WASHINGTON — A new world has dawned in textiles and apparel trade. Now the fallout begins.
As the third day of commerce begins in a post-quota world, questions continue to rage about the ultimate impact of the removal of quota limits on textile and apparel trade among the 148 countries belonging to the World Trade Organization. Gone are most of the mechanisms that protected nations’ domestic industries for more than 30 years, and the major issue ahead is whether China will come to dominate the global industry and decimate every other one in its path.
Even the WTO estimates that China will be producing more than half of the world’s apparel and textiles within three years, up from 17 percent in 2003. The array of potential scenarios that could play out this year alone as a result of China’s growth is dizzying, and there seem to be more questions than answers. Among them:
This story first appeared in the January 3, 2005 issue of WWD. Subscribe Today.
- Will imports from China flood the globe in the absence of any restrictions?
- Will millions of apparel and textile workers around the world be displaced in the global $330 billion industry, causing economic and social upheaval from Bangladesh to Guatemala?
- Will the Bush administration move to restrict China’s apparel and textile exports, causing other nations to do the same?
- Will China retaliate with its own punitive tariffs or challenge U.S. and other nations’ actions at the WTO?
- How much of the cost savings will manufacturers and retailers pass on to consumers, or will the lower prices resulting from the removal of quotas be used to rebuild their profit margins after years of price deflation?
The U.S. alone peeled off the majority of its remaining 850 quotas Saturday, liberalizing everything from cotton trousers to bras. The U.S. will not eliminate all of its import limits because non-WTO countries such as Vietnam will remain under quota and there is a China safeguard quota on imports of socks.
The value of apparel and textile trade controlled by quotas from WTO member countries was $33.6 billion for the year ended Oct. 31, according to the U.S. Department of Commerce. That means a little less than half of the $81.03 billion worth of apparel and textiles imported into the U.S. for that 12-month period was controlled by quotas.
Tariffs averaging about 17 percent on imports of apparel are the only protective barrier against imports today, and WTO member nations are considering eliminating them in the current round of global trade talks. Liberalizing such a large amount of trade in one fell swoop has executives, lobbyists and trade pundits on both sides of the free-trade debate speculating about the implications.
“The year 2005 will be a year of apparel and textile trade litigation, which we haven’t seen for 50 years because the system has been restrained so you could not prove injury,” said Gary Hufbauer, senior fellow at the Institute for International Economics. “Now the gloves are off and there will be a lot of litigation around the world. That will slow down [China’s] trajectory.”
If 2004 was any indication, this year could serve up some bombshells and the industry’s major players are bracing for the fallout. Importers and retailers claim liberalization will eliminate distortions in global trade and enable them to consolidate production in a handful of countries, eliminate inefficiencies in the supply chain and lower costs.
“We consider this a whole new beginning for our business,” said Laura Jones, executive director at the U.S. Association of Importers of Textiles & Apparel. “The decisions on where to manufacture clothes will be made first and foremost on the basis of quality, price and speed to market and not where quota is available.”
She said quotas distorted global commerce, and forced importers and retailers to source apparel in countries that were less reliable and often less efficient.
“It’s much more efficient to produce in four or five countries,” Jones said. “Look at any other consumer goods — footwear, toys or computers — all are made in a couple of countries, not in 40 countries.”
On the other hand, domestic apparel and textile executives claim they will be decimated by an onslaught of cheap imports from China if safeguards are not imposed because they can’t compete against a country that subsidizes its imports and has a fixed currency. They also will lose critical export markets that require the use of U.S. yarn and fabrics.
“We look at 2005 with great trepidation,” said Jim Schollaert, director of strategic outreach at the American Manufacturing Trade Action Coalition. “We are hoping the U.S. government comes to its senses and stops bleeding U.S. manufacturing jobs when there is no apparent safety net before it’s too late.”
Schollaert said everything is in jeopardy for true domestic manufacturers. Apparel and textile mill employment has been in a long-term downswing as the industry increasingly moved offshore over the last 30 years and now stands at 686,800 through November. Since 1995, the twin industries have lost 869,700 jobs, or 55.9 percent of its workforce.
“We have all of these ‘hear no evil, see no evil’ people who pretend with a great leap of faith that everything will work out just fine,” he said. “We don’t see it like that. We would like to see something concrete before we jettison our existing economic core.”
The Bush administration, trying to strike a balance between its free-trade ideology and domestic manufacturing agenda, is expected to make some tough decisions in early February on a series of safeguard petitions that seek to curb textile and apparel imports from China.
