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China Dodges Quota Ax With New Pact

WASHINGTON -- The U.S. and China on Monday agreed to a new, three-year textile pact, averting the dramatic 25 to 35 percent reduction in China's apparel quotas that was slated to take effect the same day.<BR><BR>However, for the first time, the U.S....

WASHINGTON — The U.S. and China on Monday agreed to a new, three-year textile pact, averting the dramatic 25 to 35 percent reduction in China’s apparel quotas that was slated to take effect the same day.

However, for the first time, the U.S. froze China’s silk exports at 1993 levels and severely restricted the growth rates of quotas for all other Chinese apparel and home furnishing textiles.

Kantor estimated that by limiting growth, the new textile agreement in effect will reduce U.S. imports of Chinese apparel by 13 percent, or $700 million, over three years. China is the U.S.’s top apparel source, shipping $6.58 billion worth of apparel and textiles to the U.S. for the year ending last October. These measures “are entirely justified, given the substantial transshipment and overshipment [by China] in violation of previous agreements,” U.S. Trade Representative Mickey Kantor said at a press conference here Monday.

The pact, reached by negotiators Monday in Beijing, not only dropped the threatened quota cutback — a penalty proposed to offset alleged massive Chinese transshipments — but also a similar quota reduction proposed for each of the next three years.

The agreement runs through Dec. 31, 1996, retroactive to Jan. 1 of this year. The U.S. previously had insisted on a 25 percent cut in 73 categories of Chinese cotton and manmade fiber clothing and by 35 percent on eight wool categories, while not limiting quotas on seven silk categories, which are not covered by the Multi-Fiber Arrangement.

Following 2 1/2 days of talks in Beijing, the two sides agreed that in all but two categories, U.S. quotas on Chinese apparel would be frozen this year at 1993 levels. In 1994 and 1995, quota growth rates for these imports would be pegged at those for Hong Kong, Taiwan, or South Korea, whichever is lowest — probably 1.5 percent in 1994 and 1995.

In addition, the U.S.-China pact provides a 2 percent annual quota growth rate over 1993 levels for cotton bedspreads and quilts, category 362, and manmade fiber sheets, category 666.

The U.S. previously had not controlled silk imports, which are not covered by the MFA. China’s silk shipments to the U.S. rose 103 percent to $1.8 billion for the year ended last October.

The pact, which the two sides signed at a 3 p.m. ceremony in Beijing, permits the U.S. to impose treble quota reductions in any category where future transshipping occurs and also allows the U.S. to send inspectors into Chinese apparel factories.

In a change from its earlier negotiating stance, the U.S. agreed it would provide proof to China of illegal transshipping and attempt to work out a solution before imposing treble chargebacks. China could appeal chargebacks to the GATT’s Textile Surveillance Body, as it now can.

Informed of the concord, Robert Hall, the National Retail Federation’s vice president of government affairs, said, “The retail industry is very pleased with the results, which we see as a real benefit to low- and moderate-income consumers, because this will not cause an interruption in the supply of low-cost, quality clothing from China.” Hall added he didn’t believe the agreement would be inflationary.

A contrary view was offered by Laura Jones, executive director of the U.S. Association of Importers of Textiles and Apparel. “While we are pleased we have an agreement that does not contain draconian quota cutbacks, it makes no sense whatsoever to freeze silk quotas when this fabric is not even made in the U.S.,” Jones said.

She contended the quotas on silk, a fabric not covered by the MFA, “will drive up the price for silk apparel so that low-income consumers will no longer be able to afford to buy it.”

“This new agreement is a payoff to the domestic textile and apparel industry,” said Clinton Stack, president of International Development Systems, a Washington consulting firm that advises Far Eastern nations in textile trade matters.

“This is the U.S.’s way of making up for what the domestics felt they lost in the Uruguay Round, which phases out the MFA in 10 years and provides higher rates of growth for imports than they wanted,” Stack said.

The trade consultant said the new bilateral pact will severely restrict China’s U.S. apparel and textile exports through 2005 because, when the Uruguay Round takes effect in July 1995, growth rates will be based on bilateral textile agreements in force at that time.

“The growth rate for China’s quotas would have been 4.1 percent in July 1995, based on the terms of the expired agreement, and this would have increased to a 7 percent annual growth rate under the GATT’s MFA phaseout in years seven through 10,” Stack said.

“Instead, the growth rate increases from about 1.5 percent now to 2.76 percent in the seventh through tenth years of the phaseout.”

Carlos Moore, the American Textile Manufacturers Institute’s executive vice president, expressed his dismay at the new U.S.-China textile pact, saying the threatened 25 to 35 percent quota cutbacks “were entirely justified in view of the evidence that China was transshipping possibly as much as they were [legally] shipping to the U.S.”

Moore said the quota cutbacks “were needed to send a strong message to China, as well as countries like Pakistan that also engage in transshipping,” saying the only way to halt this practice “is to hit them in the pocketbook.”

Moore noted ATMI did not seek the new restrictions on silk imports, adding, “We’d be very concerned if the U.S. had to make concessions to China — such as dropping the quota cutbacks — to get this.” However, he said, “to the extent silk products displace cotton and manmade fiber goods made here, this could have some benefits.”