By  on March 20, 2007

When the apparel industry's Washington contingent came to Manhattan for the sourcing forum, the first thing the members wanted to talk about was Beijing.

U.S.-China tensions over everything from currency controls that restrain the appreciation of the yuan to a trade deficit of $232.5 billion last year and Beijing's military buildup have created a dynamic backdrop for fashion brands sourcing in the country.

"In the Sixties, Seventies and Eighties, we had an enemy, the Soviet Union, and everything that came out of Washington was focused on how we can work against the big enemy," said Julia Hughes, senior vice president of the U.S. Association of Importers of Textiles & Apparel, an industry trade group. "The big enemy today is China."

Already, China accounts for about one-third of all apparel and textile imports to the U.S., and, while producers there are on track to pick up more market share, Democrats now in control on Capitol Hill are pushing a slate of issues that could restrain trade with the country.

"I cannot begin to describe the level of anxiety that is perceived in Washington over trade with China," said Sarah Thorn, director of international trade, federal government relations, for Wal-Mart Stores Inc. "Some of it's just a general anxiety in the countryside about economics and the rapid change, and globalization and technology, and all of those things get hung up on trade."

Congress wants to try to manage trade with China to ensure it follows international rules, though Thorn said some overlooked the degree of integration between the two economies.

U.S. textile producers and others claim that China grabs an unfair advantage, not only through its currency polices, but also by subsidizing its industry and by poorly enforcing intellectual property rights.

President Bush's chief advisor in the area, U.S. Trade Representative Susan Schwab, has taken some steps to crack down on China, such as bringing a trade case on illegal subsidies to the World Trade Organization. China did withdraw one of the nine subsidies singled out in the case, which is continuing and might take years to resolve.

Some in Congress want to take action soon and Thorn said she was "fairly confident" that there would be some China trade legislation this year.There are several areas where the trading picture with China could change. In addition to some sort of action that would encourage the appreciation of the yuan, making goods from China more expensive, the policy that has kept U.S. companies from bringing countervailing duty trade cases against China could also change.

Countervailing duties are intended to compensate for the impact of subsidies in other countries, but haven't been used against non-market economies such as China or Vietnam because of a vast range of built-in government supports that make it hard to determine what should be offset.

Labor issues are taking center stage right now, and Democrats are focusing on working conditions overseas, which can give foreign producers an advantage.

Schwab is working with legislators on the Hill to formulate what might well turn out to be tougher labor controls for free trade agreements. If a compromise can be reached, it would likely help President Bush's trade agenda, which includes wide-ranging talks in the WTO to reduce duties globally.

Thorn expressed some concerns that changes to the labor provisions that have been used in trade pacts could open the door for unions to sue for changes to U.S. laws to comply with the trade agreements.

Still, reaching a compromise on labor, as well as on environmental issues, might reap benefits for retailers and the trade agenda.

"This grand compromise on labor and environment, while it's a challenge, it also can be an opportunity, because if we can actually get back to bipartisan support of trade agreements, we can pass better agreements," said Thorn.

Many see work on the labor issue as a lead-in to the larger negotiations over renewal of President Bush's Trade Promotion Authority, which lets the administration cut trade deals and submit them to Congress for an up or down vote. Without the authority, it would be much harder for Bush to move his trade agenda.

The broader trade picture in Washington will also be influenced by the political whirlwind of presidential and Congressional elections in 2008. The remaining quotas on Chinese apparel imports end that year.

"Every presidential campaign has led to special commitments on protection against our industry, and 2008 happens to coincide with the end of China quotas," said Hughes, "so we can't be naive that textiles isn't going to be on the agenda."

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