WASHINGTON — The end of quotas is by no means the final hurdle for free-trade advocates.
This story first appeared in the September 28, 2004 issue of WWD. Subscribe Today.
The lifting of apparel and textile quotas will mark the most significant change to global trade rules the industry has experienced in decades and will take away one of the most complicated tasks an importer faces — dodging embargoes.
But free-trade advocates want further liberalization of international commerce, such as getting rid of tariffs and forming broader trade alliances.
The two largest apparel markets, the U.S. and the European Union, continue to negotiate trade-preference deals with other nations that offer perks including duty-free treatment. The U.S. currently levies an average tariff of 15.9 percent on imported apparel and 10.2 percent on textiles. Those duties will remain in place after quotas are lifted, which means duty breaks will remain an advantage for the nations covered by the North American Free Trade Agreement, as well as the beneficiaries of trade-preference deals covering the Caribbean Basin, the Andean region and sub-Saharan Africa.
A longer-term goal that the top trade negotiators of the U.S. and the EU have raised in the World Trade Organization is the lifting of those duties from apparel, textiles and all other industrial goods, with some floating a deadline of 2015 for such an occurrence. But EU Trade Commissioner Pascal Lamy and U.S. Trade Representative Robert Zoellick have both indicated in recent months that the goal faces major roadblocks, namely growing opposition from the developing world that wants to maintain the ability to charge duties.
Erik Autor, vice president and international trade counsel for the National Retail Federation, said it’s difficult to forecast when a lifting of duties might occur, given current disagreements at the global trade body. These disputes include developing countries’ desire to protect their economies from being trounced by globalization, and their calls for developed countries such as the U.S. to eliminate agriculture subsidies that are seen as putting poor countries’ exports at a competitive disadvantage.
A more immediate duty-dropping possibility for U.S. importers is the pending Central American Free Trade Agreement, which the Bush administration negotiated with Honduras, Guatemala, Nicaragua, El Salvador and Costa Rica, as well as the Dominican Republic. That deal hasn’t been submitted for Congressional approval, and its future will depend largely on the outcome of the presidential election. Sen. John Kerry, the Democratic candidate, has indicated he would renegotiate CAFTA to include stronger labor and environmental standards.
Both Bush and Kerry view CAFTA as something of a stepping stone toward the long-term goal of a Free Trade Area of the Americas, encompassing the Western Hemisphere from Canada to Chile and conferring duty- and quota-free treatment similar to that offered by the NAFTA.
The U.S. also has duty-free pacts with Jordan, Israel, Morocco, Australia and Singapore. A free-trade pact with the Middle Eastern island nation Bahrain is in the pipeline for Congressional approval.
The EU has its own set of duty-free deals affecting apparel, including one with African countries, Mexico and Chile, and one pending with the Mercosur countries of Argentina, Brazil, Paraguay and Uruguay. Other tariff breaks are given to imports from the six members of the Gulf Cooperation Council: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
The EU increased its immediate free-trade network this year when it expanded to 25 member countries from 10. In addition, the EU is building on its regional relationships with duty-free trade pacts with Russia and other republics of the former Soviet Union, as well as with its Mediterranean neighbors of Malta, Cyprus and Turkey.
Steve Lamar, senior vice president at the American Apparel & Footwear Association, said all those pacts, as well as the inherent speed advantages held by producing countries that are close to their target markets — such as Latin American countries seeking to export to the U.S. — will remain a key competitive factor.
“Wages are only an element of the cost structure of a garment,” Lamar said.
Another factor shaping global apparel and textile trade after quotas are lifted will be market-protecting trade laws that can be deployed if low-cost imports are overly depressing sales of local producers. Such is the threat now looming over Chinese imports, as U.S. textile producers press the Bush administration to impose safeguard quotas on certain garments and textiles. The EU is also proposing to restrict Chinese as well as Indian imports starting in 2006.
As the U.S. and EU maneuver to get the upper hand in global trade by negotiating duty-free trade pacts, the big hope among importers is to render unnecessary the need for such arrangements. That would occur if tariff-eliminating and other trade-liberalizing proposals at the WTO are realized. However, given various roadblocks, such as convincing countries to eliminate farm subsidies, including cotton, such a vision appears to be years away.
Even after the quotas are lifted, according to the NRF’s Autor, “We will not be in?a free-trade environment by any stretch of the imagination.”