By and  on August 2, 2005

WASHINGTON — All roads are leading to the U.S. striking a multiyear agreement with China to limit textile and apparel imports.

In what could be payback for support from key Southern legislators for the Central American Free Trade Agreement, the Bush administration took a decisive step toward a comprehensive agreement with China on Monday by deferring until the end of the month several decisions on import restrictions. The decision will give the administration the opportunity to get industry and Congressional feedback on the possibility of a broader deal.

The prospect of striking a comprehensive accord has brought together domestic textile producers, apparel importers and Chinese officials in a rare show of unity: All are pushing to replace the current regime of safeguard quotas with a trade agreement that would offer more predictability for business plans. The talk of a deal on textiles Monday came as the U.S. and China began a drive to improve bilateral relations with a meeting between U.S. Deputy Secretary of State Robert Zoellick and Chinese Vice Foreign Minister Dai Bingguo in Beijing, with economics said to be on the agenda along with foreign policy.

Importers and U.S. producers do have differences over what the specifics of any comprehensive arrangement should be. But both sides seek the certainty of a long-term accord instead of the fractured safeguard process, which requires petitions, government reviews and consultations. Plus, if safeguard quotas are imposed, they must be renewed annually.

"Today's decision will allow us time to engage in substantive discussions with our domestic textile and apparel industries, and members of Congress, on whether there is interest in a broader textile agreement with China," Commerce Secretary Carlos Gutierrez said in a statement. "We look forward to working with industry and Congressional leaders to get their views on the best way to ensure a level playing field."

The World Trade Organization dropped quotas in January, opening the way for China's apparel and textile imports to the U.S. to shoot up 46.7 percent to 6.2 billion square meter equivalents over the first five months of the year.

The Committee for the Implementation of Textile Agreements, which is chaired by the Commerce Department, will wait until Aug. 31 to determine if safeguard quotas are necessary on six categories of goods, including cotton and man-made fiber bras and sweaters. Imports from those goods for the year ending May were valued at $975.7 million. So far this year, Commerce has imposed safeguard quotas on seven categories of goods valued at $1.31 billion in annual imports from China.CITA did agree, however, to further consider petitions on five kinds of apparel, including cotton and man-made fiber skirts, kicking off a 90-day comment and decision period. These petitions covered imports of $1.19 billion for the year ended May.

These restrictions would loom over negotiations Gutierrez and U.S. Trade Representative Rob Portman would hold with their Chinese counterparts over a comprehensive agreement. China also will be pressured politically by its industry.

Under safeguards, goods are held to a 7.5 percent growth rate annually. The restrictions are renewable through the end of 2008.

When trying to gauge what a comprehensive deal would look like, the easiest point of reference is the European Union's June agreement with China allowing for 8 to 12.5 percent growth each year on 10 kinds of imports through 2007.

"Typically, the USTR always tries to get a better deal than the EU," said Peter McGrath, chairman of purchasing for J.C. Penney Purchasing Corp. "I would expect them to come in with a lower percent growth area, a wide berth of categories, and I'm still not sure how they're going to try to set the base level."

McGrath is confident a deal ultimately will be struck.

"We'll see a more comprehensive program being reached because the Chinese and the U.S. recognize that it's not good for either of their domestic businesses to have this in a state of fluctuation," he said.

In consultations with the various constituencies, the Bush administration can expect to find varied visions of what that deal should look like.

Wilbur L. Ross, chairman of International Textile Group, which includes Burlington Industries and Cone Mills, said a comprehensive deal is necessary to avert a potential trade war.

"It will help clear the air for everybody to have a negotiated solution," Ross said. "Maybe the trade-off is a little higher percentage [for the Chinese], but have it cover a little longer time than the current safeguards do."

Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, said in a statement, "A fair deal would limit the growth of Chinese imports to very close to 7.5 percent and should last through the end of 2008."AMTAC, which has been a key petitioner for safeguards, also is looking for any deal to cover all categories where petitions have been filed and incorporate tough penalties for illegal transshipments.

As domestic groups push for restrictions on China, importers hope a deal would allow for higher levels of growth and at least provide certainty.

"You just can't plan very well and still do business in China with this safeguard system we have in place — it's just very difficult," said Stephen Lamar, senior vice president of the American Apparel & Footwear Association.

Echoing widespread complaints by importers that many of the goods under safeguards are not produced in great quantities domestically, leaving no industry to protect, Lamar said a U.S.-Sino deal should focus on goods that are produced in the U.S.

Domestic textiles producers have long countered that China doesn't buy much U.S. fabric, while other regions losing shares to China do.

"The heart of the negotiating is going to be about the numbers," said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles & Apparel.

How large any annual increases would be and what base they're figured against would be paramount for importers, she said.

"The Chinese are looking for a way to maintain their industrial base and to grow under WTO rules, and the U.S. is looking for a way to manage the imports," Hughes said. "Given that this agreement is going to control trade with the largest source of apparel imports to the U.S., I think that the details are pretty important."

In addition to commercial concerns, political motives might figure into an agreement with China, particularly lingering ramifications from deals cut to help the Central American Free Trade Agreement squeak through the House last week.

"I'd hate to think they were opening this up for a European-style deal only to later learn they make the deal really restrictive because of some promise they made to get a vote for CAFTA," said Jonathan Fee, a partner at the Washington law firm Alston & Bird.

Rep. Robin Hayes (R., N.C.), who cast a deciding vote for CAFTA under pressure from House leaders, is leading the push for a comprehensive agreement.Hayes has said he will press the administration for an agreement that encompasses existing and pending safeguards, as well as additional apparel and textile categories that are not covered by a broader agreement, but are found to be causing market disruption.

"If I didn't think [the promise by House leaders] was huge, I would have never done it," Hayes said in a phone interview. "I know the political fallout from the vote and the hell I can catch in the upcoming elections. It was a tough vote, but I didn't come to Washington to be safe. I went to Washington to make a difference for people in my district."

The textile industry, which was sharply divided over CAFTA, is expected to rally around the drive for a comprehensive quota agreement with the Chinese and, in so doing, could be more forceful in making demands of the administration.

Cass Johnson, president of the National Council of Textile Organizations, said a more unified industry should have more influence because of promises made to Hayes.

"By doing that, it gives us more leverage," said Johnson, whose association supported CAFTA. "It was a hard vote for him, but it really is going to help us with making sure we get an agreement that is good for the industry."

Pending Petitions
A final determination on whether the U.S. will impose safeguard quotas on these goods was delayed until Aug. 31.

  • Synthetic filament fabric
  • Men's and boy's wool trousers
  • Cotton and man-made fiber dressing gowns
  • Cotton and man-made fiber bras
  • Knit fabric
  • Cotton and man-made fiber sweaters
Safeguard petitions for these goods were accepted for consideration by the Bush administration, starting a 90-day public comment and review period.
  • Cotton, wool and man-made fiber socks
  • Women's and girls' cotton and man-made fiber woven shirts
  • Cotton and man-made fiber skirts
  • Cotton and man-made fiber nightwear
  • Cotton and man-made fiber swimwear

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