WASHINGTON — The debate over quota elimination is intensifying, as concerns stretch across the globe from Australia to Canada, and developing nations that are heavily dependent on apparel, and textile exports quiver in anticipation.

One of the leading concerns among industry observers is whether the competitive environment following the Dec. 31, 2004 elimination of quotas on textiles and apparel will be dominated by China and a tiny group of other countries, possibly including India, Pakistan, Vietnam or Bangladesh. Experts wonder whether developing nations who have negotiated special trade deals with the U.S. will find sufficient advantage in those agreements to stave off Chinese competition.

Concerns have gone all the way to the Bush administration, which has prepared two reports on the post-quota environment, one of which, by the International Trade Commission, has been declared confidential — to the great consternation of U.S. textile industry officials.

The other report, by the Textile Working Group, is to be released in the near future.

Most governments and many private-sector entities are trying to form some understanding of what countries will be able to compete in the apparel-production business after the Multifiber Arrangement, which has governed the trade for the past 30 years, expires on Dec. 31, 2004.

When the MFA expires, the 146 members of the World Trade Organization will impose no quotas to limit garment or fabric imports.

Quota elimination is expected to be a big topic of discussion among trade ministers from 146 rich and poor countries during a critical meeting in Cancun Sept. 10-14 aimed at advancing the current round of global trade talks.

All eyes are on the U.S. government’s findings, but the industry and foreign suppliers may never know the full extent of the government’s conclusions.

The International Trade Commission, which investigates trade issues but does not set trade policy, submitted a confidential report on the impact on foreign apparel and textile suppliers to the Office of the U.S. Trade Representative at the end of June.

The focus of the ITC’s fact-finding investigation was on such countries as Bangladesh, China, Egypt, Hong Kong, India, Indonesia, South Korea, Malaysia, Macau, Pakistan, the Philippines, Sri Lanka, Taiwan, Thailand and Turkey, as well as trade beneficiary countries as four Andean, 38 sub-Saharan African and 24 Latin American and Caribbean countries.USTR is keeping that report under wraps, much to the chagrin of domestic textile groups and countries that fear they could stand to lose their entire export base when quotas are lifted.

“Obviously we are greatly concerned over the fact this report is being kept confidential,” said Augustine Tantillo, Washington coordinator of the American Manufacturing Trade Action Coalition. “It is one of the most pressing issues confronting not only the U.S. textile industry but all major producers and exporters of textiles and apparel, and we should be privy to what our own government thinks is going to be the impact of a very dramatic occurrence on Jan. 1, 2005.”

Tantillo said he can only assume the news in the confidential report is bad.

“This is a major policy issue and they do not want to add fuel to the fire that already exists in the developing world where millions of jobs will be lost as textile and apparel sourcing is concentrated in the hands of a few major suppliers such as China,” Tantillo claimed.

Industry groups expect to get some insight into the administration’s analysis in an interagency task force report, which will be made public in September.

Jim Leonard, deputy assistant secretary of textiles, apparel and consumer goods industries at the Department of Commerce, said he expects imports to grow in 2005, but could not speculate on which countries would be hit the hardest by quota elimination.

“U.S. imports will grow and there will certainly be an impact on other exporting countries,” said Leonard. “I don’t have any idea of the magnitude of the impact.”

Leonard said exporting countries are already being affected by some imports where quotas were removed in January 2002.

The State Department, in an interagency report released last year, stated importers currently purchase goods from as many as 40 to 60 countries. The report suggested that number will quickly drop to 20 to 30 by late 2005 or early 2006. By 2010, the number of foreign suppliers could drop to one-quarter to one-third of the present number.

The task force, known as the Textile Working Group and charged with helping the beleaguered textile industry at home, released its first report to Congress last September and its second report is due shortly.U.S. officials have said publicly they are concerned a dramatic consolidation in apparel and textile sourcing in 2005 will hurt many countries, which have tied economic development and exports to that type of low-wage, low-skilled production.

Administration officials aren’t hiding the fact they are holding discussions with 18 targeted countries on diversification, advising them to expand their economies so as not to be overly dependent on the apparel industry.

The multiagency task force is currently looking at successful transition models to help other countries, particularly the world’s least economically developed, move on from low-wage industries such as textiles and apparel to other industries.

“Our diversification effort is ongoing,” said Leonard. “When we release the updated Textile Working Group report, we will have some comments in there. Countries have to decide what they are going to do in terms of diversification or non-diversification.”

The stakes are high for developing countries like Mauritius, which receives duty-free treatment from the U.S. under the African Growth & Opportunity Act, employs an estimated 80,000 apparel and textile workers and exports over $1 billion worth of apparel to the U.S. The nation’s apparel exports to the U.S. represent about 20 to 30 percent of the country’s gross domestic product, according to Peter Craig, trade commissioner at the embassy of Mauritius in Washington.

As reported, that nation — which in January was the host of a major conference on trade — this year has lost thousands of apparel jobs as several major manufacturers have closed up shop, citing the rising cost of doing business.

