WASHINGTON — The U.S. International Trade Commission has a big question to answer: Who will win and lose when quotas are lifted on apparel and textile products in 2005?
This story first appeared in the January 23, 2003 issue of WWD. Subscribe Today.
Apparel and textile executives weighed in on the impact of a quota-free world at an ITC hearing Wednesday and reached consensus on only one point: China will dominate apparel and textile trade in 2005 and beyond. The heart of the disagreement lies in different perspectives on how sourcing patterns will change once quotas are removed.
Meanwhile, the Dominican Republic — the only country to testify Wednesday — took the opportunity to make a separate, unrelated pitch to the U.S. for a bilateral free-trade agreement. Dominican Republic officials are worried not only about 2005 and a quota-free world, but about being excluded from the recently launched trade negotiations between the U.S. and five Central American nations.
ITC commissioners questioned a number of complex issues related to global textile and apparel trade, including:
The effectiveness of tariff preference programs, such as NAFTA or the Caribbean Basin Trade Partnership Act.
The impact of strict rules of origin on trade and foreign suppliers.
Recent import surges on products where quotas have already been lifted, particularly from China.
Progress on the American Textile Manufacturers Institute’s request to reimpose quotas on five Chinese categories.
Just-in-time inventories, proximity and shorter production cycles helping Western Hemisphere suppliers compete with Asia, and the factors importers consider when developing sourcing plans.
The jury is still out on what effect global phaseout of apparel and textile quotas will have on developing countries. The ITC, which investigates trade issues but does not set trade policy, is focusing its fact-finding investigation on major apparel and textile suppliers, including Bangladesh, China, Egypt, Hong Kong, India, Indonesia, Korea, Malaysia, Macao, Pakistan, the Philippines, Sri Lanka, Taiwan, Thailand and Turkey. It is also including in its investigation Mexico, Israel and Jordan, as well as the four Andean countries and beneficiary countries under the African Growth & Opportunity Act and CBPTA.
U.S. Trade Representative Robert Zoellick has asked the ITC to investigate the long-term effect the elimination of apparel and textile quotas will have on foreign suppliers. The ITC will submit its confidential report to the USTR by June 30. The report will convey the ITC’s objective findings and independent analysis, but the Commission makes no recommendations on policy or other matters in its general fact-finding reports.
Domestic textile executives and trade groups at the hearing continued to paint a grim picture of global trade dominated by China in the post-quota world. Many claim China will eliminate most of the current 125 countries that are suppliers of textiles and apparel, leaving only a handful to compete.
Importers conceded there will be a consolidation of suppliers, but insisted companies will not place all of their production in one or two countries. They claim social responsibility, quality, proximity and timely deliveries also factor into the equation.
Peter McGrath, president of purchasing at J.C. Penney Co. and chairman of the U.S. Association of Importers of Textiles & Apparel, claimed at the hearing that quota limitations are just one element considered in sourcing strategies. The core considerations for selecting a supplier and country for each product include speed, quality, legal compliance, logistics and product costs, he said.
He dismissed the domestic textile industry’s contention that China will eliminate most major suppliers, although he conceded that Mexico, which was just surpassed by China as the number-one supplier to the U.S. on an annual basis, “will have a tough road” ahead. McGrath conceded that China has the potential for significant growth, “but as a practical matter, the major importers in the U.S. will limit the amount of business they place in China.”
He also dismissed ATMI’s claim that recent import data shows how China will dominate in 2005 and beyond and warned that restrictive rules of origin will further hurt countries in the Western Hemisphere already grappling with higher wages.
Kevin Burke, president of the American Apparel & Footwear Association, claimed Central American countries will remain competitive with “full package” production. He noted, however, that it is “unclear” whether Caribbean Basin countries will continue to attract business due to strict rules of origin under CBTPA.
“Undoubtedly, the apparel industries in some countries will not survive because they owe their very existence to the fact that their larger competitors still operate under quota restraints,” said Burke.
Citing huge surges in apparel and textile imports from China in 2001, a domestic textile executive claimed China will take over imports to the U.S.
“Our concern is that our trading partners will not just be devastated but eliminated with the elimination of tariffs…and the U.S. textile industry will cease to exist,” said Jerry D. Rowland, chief executive officer of National Textiles.
ATMI, in written testimony, claimed that imports of textiles and apparel in 2005 and beyond will be dominated by China, with Vietnam, India, Pakistan and some countries that enjoy preferential access to the U.S. market playing secondary roles. The group supports its claims by pointing to astronomical import increases — such as a 24,270 percent boost in knit fabrics since Jan. 1, 2001 — from China on products where quotas were lifted.
ATMI has filed a request under the textile-specific safeguard that was part of China’s World Trade Organization entry agreement and allows the U.S. or any other WTO member to reimpose quotas on Chinese apparel and textile imports for one year through 2003. The Committee for the Implementation of Textile Agreements is reviewing the request for import quotas on bras, knit fabric, gloves, nightwear and luggage, all of which had quotas wholly or partially removed on Jan. 1, 2002.