Chinese apparel mislabeled to indicate that it was manufactured in Hong Kong. Private detectives rooted through the trash of the Limited suppliers to develop the case, which the retailer vigorously contests, pointing out that the U.S. government has so far declined to join the action. The Limited faces millions in damages if the charges are substantiated.

Is it just a coincidence that mention of Chinese unmentionables is popping up now? Probably not. The suit bears the hallmarks of a well-timed legal offensive designed to exploit the growing controversy over renewal of China's most-favored-nation (MFN) trading status, which lowers U.S. tariffs on Chinese imports. President Clinton supports the measure, but opponents, who include religious and human-rights activists as well as industries fearful of low-cost Chinese competition, plan to make Beijing's alleged transgressions their Exhibit A. Referring to the ballooning $40 billion U.S. trade deficit with China, Gary Bauer, head of the right-wing Family Research Council, says, "The Chinese government needs our market, not the other way around."

Although the Limited is the only legal target to date, other retailers are being challenged on their import records. Chinese dissident Harry Wu made a dramatic appearance at K Mart's annual meeting in Detroit to tell chairman Floyd Hall that the big discounter purchased 73 tons of men's rainwear from China Tiancheng, a company owned by the People's Liberation Army, instrument of the 1989 massacre in Tiananmen Square. Faced with a similar allegation several years ago, K Mart issued a categorical denial. This time the retailer promised to investigate and sever connections to the company if the charges stick.

Next Wu had his turn at the Senate Foreign Relations Committee, testifying that everything from paper clips to Christmas lights is being manufactured by unpaid convicts and then sold cheaply--and illegally--in America. MFN opponents accuse the Clinton Administration of turning a blind eye toward Beijing. Even George Weise, who heads U.S. Customs, the agency charged with preventing the import of prison-made goods, admits lamely that "we simply do not have the tools" to carry out that mission. Weise admits the agency is similarly tool-less in spotting mislabeled apparel imports, which amount to at least $2 billion annually.

To mass retailers such as the Limited and K Mart, access to cheap (and legal) imported goods is vital to survival in a fiercely competitive industry. The Limited has announced no plans to change its sourcing, and will begin mounting its legal defense in early June. In all likelihood the company is waiting for the issue to fade, figuring that consumers will keep their eyes fixed on the lingerie and not the label.

--By Adam Zagorin/Washington