WTO 2002 QUOTA PHASEOUT COULD RESULT IN U.S. LAYOFFS

Byline: Kristi Ellis

WASHINGTON — Come Jan. 1, a range of apparel products — suits, coats, jackets, shirts, blouses, dresses, skirts and trousers made of silk blends, ramie or linen — will be allowed to enter the U.S. quota free.
It marks the first time quotas will be lifted on this group of high-volume imports for the 144 countries in the World Trade Organization.
The quota phaseout has caused jitters in the domestic textile industry, which has lost 63,000 jobs since the beginning of the year. Importers and retailers, on the other hand, are disappointed that they haven’t been successful in pushing for an acceleration in the quota phaseout schedule, set to expire on Dec. 31, 2004.
“This is the first time it will bite,” said Jock Nash, Washington counsel for textile giant Milliken & Co. “It is going to hurt a lot of people.”
Although the product phaseout schedule has been a known variable since 1994, the new factor is China, which just became a member of the WTO and is now eligible for certain benefits.
Trade negotiators established the 10-year apparel and textile quota phaseout schedule in the GATT agreement during the Uruguay Round of global trade talks, which was completed in 1994.
The majority of textile and apparel quotas on the biggest and most sensitive categories, won’t be lifted until Jan.1, 2005.
“Stage three is important for us because, for the first time, major consumer goods will be quota free,” said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Apparel & Textiles. “But there is still a lot of frustration because the bulk of imports won’t be liberated until the last day.”
In this third of four phaseouts, quotas also will be lifted on some textiles, including knit and nonwoven fabric as well as textured and nontextured yarn.
“Not many countries will benefit from the lifting of these quotas,” said Natalie Hanson, director of trade policy at International Development Systems. “China, which is a primary supplier of linen and ramie, will be the biggest beneficiary.”
Hong Kong, Korea and Taiwan are also big suppliers of linen and ramie. Taiwan was admitted into the WTO last month, while Hong Kong, which reverted to Chinese rule in 1999, is still treated separately in world trade rules.
Turkey, which had an embargo placed on robes and nightgown imports this year because it filled its quota category, will be the biggest beneficiary in this category, she added.
Canada, which has virtual quota-free status under NAFTA, is the largest supplier in the knit and nonwoven fabric categories. But Korea and Taiwan will get a boost from the quota elimination in knit fabric, while Israel will benefit in the nonwoven fabric category, Hanson said.
The real debate has been over China’s impact and whether U.S. apparel and textile firms can remain economically viable without the quota protections of the Multi-Fiber Arrangement.
Stephen Lamar, vice president of the American Apparel & Footwear Association, doesn’t believe there will be a surge of low-cost imports from China at the end of the phaseout.
About 70 percent of all apparel sold in the U.S. is imported, according to the AAFA.
“People already have a lot of sourcing relationships and patterns and they are not necessarily going to abandon them on day one,” Lamar said. “Any time a trade regime goes through change there is apprehension.”
From the domestic textile producers’ point of view, the phaseout could be disastrous.
“A lot of people didn’t think it was wise to structure [the phaseout] with the most important, sensitive products at the end,” said Nash. “As a consequence, some in the industry have been lulled to sleep for four or five years and won’t be prepared.”
Hughes, who is typically on opposing sides with Nash, agreed on this point.
“The irony is that the domestic industry will be protected to the max up to the last minute, but that will magnify the impact of the elimination of quotas and make it tougher and more difficult for the U.S. industry to adjust [in 2005],” said Hughes. “The textile industry claims it is in a huge crisis, but it has never had to deal with unrestricted imports and if they can’t compete with quota protection, it makes a scary scenario.”
Quota elimination coupled with China’s entry into the WTO could deal another big blow to textile producers, according to the domestic industry.
“We think it’s certainly inequitable that other members of the WTO had to face a longer quota phaseout than China,” said Carlos Moore, executive vice president at the American Textile Manufacturers Institute. “China will become quota free in three years’ time and that will be damaging to our industry.”
Moore said ATMI recently did a study on China’s market share in textiles and apparel before and after quota elimination.
The ATMI study showed that China’s market share of apparel and textile imports to the U.S. is 9 percent. That could quickly grow to 31 percent once all quotas are lifted, according to the study.
He also said U.S. textile companies won’t share reciprocity in terms of market access after the quota phaseout.
“As a nonmarket economy, China can price products [low enough] to keep out imports,” Moore added.
But the unfettered free trade that the domestic industry fears could be blocked by import surge provisions in China’s WTO agreement, which allows countries more leeway to reinstate quotas on products through 2012.
“Come Jan. 1, 2005, it’s almost a guarantee” the domestic industry will ask for quotas to be reinstated, said Jonathan Gold, director of trade policy at the International Mass Retail Association.
Many apparel importers, retailers and manufacturers claim there won’t be a run on China once all quotas are removed because sourcing strategies evolve over time.
Peter McGrath, J.C. Penney Co.’s president of purchasing, claims the impact of China’s entry in the quota-free environment is still a big unknown.
“China’s ability to grow in a quota-less environment is uncertain,” said McGrath. “How the surge provisions will be played out and enforced is not fully understood by members of this industry.”
Penney’s imports some ramie cotton shorts, as well as a large percentage of luggage, both categories where quotas will be lifted.
“The issue of quota is a determining factor in where we make goods,” said McGrath. “As they phase out more products, we are going to see a consolidation in the number of factories where we source.”
McGrath noted that many foreign factories often own less quota than the available capacity, which forces U.S. companies to place orders with multiple factories in several countries.
“If you talk to a number [of apparel executives in] Third World countries like Bangladesh, India and Pakistan, they are scared to death of China because they are worried about its ability to out-produce and out-price,” said McGrath, who expects to see countries “rise and fall” in term of their sourcing capabilities once quotas are eliminated.

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