China agreed to a safeguard mechanism when it joined the WTO in 2001. The safeguards are temporary quotas that an importing nation can impose on certain Chinese goods if it determines they are severely injuring — or threatening to injure — domestic industries. They can be imposed for one year at a time and limit the import growth in cotton and man-made fiber products to 7.5 percent and in wool products to 6 percent, through 2008, when the provision expires.
How the Bush administration proceeds this year will have far-reaching implications for U.S.-China trade relations, the broader U.S. trade agenda and the future of both the domestic textile and apparel industries and importers.
The global community has ratcheted up the pressure on China to control growth in its apparel and textile sector where developing countries depend heavily on those export earnings.
China, which has repeatedly said it maintains the right to challenge safeguard cases at the WTO, recently took a proactive measure that caught many observers off guard. The Chinese government said it will levy duties on its own exports, ranging from 2.4 cents to 3.6 cents per piece or per set of clothing, and 6 cents per kilogram for parts or accessories. Among the targeted export categories are T-shirts, underwear, nightwear and robes, outerwear, trousers, blouses and tracksuits.
In the long run, the tariffs are not expected to curtail China’s overall massive growth, although they could discourage price slashing and encourage Chinese makers to focus on better merchandise. However, many experts and industry executives claim China’s tax is negligible and will not discourage the U.S. or other countries from imposing safeguard quotas.
China’s export tariffs have apparently not convinced the Turkish government it is less of a threat. Turkey said at the end of December that it will restrict imports of several apparel and textile items from China under the safeguard mechanism, limiting growth in the categories to 7.5 percent for one year, according to Bilgehan Sasmaz, commercial counselor for the Turkish Embassy in Washington.
“It’s a hot issue,” Sasmaz said. “There are several items that pose a threat to the Turkish industry.”
Argentina also recently imposed safeguard quotas on Chinese apparel and textile exports.
Now, all eyes are on how the Bush administration will rule on a group of 12 pending safeguard petitions targeting some $1.9 billion in apparel and textile imports, including cotton trousers and knit tops from China.
Hufbauer said the administration will have to be fairly sensitive to the safeguard petitions in order to enlist Congressional support from Republicans who have large textile constituencies, for its trade agenda.
Robert DuPree, vice president of the National Council of Textile Organizations, which, along with AMTAC, is part of the coalition that brought the safeguard petitions, said, “We think we have made a very good case for imposing safeguard actions in the categories we have filed so far. We remain very hopeful the government will approve these, and the sooner the better.”
The Bush administration also is defending its China safeguard procedures in a federal lawsuit filed by the USA-ITA last month. The group, which represents firms such as J.C. Penney and Liz Claiborne, is seeking to halt the government from accepting threat-based petitions or those involving products under quota without publishing new rules, interpretations and/or policies. It is challenging the government’s legal right to make a preemptive strike to keep quotas on some products from China. The U.S. Department of Justice, seeking to dismiss the lawsuit, said in court papers the court has no jurisdiction to consider the complaint because the government has not yet ruled on the pending petitions.
USA-ITA asked the Court of International Trade for a preliminary injunction, which was granted Thursday, putting at least a temporary halt to the government’s Committee for the Implementation of Textile Agreements review of 12 safeguard petitions claiming threat of market disruptions. (For a story on the court’s ruling, see page 17.)
The court’s final ruling will be critical for importers and retailers that oppose the safeguard quotas, and textile, apparel and fiber producers that claim the safeguards are necessary.
Importers feel CITA’s consideration of the 12 China safeguards already is threatening their livelihoods. Furthermore, the approval of any of the cases, they claim, would create more of an exposure to the risk of an embargo created by the imposition of the safeguard measures.
Brenda Jacobs, counsel for USA-ITA, said U.S. companies looked at the original procedures and mapped out a timeline that revealed that the soonest quotas would be imposed under the China safeguard mechanism would be June or July.
“Now we are looking at the possibility of safeguards coming into force as soon as February,” Jacobs said. “That is a big difference and it puts several seasons worth of business at risk in a way companies had not anticipated.”
DuPree said, “Unless the safeguard mechanism is used, we will see a massive shift of orders, production and jobs from around the world to China. We will see an acceleration of job losses that have occurred in recent years unless the government acts favorably on our petitions. Even then, it does not stop with the approval of petitions. We need to see long-term reform, as well.”