Chinese Condoms Could Mean Layoffs for U.S. Workers

But more and more Chinese-manufactured products have been turning up as either defective or toxic, from baby formula and toys to dog food and drywall.

"I would absolutely think twice about condoms made in China, because obviously we don't want them breaking left and right," Tonelson said.

He called the USAID's decision to move to overseas markets a "questionable move" because the government has a responsibility to promote American business through foreign aid. When towns and villages now receive their condoms from the American government, they won't be an American product.

Alatech puts out 500,000 Champion condoms per year, compared with 100 million for USAID, and even that's down from a peak of 400 million a few years ago.

USAID has been using foreign-made condoms for years, from companies in China and South Korea, but always alongside Alatech. But Povlacs said he just can't lower his price to match theirs.

His company has already dropped from more than 300 employees to about 124, though that number fluctuates as orders come in.

Povlacs said even he looked into having Alatech's condom's manufactured in China back in 2005, but he decided against it. He said that while the Chinese government offered to pay its workers $120 per month, a local town mayor took him aside and promised him $30 per month for each worker if Povlacs would bring his businesses to that town.

"That's what we're up against," he said of the USAID contracts. "It's not a level playing field. If you want American jobs, it's not going to be the same."

USAID: Alatech Unable to Keep Up

But USAID said its decision to drop its contract with Alatech was over more than the price difference.

USAID spokeswoman Tara Rigler, reading from a prepared statement, said Alatech began having major quality and reliability problems 2005, when it was 237 million orders short, unable to keep up with the growing demand. In 2006, she said, Alatech was 36 million orders short.

And by 2007, she said, 12 countries representing 38 percent of USAID programs requested the U.S. government stop sending them Alatech-manufactured condoms.

Alatech, Rigler said, still reading from the statement, was "unable to meet their USAID contract delivery schedule" because of "quality control and manufacturing problems."

USAID, which estimates it spends between $10 million and $20 million on condoms annually, shipped approximately 400 million condoms last year, with 75 percent of their orders going to sub-Saharan Africa.

Should Government 'Buy American' on Condoms?

When it came time to start on new contracts, USAID looked to a contractor, Boston-based John Snow Inc. to find subcontractors to manufacture the condoms. JSI selected Qindao Butterfly Group of China, Unidus Inc. of South Korea and Karex Industries of Malaysia, the latter of which took Alatech's spot.

Alatech tried to block JSI in December by filing a bid dispute, but it was dismissed in March. USAID is now moving forward with JSI's recommendations.

But Povlacs said USAID's dredging up of past history is unfair. He admits his company had problems meeting demand in 2005, so it bought out the factory of a former rival that had closed down and invested $10 million with what he said was assurance from USAID that their contract would continue.

USAID told ABCNews.com there were never promises made to Alatech regarding future business.

Povlacs said that once the factory was on line, it didn't miss one order in 2007 or 2008.

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