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WASHINGTON — American and Chinese negotiators are set to wrap up their fifth round of trade talks today, and whether a new import deal is reached or not, the trading relationship between the U.S. and China remains the most vigorous and volatile in the world.

The U.S.-Sino dynamic has evolved in subtle and potentially important ways since the last round of negotiations ended Sept. 1 in Beijing. President Bush and President Hu Jintao met briefly in New York, China wrapped up trade negotiations with the European Union and U.S. textile groups have turned up the heat, calling for further restrictions on imports.

It is still unclear how all of these developments will factor into the future of textile imports. The groundwork for today’s environment was laid out when China joined the World Trade Organization in 2001 and agreed to safeguards, which can restrict imports through 2008.

Since the WTO eliminated its larger quota system in January, the U.S. has used the safeguard stop-gap measure to hold $1.9 billion worth of imports to 7.5 percent annual growth.

The domestic textile groups that requested the safeguards charge they are a lifeline and point out that more restrictions, in the form of more safeguards or a broader agreement, are needed as 31 textile plants have closed so far this year.

U.S. negotiators have pushed for terms that are more restrictive than the EU-Sino deal, which allows for 8 to 12.5 percent growth in 10 sensitive categories through 2007. That deal was initially reached in June and tweaked further this month after European retailers complained they wouldn’t have enough goods for holiday sales when goods stuck in transit were embargoed.

“Once the Chinese cut the deal with the Europeans, [it became] very difficult then for the administration to say, ‘We’re not going to go to bat for our guys in a similar fashion,'” said Grant Aldonas, who until March was Undersecretary for International Trade at the Commerce Department and is now a partner in Akin Gump Strauss Hauer & Feld’s international trade practice.

“The Chinese are thinking, ‘Oh, we shouldn’t give any more [to the Americans] than the Europeans,’ and I think the U.S. side, they’re saying, ‘You guys don’t quite understand the dynamic you’ve unleashed here,'” he said.

This story first appeared in the September 27, 2005 issue of WWD.  Subscribe Today.

Should a deal not materialize, the U.S. can, to the satisfaction of domestic textile players, fall back on safeguards, which are more restrictive than the EU deal, but lead to uncertainty for U.S mills and importers.

“I don’t expect there’s going to be a lot of sympathy on the U.S. side for the Chinese saying they’re not prepared to really address the concerns of the U.S. industry,” said Aldonas.

Jim Leonard, Deputy Assistant Secretary of Apparel & Textiles at the U.S. Department of Commerce, speaking in Honduras at a summit last week, said, “I do believe at some point we’ll get an agreement.”

“Unfortunately, the Chinese, for whatever reason, have not been prepared to sit down to what I would consider are substantive discussions,” said Leonard, adding that the U.S. goal is to “have an agreement with the Chinese that lasts through 2008 and that covers some reasonable range of products…and with some reasonable level of growth rate.”

Importers have argued that the safeguards don’t really protect U.S. jobs since China has primarily been taking share from other nations. For the first seven months of this year, China’s apparel and textile imports shot up 45.8 percent jump to 9.43 billion square meter equivalents, while total world imports rose a milder 8.1 percent to 28.96 billion SME.

“I just don’t see the relationship between a strong Chinese apparel industry and a weakened domestic industry, I think they’re two separate issues,” said Bob Zane, senior vice president of Liz Claiborne Inc. and chairman of the U.S. Association of Importers of Textiles and Apparel.

Given the huge differential in prices, limiting access to the Chinese market doesn’t push customers directly back to the U.S.

“If a product from China costs $2 less than a product from Hong Kong, then that product from Hong Kong is probably $5 less than its domestic equivalent,” he said.

Zane said negotiators will have to hammer out key aspects of a deal this week, including the growth rate, the base that rate would be applied to, how long the agreement lasts and what happens to goods not under the agreement.

“Given the issues that are at stake here, one would think that they can be negotiated fairly and in good faith, and the industry is very hopeful that this is the case because all of the uncertainty that results from the absence of an agreement,” said Zane.

For importers, who prefer unfettered trade but are resigned to some sort of restrictions through 2008 when China’s safeguard quota caveat expires, the goal is to create a predictable sourcing environment.

“Within reason, certainty is very important at this point, that’s the most important issue, but you can’t give away the store,” said Zane. “We wish the parties Godspeed and good luck. If it doesn’t happen this round, it may not happen at all.”

Wendy Wieland Martin, Kellwood Co.’s vice president of international trade services, is wary of what might come out of the negotiations.

“It’s so much of a political football right now that we’ll just have to see,” Martin said. “Something will probably be reached. Whether I’ll like it or not is a second matter. The only thing we’re going to get out of this is predictability.”

Now that the EU deal is wrapped up, China might be more ready to compromise than they were at the last round of talks.

“I really think they couldn’t do a deal before because the European deal was more pressing,” said Stephen Lamar, senior vice president of the American Apparel & Footwear Association.

The picture has muddied some in other areas, though.

“The textile industry, they’re still continuing to open fire with their safeguard requests and that’s not a helpful dynamic,” Lamar said.

Textile groups contend that China hasn’t been serious about reaching an agreement and that the safeguard petitions are the best weapon they have at their disposal.

“I would like to say the Chinese would look at [new petitions] and see that as a serious threat,” said Missy Branson, senior vice president of the National Council of Textile Organizations.

However, she said, China, with its closed political structure, doesn’t always act predictably.

Still, the country of more than a billion people greatly values its apparel and textile industry, especially as it endures growing pains stemming from a changing economy and mass migration to urban areas.

“The Chinese want to maintain at least a reasonable amount of growth in the industry so that they can continue to absorb workers into the market economy,” said Ira Kalish, Deloitte Research’s global director of consumer business.

Restrictions on China might ultimately send apparel and textile jobs to its regional neighbor, India.

“Ultimately, India will benefit the most because there is vertical integration, they do have a large cotton industry and they’re beginning to develop an infrastructure that would be positive for apparel distribution,” Kalish added.