By  on December 6, 2005

It seemed touch and go for awhile, but last month the U.S. and China finally struck a deal that points the way to quota-free trade in 2009.

All it took was a lawsuit in which U.S. importers sued the federal government, a dramatic surge in Chinese-made imports, tight restrictions on those goods and negotiations that took several months.

In theory, once the three-year deal expires on Dec. 31, 2008, Chinese apparel and textile imports to the U.S. will be unrestricted. But U.S. textile concerns, struggling to compete with what they see as unfair competition from a nonmarket economy, are still looking to clamp down on China through other means. Global trade talks under the auspices of the World Trade Organization provide one possible vehicle for further restrictions, though it is unclear how successful those efforts will be.

"If you have a worldwide apparel and textile industry that is completely and 100 percent liberalized, it is a disaster for almost every country in the world except for China and maybe one or two others," said Mark Levinson, chief economist for the union UNITE HERE, which pushed for safeguard quotas that were imposed this year after global quotas were dropped on Jan. 1.

Domestic producers argue that the Chinese government's currency policies, as well as subsidies to its apparel and textile industry, amount to an unfair advantage.

Levinson said the deal "does buy us some time to craft a more comprehensive solution, which is going to have to involve the WTO."

For now, importers are just pleased to be able to plan their businesses.

"We now know what the rules of the game are," said Joe McConnell, vice president of strategic sourcing at Kellwood Co. "We can refine our global sourcing plan with the information we have on China today."

Prior to the deal, China was part of the company's sourcing strategy, but brought with it a slew of unknowns. Given long lead times, Kellwood and other large companies already have placed many of their orders for next year, but McConnell said 2007 plans would place more importance on China.

The scene for the trans-Pacific confrontation was set in 2001, when China joined the WTO and agreed to safeguard quotas, which hold imports to 7.5 percent growth. Safeguards, which need to be petitioned for individually and renewed annually, were intended to ease the transition out of a broader quota system that expired in January after regulating world trade for more than 30 years.Imports from China jumped dramatically once quotas came off. The Bush administration reacted by imposing safeguards in May, ultimately approving petitions to restrict $1.9 billion in goods.

Even with these restrictions, apparel and textile imports from China over the first nine months of the year shot up 46 percent to 12.7 billion square meter equivalents, worth $17.6 billion.

In addition to holding back trade, the safeguards in many cases prevented Chinese factories from being able to guarantee they could ship goods into the U.S. before safeguards filled, complicating sourcing plans. One of the major components of the deal for importers was the reinstatement of a Chinese export control system that will help manage the new quotas and avoid a rush to the border.

In all, the deal restrains more than $6 billion worth of imports in 34 apparel and textile categories, from bras to cotton trousers to knit fabric and polyester filament fabric. China can increase shipments of goods covered under the deal by 10 to 12.5 percent next year, 12.5 percent in 2007 and 15 to 16 percent in 2008, based on projected imports for the 12 months ended Dec. 31 or Oct. 31, with some exceptions.

To the delight of the U.S. textile industry, the deal leaves the door open for future safeguards on many goods not covered under the deal, though the Bush administration agreed to use "restraint" in applying further limitations.

Importers would have preferred to see higher growth levels and a U.S. promise to not use safeguards, which could still cause uncertainty in the market.

"U.S. textile and apparel manufacturing workers and their communities are big winners," Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, said in a statement shortly after the pact was signed. "This bilateral agreement represents a necessary and welcome step toward addressing China's unfair trade practices and highly disruptive levels of textile trade."

Importers argue that restraining China unnecessarily burdens consumers with higher-cost goods and does not address the underlying competitive challenges facing the U.S. textile industry.

Chinese textile firms have more than just price going for them, said Kellwood's McConnell.

"Kellwood is not moving to China for textiles because the prices are not competitive enough," he said. "They're moving to China because the novelty fabric and creativity is moving in that direction. We're a fashion business, and we need new looks, designs and novelty to drive our business."Trade policies that hold China back in some ways have made the country more competitive, said Stephen Lamar, senior vice president of the American Apparel & Footwear Association.

"At the end of the day, quotas don't work," he said. "They don't make me be more competitive because my competitor is hobbled, they make my competitor learn how to compete while being hobbled."

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