NEW YORK — As the clock ticks down to 2005, when World Trade Organization nations will drop quotas on all apparel and textile products, many sourcing and textile executives are closely watching China and wondering whether that nation will overwhelm the world’s garment manufacturers with a tsunami of low-cost goods.
This story first appeared in the November 12, 2002 issue of WWD. Subscribe Today.
But that’s only one piece of the China equation.
As a condition of its entry into the WTO, China is opening its markets to international investment and competition, and its once-closed communist system is showing signs of taking market access seriously, according to speakers at a panel last week called “China & The WTO: Progress and Challenges Ahead,” held at Baruch College in Manhattan.
He Wei Wen, a commercial counsel for China, acknowledged, “Many people are quite concerned about China’s enforcement of her WTO commitments.”
During the past year, China has lowered its average overall tariff rates to 12 percent from 15.3 percent, with average rates for industrial goods dropping to 11.3 percent from 14.7 percent, he said. Agricultural tariffs remain higher, though they were cut to an average of 15.8 percent from 18.8 percent.
The country has also increasingly opened up to foreign retailers, who now operate more than 200 outlets in China, he said, including 10 Wal-Marts and 20 Carrefours. Chinese lawmakers have also scrapped 800 laws that conflicted with WTO guidelines and revised another 300, he said.
But it will take time for Chinese lawmakers and businessmen to internalize all the requirements of WTO membership and until that happens, he said, “cases will be brought to the table,” in which other countries complain that China is violating WTO rules.
Still, other speakers said that’s a matter of course.
“The U.S. gets called to the WTO all the time,” said Daniel Rosen, a former adviser to the Clinton administration and author of “Open Door: Foreign Enterprises in the Chinese Marketplace.”
The key question about China in Rosen’s mind is whether the country is simply sticking to the letter of WTO guidelines or embracing the spirit of open markets.
He said he sees “some evidence that the spirit of the WTO is being met.”
John Holden, president of the National Committee of U.S.-China Relations, agreed: “This long process of economic opening is clearly changing China’s politics.” He said he saw signs of “a strong effort by a lot of reform-minded people within the [Communist] party to reform the organization.”
China’s political leadership is in the midst of a major shift. The Wednesday panel, which was co-sponsored by the Journal of Commerce, came two days before China’s ruling Communist Party opened its 16th Congress on Friday, a meeting at which President Jiang Zemin is expected to hand off the role of head of the party to Vice President Hu Jintao. That transfer of power is expected to presage Hu’s assumption of the presidency next year.
Speakers cited two signs that China’s leadership was embracing market access: liberalization of China’s financial sector and changes in its laws concerning competition among businesses.
China’s government for a few years has been flirting with the idea of privatizing major state-owned companies. While the government has taken some steps allowing foreign investors to buy shares in China’s major public companies, a major roadblock to foreign investment has been that only a limited amount of shares in many of China’s public companies actually trade.
About 75 percent of the shares in about 1,200 public Chinese companies are held by the central and municipal governments, according to Xiaolin Zhou, an attorney with Jun He Law Offices, which operates in Beijing and New York.
The Chinese bureaucracy is drafting regulations that would allow foreign companies to buy the government-held shares, Zhou said. The nation has also begun to allow foreign banks to buy stakes in Chinese banks.
Rosen said China’s bureaucracy is also drafting laws regulating monopolies, cartels and other business-competition practices. That would mark a major step forward from current Chinese laws on business competition, which, Rosen said, are limited to measures like “you can’t put arsenic in your competitor’s potato chips.”
Still, he added, “these are drafts and we don’t know if they will see the light of day.”
On the apparel front, the U.S.-China bilateral agreement that cleared the way for China to enter the WTO contains many measures intended to prevent Chinese manufacturers from wiping out their competitors abroad, said Frank Kelly, vice president of trade compliance and government affairs with Liz Claiborne Inc.
“A lot of countries fear China as the 800-pound gorilla,” he said. “They fear that when quotas on apparel go away, China will be flooding the market.” However, he said, “There are two major safeguard measures that can be put in place to stem the tide.”
First, in the event that Chinese imports of a certain class of goods soars, the U.S. has reserved the right to limit imports through a mechanism called “tariff-rate quotas,” which significantly raise tariff rates on particular items after a set number are imported into the country, with the intent to slow the flow of imports in that category.
The U.S. also reserves the right to limit imports or impose higher duties if it finds that shipments from China “may cause market disruption” for the domestic industry, Kelly said.
It remains unclear how the U.S. will use those measures, Kelly said. But faced with that uncertainty, one of the strongest limits on shipments from China may be the caution of U.S. sourcing executives.
“If you’re in the business of importing textiles and apparel,” he said, “you’re going to have to look at the world in 2005 to see how you can have flexibility.”
Commercial consul He said China has been gradually increasing its economic involvement with the rest of the world for the last few decades and sees its WTO admission as “not a sudden change in China’s business relations with the world, but a milestone in China’s movement in this direction.”