CHINA GETS IN THE GAME
Byline: Kristi Ellis
China finally made it.
After 15 years of arduous negotiations, the world’s most populous nation was admitted to the World Trade Organization in November, and it will have a significant impact on U.S. apparel and textile companies.
Taiwan was also accepted into the WTO at the same time as China, which brings the total number of participating countries to 144.
Although China remains under one-party rule and most commerce is state-run, it will be forced to make sweeping changes in its economy that some claim could place it on a path to democratization and private enterprise.
China’s admittance entitles it to the full trading rights of capitalist countries and means China will enjoy protection against the imposition of barriers on its exports based on human rights abuses. Still, many experts say it will be years before barriers to China’s market are fully dismantled, as local governments continue to impose burdensome rules on foreign firms.
Even with the roadblocks, China will remain an important trading partner for the U.S. For the first nine months of 2001, apparel and textile imports from China reached $5.01 billion, according to the U.S. Department of Commerce. For 2000, apparel and textile imports from China were $5.03 billion.
American retail and manufacturing officials are enthusiastic about China joining the global trade body, although domestic textile makers are wary. Merchants and manufacturers foresee China, now required to follow WTO rules, eventually dropping its remaining vestiges of a state-run economy, making it easier to sell to China’s 1.3 billion people.
Permanent normal trade relations status and WTO membership will slash tariffs by over 60 percent, remove discriminatory taxes and regulations and open China to U.S. retailers over time.
Single-brand retailers like Nike and Gap would be better positioned to take advantage of investment opportunities in China. That’s because it will now become easier for these chains to expand into the giant Asian nation without selling a stake in the business to local investors.
Retailers will be allowed to operate an unlimited number of stores in China starting Jan. 1, 2005. They are exempted from a rule mandating that multibrand retailers, like department stores and mass merchants, need local investors to open more than 30 stores in China.
Procedures by which retailers obtain licenses to do business also have been simplified. But U.S. retailers will still face substantial trade barriers despite China’s membership in the WTO.
Large department stores and mass retailers will have to overcome crucial hurdles. Among the remaining impediments are requirements that foreign-owned stores larger than 65,616 square feet or chains of more than 30 stores have Chinese business partners. This could create a hassle for a chain like international-expansion-minded Wal-Mart, whose supercenters in the U.S. typically exceed 200,000 square feet.
On the plus side, China has given assurances that it will lift tight restrictions on distribution of products and ownership of warehouses over a three-year period. Foreign companies currently can’t own distribution centers and can only distribute goods around the country if they produce in China. That job is now reserved for Chinese concerns.
Highlighting how crucial the distribution is, U.S. Trade Representative Robert Zoellick secured a commitment at a negotiating session in Shanghai from his Chinese counterparts that ownership restrictions on chain stores won’t interfere with U.S. companies owning distribution outlets in full.
While many U.S. apparel companies eagerly anticipate the market access, domestic textile producers remain skeptical and concerned about the impact an influx of cheap Chinese imports will have on their ailing market.
The American Textile Manufacturers Institute has maintained that China will receive an unfair advantage in the 10-year apparel and textile quota phaseout that was established in the last round of talks in 1994 and is set to expire on Dec. 31, 2004. China will face a three-year phaseout of these quotas — and get the immediate benefit of six years of quotas being lifted — while other WTO members have faced a longer phaseout over 10 years.
ATMI claims imports from China will have a “damaging” effect on the domestic textile industry, as Beijing quickly increases its market share after the quota phaseout.
There is a potential upshot for domestic manufacturers, however, in the form of increased market access for U.S. textile exports — although it’s difficult to imagine a Chinese factory importing fabric from the U.S. because of the cost and the availability of textiles in China and in the Asian region.