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China And The WTO

In an ATI exclusive, ATMI President Doug Ellis and Executive Vice President Carlos Moore address the impact of China entering the WTO.

ATI Special Report

O ne issue that never surfaced in all of the "battles in Seattle" over the World Trade Organization (WTO) was China’s upcoming entry into the WTO.

China is one of the few major textile and apparel producers that are not members of the WTO.

China plays a unique role — it is the world’s largest textile producer, with some 24 billion square yards of output in 1998.

In 1998, China shipped $7.9 billion of textiles and apparel to the United States, while our textile and apparel exports to China were only $72 million. On top of that, add the annual $5 billion of illegal textile and apparel transshipments from China that enter this country each year.

China also closes its market to nearly all other textile and apparel producing countries and has a positive trade balance in these products of some $32 billion.

Principles And Rules

China’s entry into the WTO presents major problems in conforming to WTO principles and rules. The WTO’s fundamental objective is to embrace world trade by lowering tariffs and non-tariff barriers. Clearly, China must do that in order to join the WTO. However, because China is not a market economy, nor is it likely to be one in the foreseeable future, it may lower its barriers, but little or no trade might occur. Why is this?

Such an outcome is possible because China could continue to operate as a centrally directed non-market economy with state-owned companies and state-directed importers. No barriers, but still no trade — unless China had a shortage of some particular item. Airplanes, yes; textiles, no.

WTO Membership

WTO membership has the potential to open China’s market and could also require China to conduct its trade regime under new rules and disciplines. If this were to happen, a truly open Chinese market would benefit the United States in several ways.

First, the U.S. textile industry could sell to the Chinese market — especially home furnishings and industrial fabrics. Second, an open Chinese market means that other countries, especially developing countries, would ship to China and take some pressure off our own market as one of the most open for imports. That is why the American Textile Manufacturers Institute’s (ATMI) Board of Directors made real, effective access into the Chinese market a major precondition for China’s joining the WTO. Another ATMI objective is to get China to eliminate its dumping and subsidized exports.

ATMI is also seeking a 10-year phaseout of U.S. textile and apparel quotas that is identical to the phaseout period other WTO members faced beginning in 1995.

All of these issues were addressed in the negotiations between the United States and China concerning China’s WTO membership, negotiations that concluded in mid-November with results quite different from ATMI’s objectives.

What Happened?

First, China rejected the concept of a 10-year quota phaseout. The United States agreed to a five-year phaseout with the possibility of quotas for another four years, provided China could be shown to be disrupting our market or threatening to do so.

Second, because the agreement treats China as a non-market economy, the United States will be unable to use U.S. trade laws to attack any of China’s illegal export subsidies.

Based on a difficult-to-follow logic, the United States has concluded that non-market economies subsidize everything; therefore, U.S. laws are useless because it is impossible to single out the effect of any particular export subsidy that might be the subject of a complaint.

Third, China did agree to reduce its tariffs significantly by 2005 and to eliminate its non-tariff barriers as well. However, it remains to be seen whether this will lead to real market access into the centrally directed economy of China.

Moreover, by the time China completes its tariff cuts, it will have obtained quota-free access to the U.S. market. The United States will have traded off potential access to China’s market for real, unrestricted access to our own market by China.

Finally, nothing in the U.S. agreement with China deals with the critical labor and environmental issues raised in Seattle that the WTO has clearly not addressed.

Economic Impact

To learn the economic impact of China's entry into the WTO on the U.S. textile industry, ATMI commissioned a study by Nathan Associates, a well-known economic consulting firm in Arlington, Va.

The study found that once China gains quota-free access to the U.S. market, its share of apparel imports will grow rapidly from its current 9 percent to more than 30 percent. This means that China not only will take away production from other countries that supply the United States, but also will displace U.S. production of textiles and apparel.

The study concluded that more than 150,000 U.S. textile, apparel and supplier jobs will be lost — and these losses will occur on top of the damage caused by the phaseout of quotas with the other 43 WTO members now subject to restraints.

ATMI is making its case to Congress. While the agreement itself does not have to be approved by Congress, in order for the agreement to be implemented, Congress must grant China unconditional "normal trade relations" status. This means that the United States must treat China exactly the same as it does our traditional trading partners.

ATMI's message to Congress is to oppose granting normal trade relationship status to China because the agreement is terribly flawed and will put at risk many thousands of U.S. jobs and significant production.

Congress needs to ask one fundamental question:

Has China earned its way into WTO membership by truly reforming its trade regime or has it bullied its way in with no real commitment to play by the rules?

Adjusting To The Challenge

Whether or not China enters the WTO at this time, ATMI’s member ship will have to deal with the fact that all textile and apparel quotas disappear as of 2005. We are facing this challenge and finding ways to adjust.

First, we will have five years to more fully develop our markets of our NAFTA partners and the Caribbean region, provided the Senate CBI bill can be enacted quickly.

The combination of a high-tech, capital-intensive textile industry in the United States, linked with a labor-intensive apparel industry south of the border in Mexico and the Caribbean, can effectively compete
with imports from Asia.

Secondly, we need to take a look at Europe. The European textile industry has survived a flood of imports, and it can serve as a model of us in some areas.

The textile industry represented by the 15 countries of the European Union (EU) can be compared to the United States in Table 1.

The European Textile Industry

Finally, even though the European textile industry has higher wages and a greater social burden than we do in the United States, their textile industry is larger than ours and they enjoy a positive balance of textile trade. How have they accomplished this?

The European textile industry concentrates on specialty and higher value added products. They source many commodity fabrics from abroad.

The industry works hard to develop its export markets.

Europeans have teamed up with their own south-of-the-border countries for apparel production using their own fabrics, similar to the "809" program in the Senate CBI bill.

They reinforce a preference with their own consumers for European brands and European products.
We can learn a great deal from our European cousins. We need to work together to meet the Asian threat and to continue our growth and prosperity into the new century.

January 2000