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The U.S. signed a long-sought agreement with China on Tuesday that restricts 34 types of apparel and textile imports valued at more than $5 billion annually, creating a more stable business environment for importers, domestic textile companies and retailers.
The U.S. textile industry, which has shut at least 31 plants this year and attributes much of that decline to a flood of less-expensive Chinese imports, praised the three-year deal as a much-needed brake on China’s manufacturing strength. Importers, who contend the plant closings are part of the evolution of global trade, were nonetheless pleased to finally be able to source goods from China on a firm playing field.
This story first appeared in the November 9, 2005 issue of WWD. Subscribe Today.
“This is a very good agreement for the American worker….This textile agreement is an example of how the U.S. and China do have the ability to resolve tough trade disputes in a manner that benefits both countries,” U.S. Trade Representative Rob Portman said during a news conference in London with his counterpart, Bo Xilai, China’s minister of commerce .
The USTR was in London engaged in Doha talks with Brazil, India and the European Union.
Over the first eight months of this year, apparel and textile imports from China surged 46.1 percent to 11.1 billion square meter equivalents, valued at $15.4 billion. The Bush administration in May began restricting those imports with a series of safeguard quotas, which held goods worth $1.9 billion to annual growth of 7.5 percent.
Last year, the U.S. trade deficit with China reached a record $162 billion.
The deal allows for a 10 percent increase in apparel imports and a 12.5 percent rise in textiles next year, based on imports for the 12 months ending in December or, in some cases, October. This would be followed by 12.5 percent across-the-board growth in 2007 and increases of 15 to 16 percent in 2008, with some exceptions.
When China joined the World Trade Organization in 2001, it agreed to the safeguards, which need to be renewed annually and can be applied unpredictably, through 2008. In Tuesday’s deal, the U.S. agreed to use safeguards with “restraint” on products not covered by the deal.
Except for socks, goods embargoed at U.S. ports this year will be allowed into the country soon and will not be counted against any quotas.
The U.S. negotiated a tougher deal with China than the EU did in June. The EU-Sino accord allows for 8 to 12.5 percent growth in 10 sensitive categories through 2007. The deal was later tweaked to allow some additional goods from China into the 25-nation bloc that were stuck in transit.
In addition to possibly leading the way to quota-free apparel and textile trade with China in 2009 — textile groups around the world are trying to create further restraints on the world’s most populous country — the pact helps smooth the way for President Bush’s official visit to China, which starts Nov. 19.
The U.S. has repeatedly criticized China for polices that control the value of its currency, making U.S. goods less competitive there, and for lax enforcement of intellectual property rights.
Through a translator, Bo said, “We don’t expect that this single achievement can help us to solve all the conflicts or problems between us, but we don’t want to see such a small trade obstacle impede the overall trade and economic cooperation between the two countries.”
With both countries looking to protect employment at textile and apparel producers, the industry in the U.S. lobbied hard for its position.
Noting that the negotiations had been “almost at the edge of the cliff,” Bo said, “The U.S. is, of course, facing pressures from employment of hundreds of thousands of people, but in China we are facing the employment of around 20 million people.”
The certainty created by the agreement was cited as the most important outcome by importers.
Bob Zane, chairman of the U.S. Association of Importers of Textiles and Apparel, and senior vice president at Liz Claiborne Inc., said: “It’s over, it’s finished. Let’s get back to work. I would have liked higher [growth] numbers. Other people who feel the other way would have preferred lower numbers. But the numbers are what they are and the certainty is more important.”
China will impose a system to control exports of goods in order to avoid a rush by Chinese manufacturers to export as much product as soon as possible.
Claiborne might produce more in China because of the agreement, but Zane said the deal wouldn’t make importers on the whole that much more profitable.
“With the new restraint levels, you don’t have enough coming out of China to affect many bottom lines,” he said.
The deal cuts both ways for the International Textile Group, which operates textile plants in the U.S. and overseas.
Wilbur Ross, chairman of ITG, who purchased and merged Burlington Industries and Cone Mills, called the agreement “constructive.” Ross said it will directly impact the firm’s construction schedule for a mill in China and a textile factory in Vietnam.
