WASHINGTON — Political, industrial and diplomatic winds are swirling into a hurricane of criticism over the possibility of the U.S. moving to limit its imports from China through safeguard quotas.

The explosive battle over surging textile and apparel imports from China has captured the attention of the White House during a key election year, prompted strong statements by diplomats in Washington and Beijing, and has whipped advocates of importers and of domestic manufacturers into a near frenzy.

At the center of the controversy is the safeguard mechanism China agreed to when it joined the World Trade Organization in 2001. At that time, the nations of the WTO were more than halfway through the 10-year phaseout of quotas on textiles and apparel, set to be completed on Jan. 1. To silence complaints from other developing nations that China’s late entry into the process gave it an unfair advantage, China agreed to the safeguard mechanism.

The safeguards are in essence temporary quotas that an importing nation can impose on certain Chinese goods if it determines they are severely injuring domestic industries. They can be imposed for one year at a time through 2008, when the provision expires. Nations have the option of negotiating with China to determine a mutually acceptable limit on imports of certain items, or, if China fails to agree, the importing nation can cap China’s shipments at a level 7.5. percent higher than they had been the previous year.

The industry is holding its breath over whether and when the Bush administration will move to restrain trade with China. Under increasing pressure to curb its exports of apparel and textiles, China recently ratcheted up the pressure on the U.S. over the controversial safeguards and claimed it would not bow to U.S. requests to extend the restraints on certain of its products.

Haiyun Liu, first secretary of the commercial department at the Embassy of China in Washington, on Sept. 8 took the rare step of speaking publicly to a trade forum and claimed his country would not accept a broad export restraint agreement, as the U.S. has pushed for in the past, and that it also reserves the right to contest any safeguard cases at the WTO.

Some importers have suggested that a broad limit covering all Chinese goods would be easier for them to work with than reacting to case-by-case complaints.

This story first appeared in the September 28, 2004 issue of WWD. Subscribe Today.

Coming off years of dramatic consolidation and layoffs, U.S. textile groups contend that the end of the quota system will be a death knell for their industry, imperiling the remaining 702,500 U.S. jobs associated with textile and apparel production, and also putting at risk many of the 30 million apparel production jobs worldwide.

U.S. retailers and importers, on the other hand, acknowledge they will work with fewer suppliers as a result of the change, but they assert China will not monopolize the world apparel and textile trade.

Nonetheless, textile groups including the American Manufacturing Trade Action Coalition, the National Council of Textile Organizations and the National Textile Association have vowed to file a wave of safeguard petitions against “dozens” of categories of apparel and textile imports from China by the end of the month. The three groups plan to file petitions on a wide range of products, including trousers, shirts, women’s blouses, skirts, dresses and key home furnishings categories.

There has been some controversy surrounding their plan to file the petitions while the quotas are still in effect. The Bush administration last month determined the industry has a right to file petitions based on the threat of market disruption, rather than waiting for actual disruption to occur. That was a key victory for the U.S. textile sector, because it allows the industry, employing thousands of workers in key political battleground states in the presidential contest, to proceed with the petitions.

The U.S. is the largest textile and apparel importer in the world, importing more than $77 billion worth of textile and apparel in 2003. Of that total, more than $61 billion was in categories that are still subject to quotas, according to the textile coalition. Some categories have already been liberalized over the 10-year phaseout period.

“We’re encouraged by the support Undersecretary of Commerce Grant Aldonas and some other agencies have shown in terms of clarifying problems and concerns up to this point,” said Auggie Tantillo, executive director of AMTAC. “Obviously, the next test is the safeguard cases and their energy to push these cases through the process.”

Tantillo said the industry’s hope is that the cases will be approved by the beginning of 2005 to ensure there is no significant lapse between existing quotas and the “extended arrangement.”

“Like all things, the White House and various Congressional members are running for office and are looking closely at the issues of concern to tens of thousands of workers,” he said. “We assume we will get the maximum level of attention, but whether that means we will get the answer we want is another question.”

The Committee for the Implementation of Textile Agreements, an interagency group, approved three safeguard petitions filed by the textile industry last December and imposed quotas on Chinese imports of bras, dressing gowns and robes and knit fabric.

Cass Johnson, president of the NCTO, said the safeguards have been effective in controlling China’s growth and limiting its share of the U.S. imports in those three categories. China’s U.S. import share of bras increased from 40.1 percent in 2003 to 42 percent through July, while its import share of dressing gowns and robes remained virtually unchanged at 36 percent and its share of knit fabric rose from 6 percent in 2003 to 8 percent through July, according to Johnson.

By comparison, China has an average U.S. import share of 72 percent in 29 other apparel categories where quotas were removed in 2002 and no safeguards were imposed, Johnson said.

“The safeguards have worked, in the sense they have kept the market share in those three categories from going that high,” Johnson said.

The current safeguards will expire in December, and Johnson said the coalition may reapply to impose quotas on the three categories for a second year — and include those new petitions in the anticipated wave of filings at the end of the month.

Under the current U.S. safeguard procedures, once the petitions are filed, CITA has 15 days to decide whether it will accept them for review. Following that is a 30-day public comment period. CITA then has 60 days to review the petitions and render a decision.

If CITA takes the full 15 days to decide whether to accept the petitions and the full 60 days for review, as it did last year, the earliest the administration would make a decision would be after the presidential inauguration on Jan. 20. However, if CITA immediately accepted the safeguard petitions, it could conceivably make a decision after the 30-day comment period on or shortly after Election Day, Nov. 2.

Erik Autor, vice president of international trade at the National Retail Federation, said the probability of the administration imposing safeguard quotas is “very high.”

“CITA has set a pretty low hurdle for the industry to get over for an affirmative determination on any category,” said Autor.

Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles & Apparel, said importers are prepared for the possibility of safeguards.

“When it is this political, you have to be realistic the administration is going to want to continue to look tough, and we’re prepared for that,” she said.

She noted that the administration does not want to be portrayed in North Carolina and South Carolina as giving up jobs at the same time it tries to support Republican candidates for the Senate and House.

Meanwhile, importers and retailers turned up the heat on the administration two weeks ago and sent a flurry of letters to the President and other administration officials arguing against the administration accepting threat-based petitions on products still under quota this year.

Four retail and importing associations — the NRF, USA-ITA, the American Apparel & Footwear Association and the Retail Industry Leaders Association — sent a joint letter to Aldonas on Sept. 13 accusing the administration of doing an about-face on safeguard petitions.

“Consideration of such petitions — much less formal requests for consultations with the government of the People’s Republic of China and establishment of unilateral restraints on such products — is contrary to the assurances you provided to us that the administration would manage the transition to a quota-free environment with minimal disruption and harm to our sector,” the letter stated.

Kevin Burke, president and chief executive officer of the AAFA, sent his own letter to the President on Sept. 20 condemning the administration’s alleged “abrupt” policy change on application of the China safeguard and its recent announcement that it will allow threat-based petitions to be filed.

Tracy Mullin, president and ceo of the NRF, sent a similar letter to Commerce Secretary Donald Evans and U.S. Trade Representative Robert Zoellick.

Mullin accused the administration of “bowing to political pressure” on import restrictions.

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