“It is a very serious concern,” said Craig. “In the case of Africa we have AGOA, which began helping create meaningful employment and economic development in the poorest countries of the world. If that suddenly disappears on the first of January 2005, it will be another serious blow to the poorest of the poor.”

While the AGOA law will remain in effect beyond then, his concern is that the duty-free treatment the region’s shipments to the U.S. receive will not be enough to offset the competitive advantage of Chinese producers. It is a common concern.

Craig said apparel producers in Mauritius and the other African beneficiary countries are trying to move upmarket, integrate vertically and develop spinning operations to remain competitive once quotas are removed.He noted Mauritius has already lost “several thousand” apparel jobs due to a weak global economy as well as the uncertainty associated with quota elimination.

“It is only 18 months now before the end of the Multifiber Arrangement and people will not invest with so much uncertainty,” he said. “Our concern is not only for Mauritius but for the terrible repercussions on all African countries.”

Still, other representatives of developing countries claim the outcome might not be so dramatic and are more reluctant to assess the impact on developing countries.

Munir Ahmed, executive director of the International Textiles & Clothing Bureau in Geneva, a group of 24 exporting nations including China, India, Pakistan and Indonesia, said, “Developing countries have been preparing for this for eight years. This is a tactical game with the idea that they want to play the game.”

He acknowledged there will be significant “changes” when quotas are removed and said China will be a big player but he declined to speculate on the winners and losers.

Ahmed also accused the U.S. domestic textile industry of using “scare tactics,” when it asserts only four countries will be able to compete in the post-quota apparel market — China, Pakistan, India and Vietnam.

He said developing countries are focused on establishing trade agreements with the U.S., which could give them a competitive edge against China.

“There has been a shift in U.S. policy. The U.S. is going around and negotiating bilateral agreements quite aggressively,” said Ahmed. “Naturally countries negotiate under the expectation their trade will expand.”

Most experts expect developing countries to invoke the special textile safeguard against China, which the country agreed to when it joined the WTO, to impede the expected onslaught of imports.

U.S. domestic textile groups have already filed petitions for reimposing quotas on four Chinese import categories, three of which were recently cleared to move forward in the process.

Jock Nash, Washington council for textile giant Milliken & Co., claimed tariff preferences will not give developing countries an advantage.

“When quotas come off the only differential will be tariffs, 16 percent here and 18 percent there,” said Nash. “That is not a speed bump for a country like China that has devalued its currency by 40 percent.”Nash said he believes some Caribbean and Latin American countries will retain some U.S. market share because they will be able to compete on turnaround times.

“Quotas are not the evil people thought they were,” said Charles Bremer, vice president of international trade at the American Textile Manufacturers Institute. “They are a guaranteed entitlement to the U.S. market and that guarantee will disappear on Jan. 1, 2005. Now countries have to go toe-to-toe with China.”

Bremer said some Latin American and Caribbean countries will remain competitive under the special trade arrangements and bilateral agreements but ATMI expects China to eventually control 70 percent of the U.S. import market.

“China has got the waterfront covered,” said Bremer. “It can ship and make anything and everything.”

He predicted the losers will include Indonesia, Hong Kong, Macau, Thailand, the Philippines, Malaysia, Brazil and Argentina. (See chart, page 19.)

Importers claim the domestic textile industry is wrong. They concede there will be a consolidation in foreign suppliers when quotas are removed, but claim it won’t be concentrated in the hands of so few countries.

They claim social responsibility, quality, proximity, security and timely deliveries factor into the equation.

“It is true China is a formidable competitor, but so [are] Mexico, Canada, India, Pakistan, [South] Korea and Taiwan,” said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Apparel and Textiles. “It is not this simple story where everything will go to one place.”

The USA-ITA on Aug. 19 issued a celebratory press release noting that there were 500 days remaining until the end of quotas.

Hughes has repeatedly noted that sourcing is already concentrated in 23 foreign countries that have more than 1 percent of the U.S. textile and apparel market.

According to U.S. government data, the market share leaders range from China, with 13.8 percent of imports in dollars, to Malaysia, with 1 percent, for the year ended in June. The only other country to have double-digit market share is Mexico, with 11.1 percent.

“The decision is not made based on the country but it is made based on the manufacturer in a country that meets quality, delivery and human-rights compliance,” said Hughes. “Most sourcing executives are not saying they are going to put everything into China because they put everything into manufacturers who meet their demands at the best prices and that is not always in China.”However, importers in the retail and manufacturing industries warn that restrictive rules of origin could hurt the chances of some countries participating in U.S. preferential programs and bilateral trade agreements.

“If the U.S. continues to have restrictive rules of origin, it will force countries to look elsewhere to do business,” said Jonathan Gold, director of international trade at the International Mass Retail Association. “Potentially, because of the rules of origin, we see some least-developed countries getting left behind. But it won’t happen all at once.”

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