“The higher the quota limits, the sooner we will want to complete construction,” Ross said. “To the degree there are more denim garments coming into the U.S. from China than otherwise would have been allowed under the safeguards, that suggests acceleration in completing the [mill]. To the degree the limits are more restrictive than they otherwise would have been, that suggests we will go slower.”
Bill Wertz, director of international corporate affairs for Wal-Mart Stores Inc., which sources the majority of its apparel and textiles from Central America, said the world’s largest retailer could work “comfortably within this agreement.”
Wertz added. “We have a pretty broad base of supply in quite a few countries in different parts of the world and that’s what we want to maintain. But I think this agreement with China will be very workable for us.”
Ed Emma, president and chief operating officer of Jockey International, said he is supportive of the overall pact, although he has major concerns about growth rates and quota management by the Chinese.
“I think an electronic visa system will help us in planning production in China, but I’ve got to say we were a little disappointed by the growth rates, particularly for categories such as bras and underwear, which came in under the rates given to other non-core categories,” Emma said. “Another concern is nailing down how the quota will be used and whether it will be allocated or brokered. If the quota is tradable, it could definitely raise our prices.”
Before global quotas were dropped among WTO countries this year, they were traded like a commodity in many countries.
Even with the deal, many see the push to restrain China continuing.
“This is far from over,” said Tom Haugen, president of sourcing firm Li & Fung USA. “There will be continued assaults on the concept of China shipping goods, I’m sure, but I don’t really see the point because if it isn’t China it’s one of the other Asian countries.”
Haugen expects imports from China to increase in areas not covered by the accord.
“The manufacturers in China are motivated by profit just like everybody else, so they’ll try to do everything they can to continue the cash flow,” he said. “Their overhead doesn’t stop.”
Still, holding back China’s imports will slow the growth of apparel and textiles in that country and likely move some production to more expensive goods, said Andrew Bernard, professor of International Economics at Dartmouth’s Tuck School of Business.
“These are volume restrictions as opposed to value restrictions,” he said.
The agreement, which rests awkwardly within the Bush administration’s generally free trade policies, might have been politically necessary to get Congressional support for addressing other issues with China.
“If the administration is going to make progress on issues such as floating the currency, it’s got to have the backing of its core constituency in Congress,” said Bernard.
U.S. textile industry representatives, who began filing individual safeguard petitions in 2003 and ultimately pressed the Bush administration aggressively for a broader agreement, claimed a victory with the newly minted deal.
The agreement is designed to take the intense import pressure off the beleaguered textile and apparel industry, which has lost 398,600 jobs over the past five years, representing 38.1 percent of the total workforce in January 2001.
“We’re very elated and very pleased,” said Jim Chesnutt, president and chief executive officer of National Spinning Co. and chairman of the National Council of Textile Organizations. “If the world had not had this agreement, the Chinese would have run roughshod, not only on U.S. textile producers but on world textile producers as well, so this is a win for everyone.”
Chesnutt said the imposition of quotas on such a broad range of Chinese imports will bring business back to the U.S. and he is already seeing an indication of that. He is hopeful the deal will give his firm’s sweater-yarn business a boost, as well as its hosiery-yarn business.
Political pressure from Southern House textile-state lawmakers, who leveraged their votes on a controversial trade agreement with Central America and leaned on the administration for a comprehensive deal with China, contributed to the momentum behind a deal.
“I think the administration realized that there was significant focus and attention on this by numerous members here on Capitol Hill,” Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, said at a news conference. “It was all part of our bigger strategy of filing cases, working with our allies on Capitol Hill and building a media program of trying to get this issue front and center, and it’s culminated in a final agreement that we are very pleased with.”
Cass Johnson, president of the NCTO, said at the briefing: “Four years ago, the U.S. government and this administration signed what everyone acknowledged was the worst bilateral agreement [a quota agreement with Vietnam] concerning the textile industry in the history of the program. Yet today they have signed what everyone acknowledges is probably the best bilateral agreement.”
