WASHINGTON — The Bush administration is taking on China with the commercial clout of bras, dressing gowns, robes and knit fabric.
This story first appeared in the November 19, 2003 issue of WWD. Subscribe Today.
In a move that many critics claim runs counter to its free-trade principles, the administration agreed Tuesday to impose quota restraints on those import categories from China.
The decision was hailed widely by the beleaguered textile industry, which is bleeding jobs and filed for the action, but condemned by retail and wholesale importers that source great quantities of apparel in China for the low-cost advantages. Quotas can be levied under the safeguards as part of a special agreement World Trade Organization members struck when China joined the global trade body.
The action comes at a crucial time for the domestic textile industry, which has lost tens of thousands of jobs in three years and is facing an expected onslaught of imports from China at the end of 2004 when all quotas on textiles and apparel will be lifted per a WTO mandate.
“I hope this symbolic first step by the President means he is getting serious about enforcing our arrangements with China and trying to protect, within reason, the valid economic interests of American management and American employees,” said Wilbur L. Ross, chairman and chief executive officer of W.L. Ross & Co. and ceo of Burlington Industries, who also garnered substantial investments in steel before recently turning his attention to textiles. “But the safeguards granted today help only a small fraction of the industry.”
Ross, who has also bid for Cone Mills, said thousands of domestic textile jobs were lost while the government reviewed the case, adding, “That is too big a price to pay. It’s a good first step, but only a very small beginning toward a sensible trade policy.”
The U.S. will seek consultations with China shortly, according to trade officials. At that time, the U.S. will try to reach an agreement with China on quota levels in the three categories. If the Chinese refuse to negotiate or reach a resolution on quota levels, the U.S. will unilaterally establish the quotas at 7.5 percent above the total amount of imports in the category for 12 months. The quotas will remain in place for one year, but the domestic industry would have to refile the petitions and get approval again if they want to extend the quotas for a second year. The safeguard mechanism expires in 2008.
China does reserve the right to take the case to the WTO for review if it does not reach an agreement with the U.S. in consultations. Chinese embassy officials did not return phone calls.
The Bush administration is in a tight spot on the trade front as it tries to avert two potential trans-Atlantic trade wars and grapples with balancing its free-trade ideology with pleas for protection from domestic industries slammed by massive job losses.
Steel and textiles have taken center stage in the free-trade debate and the administration has come under intense pressure to resolve the matters quickly. The European Union is poised to launch a trans-Atlantic trade war against the U.S. in the case of steel by mid-December following a WTO ruling, which once again deemed U.S. duties on imported steel illegal. The trade bloc is targeting $2.2 billion worth of U.S. products for retaliatory tariffs, including textiles and apparel, if the U.S. does not lift the tariffs on steel products in the next month.
The President’s re-election hopes are also tied to the knotty trade issues, and the move to impose restraints on textiles and apparel from China is one that could help him politically in key textile battleground states in the South. It is also a follow-up on a commitment the administration made to lawmakers to help the textile industry in exchange for votes on trade promotion authority, which gives the president broader power to negotiate trade agreements.
More than 165 members of Congress wrote the President at the end of October urging him to impose the quotas.
“The enactment of these safeguards is a significant victory for the textile industry and South Carolina workers,” Rep. Jim DeMint (R, S.C.) said.
DeMint, who is running for the seat in the Senate being vacated by Sen. Ernest Hollings (D, S.C.), has been on the hot seat for a vote he cast in favor of TPA.
“More and more South Carolina companies and jobs depend on trade and profits from exports to countries like China,” he said. “However, we have to have the means to hold countries like China accountable if they refuse to play by the rules.”
Grant Aldonas, undersecretary for international trade at the Commerce Department, who broke the news to reporters in a Tuesday morning conference call from Miami, said an interagency group determined “dramatic surges” in imports caused market disruption in the domestic textile industry and threatened the orderly flow of trade.
Imports of knit fabric rose by 20,723 percent from January 2000 through the year ended Aug. 31, while knit fabrics from the world rose a mere 39 percent during the same period, according to trade officials. Imports of dressing gowns and robes from China rose 1,271 percent, while imports from the world rose 70 percent, and imports of bras from China rose 276 percent, as imports from the world rose 21 percent.
“Even with the Chinese figures built into the overall trade averages in these categories, the Chinese figures outstrip the average overall increase in trade,” Aldonas said. “Commerce Secretary [Donald] Evans believes this decision ultimately reflects a legal standard and our commitment to enforce trade rules in the interest of the industry and American workers.”
Aldonas also defended the administration’s free-trade agenda.
“I would like to break a label,” he said. “I never thought it was inconsistent with free-trade policies to go after practices that distort investment and trade.”
A coalition of domestic textile and fiber groups, which filed the safeguard petitions in July and really turned up the heat on the administration, was ebullient, although many members claimed Tuesday’s decision is not a panacea for the flagging industry.
“This takes some pressure off,” said Cass Johnson, interim president of the American Textile Manufacturers Institute. “These are relatively small categories, but it sends a message to importers that they can’t move all of their production to China and expect unlimited access to the U.S. market.”
Augustine Tantillo, Washington coordinator for the American Manufacturing Trade Action Coalition, said the domestic industry will push the administration to broaden the scope of the negotiations with China and ask for additional products to be covered by quota, including ones that are still under quota but will be removed at the end of 2004.
“This is a positive first step, but a tremendous amount of work needs to be done in order to stabilize the U.S. textile and apparel market and preserve the almost one million jobs left in the U.S.,” Tantillo said.
Aldonas said the administration expects the domestic textile industry to file many safeguard requests when quotas expire at the end of 2004.
Since Bush took office in January 2001, 312,500 textile and apparel jobs have disappeared through this October, according to the Labor Department.
In the meantime, China has become a powerhouse in global trade, capitalizing on the 10-year phaseout of quotas on apparel and textiles under a WTO mandate set to expire on Dec. 31, 2004.
Imports of apparel and textiles from China rose 71.5 percent in the first nine months of the year to 5.9 billion square meters. For the year ended Sept. 30, imports totaled 7.45 billion SME and China now controls 18 percent of the entire U.S. import market on an annual basis.
Importers, who oppose any quota restraints on apparel and textiles from China, were furious about the Bush administration’s decision.
“We’re disturbed that politics are driving these decisions,” said Erik Autor, vice president and international trade counsel at the National Retail Federation. “You can cave into protectionists and still get no political mileage and end up creating a bigger problem for yourself. This is just the tip of the iceberg.”
Julia Hughes, vice president of international trade for the USA-ITA, said she was “very disappointed” by the news and claimed the decision was “not based on facts, but on politics.”
Frank X. Kelly, vice president of international trade compliance and government affairs at Liz Claiborne Inc. said he was “aggravated” by the ruling, though he noted that it does not directly affect New York-based Claiborne’s business. But he also took it as a sign that “you will see more of this happening in 2005.”