STUDY: CHINA’S EXPORTS TO SOAR ON WTO ENTRY

Byline: Jim Ostroff

WASHINGTON — China’s admittance to the World Trade Organization would allow it to grab about one-third of the U.S. market for imported garments — almost tripling today’s share — largely by squeezing out other suppliers in this market, a new government study concluded.
The International Trade Commission report, released Thursday, is of more than academic interest to U.S. retailers, importers and manufacturers. Its release followed by hours a Clinton administration announcement that it will renew talks next week in Beijing aimed at clearing the way shortly for China to join the WTO after the world’s trade ministers gather in Seattle on Nov. 30 to discuss launching a new round of global trade talks.
The new ITC report examined the likely consequences of China’s WTO accession on 25 U.S. industry sectors, ranging from apparel and textiles to footwear, metals and petrochemicals. No “big picture” data were released in the report nor were consistent data provided that would enable an “apple-to-apples” comparison of the effects of China’s WTO entry on every sector. In fact, the U.S. Trade Representative allowed only a summary of the report to be issued, claiming the full version was “still sensitive.”
The summary said that China’s share of the U.S. market for imported apparel will remain steady at about the current, 10 percent level through the end of 2004. But following Jan. 1, 2005, when a controversial provision of a 1997 bilateral pact between the U.S. and China kicks in, the ITC predicted China’s U.S. imported apparel market share that year will at least double to around 20 percent and then hit about 32 percent in 2006.
It concluded that most of this growth would come at the expense of other foreign suppliers, though no countries were named.
In recent years, makers in Mexico, the Caribbean Basin and even in such Asian nations as Taiwan and South Korea, have voiced concern that they would be pushed aside by Chinese producers, once they are no longer restrained by U.S. quotas.
The crucial element in this scenario is a provision in the 1997 pact that permitted China to catch up with other WTO member nations in a phaseout of apparel and textile quotas ending Jan. 1, 2005. U.S. makers were livid when they learned of this provision, saying they had been led to believe that China would begin its 10-year phaseout from the year it joined the WTO.
U.S. trade negotiators hope to be able to announce that China will join the WTO as soon as this coming January, which would mean quota on China-made apparel would be eliminated only after five years of WTO membership.
As for textiles, the ITC concluded that with WTO membership, China’s share of the import market would grow from the present 10 percent level, very slowly to about 11 percent by 2006.
The agency said this disparity in growth rates between textiles and apparel was due to the fact that textile production is mainly capital-intensive while apparel is highly labor-intensive and China has an abundance of skilled, low-cost labor. China could exploit this labor-cost advantage fully once its exports are unfettered by U.S. quotas, the report said.
While the report indicates that China’s growth in the U.S. apparel market would come basically at the expense of other foreign suppliers, it does indicate a negative impact as well on domestic production, although it is not clear on this point. Without providing dollar values or elaboration, the ITC stated that China’s WTO accession would cause a 1.2 percent decline in U.S. apparel sector growth rate and a 0.5 percent decline for the U.S. textile industry’s growth rate by 2005, using 1998 as the base year. In such economic analyses, growth rates can be positive or negative.
On the export side, the study said that from 1998 to 2005 U.S. apparel and textile shipments to China would increase by $47.9 million, or 23.9 percent, and by $12.5 million, or 29.1 percent, respectively, assuming China is a WTO member by the 2005, the global quota elimination year.
The ITC report said that China’s WTO accession and the increased apparel import levels in apparel and textiles it would trigger would be positive for American consumers. The gains for the economy would amount to $2.4 billion in 2006, the report said, “while Gross Domestic Product would increase by about $1.9 billion from the elimination of quotas in the same year.”
“This occurs,” the report stated, “as a result of efficiency gains from factor reallocation in the U.S. economy, as well as from lower-priced goods imported into the U.S.”

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