Johnson said the difference in the outcome of the two deals was the involvement of House textile-state lawmakers.
Rep. Robin Hayes (R., N.C.), considered the Congressional point person on the China deal, had a lot at stake in seeing a final deal. Hayes yielded to pressure from the Bush administration and changed his vote on the Central American Free Trade Agreement at the last minute in exchange for a commitment from GOP leaders to help find ways to minimize the impact of Chinese imports on the textile industry. His vote, which triggered debate in Washington and in his district, propelled CAFTA to a 217-215 win in the House in July.
“In the 11th hour, CAFTA represented a chance to do something and we seized that opportunity,” Hayes told reporters. “As you probably know, I used that momentum to consult with the industry, and at their request, pushed for an aggressive agreement with China. Today, I am proud to say, we have real progress.”
Rep. Bob Inglis (R., S.C.) said Portman consulted closely with textile-state members throughout the negotiations.
“Last week alone, he spoke with me three times about the status of ongoing talks,” Inglis said. “This comprehensive agreement will help us through 2008. Thereafter, we will need another strategy.”
Ira Kalish, Deloitte Research’s global director of consumer business, said the deal showed the two sides could work together.
“The day of reckoning is when this agreement runs out,” Kalish said. “There’s not much left that the U.S. can do to restrict Chinese exports. The virtue of this agreement is that, for companies involved in this market, it gives them a reliable road map. They know what they can expect now.”
Countdown to an Agreement:
- Jan. 1: World Trade Organization nations eliminate the system of quotas that regulated apparel and textile trade for more than 30 years. Imports from China begin to surge.
- May 23: The Bush administration implements safeguard quotas, restricting the imports of Chinese cotton knit shirts, cotton trousers and cotton and man-made fiber underwear valued at $624.5 million. Importers begin the rush to get goods into the U.S. before quotas fill. China agreed to safeguards, which hold goods to a 7.5 percent increase annually, when it joined the WTO in 2001.
- May 27: Safeguards are levied on another $690.4 million worth of imports, including knit shirts and trousers of man-made fibers, men’s and boys’ woven shirts and combed cotton yarn.
- July 5: Quotas on cotton knit shirts and cotton and man-made fiber underwear are the first to fill.
- Aug. 16-17: U.S. and Chinese negotiators meet in San Francisco and have what are described as productive talks.
- Aug. 30-Sept. 1: Negotiators meet in Beijing, but no deal is reached and safeguards are imposed on bras and synthetic filament fabric valued at $556.4 million.
- Sept. 26-28: Meeting in Washington, negotiators narrow differences and agree to meet again in October.
- Oct. 12-13: Talks in Beijing sputter, U.S. textile groups call it a “collapse,” and U.S. negotiators leave without setting another time to meet.
- Oct. 30-Nov. 1: Chinese negotiators return to Washington and “substantial” progress is made.
- Tuesday: U.S. and China ink a deal regulating 34 kinds of apparel and textiles for three years beginning Jan. 1. The U.S. agrees to use “restraint” in applying safeguards to goods not in the agreement.
- Duration: Jan. 1, 2006 to Dec. 31, 2008
- Growth Rates*
2006: 10-12.5 percent
2007: 12.5 percent
2008: 15-16 percent
- Goods Covered
Apparel: Bras, cotton knit shirts, cotton trousers, man-made fiber knit shirts, man-made fiber trousers, men’s and boys’ woven shirts, men’s and boys’ wool suits, men’s and boys’ wool trousers, silk/vegetable fiber trousers, socks/baby socks, sweaters, swimwear and underwear.
Textiles and home furnishings: Blinds, combed cotton yarn, cotton towels, glass fiber fabric, knit fabric, polyester filament fabric, special purpose fabric, synthetic filament fabric and thread.
- Base year: 12 months ended Dec. 31 or Oct. 31
- Future safeguards: The U.S. agreed to use “restraint” for goods not covered under the deal.
- There are some exceptions to the growth rates given.
Sources: Office of the U.S. Trade Representative, American Manufacturing Trade Action Coalition, National Textile Association.
— With contributions from Samantha Conti