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Washington Outlook Archive
James A. Morrissey, Washington Correspondent

Major Trade Issues On 2004 Agenda

By James A. Morrissey, Washington Correspondent

T extile representatives in Washington see 2004 as a pivotal year for manufacturers, their customers and their overseas competitors. It also will be a litmus test for the Bush administration's far-reaching free trade agenda.

The biggest issue is the final phase-out by January 2005 of the textile and apparel quotas that have helped govern international trade in textiles for nearly five decades. In addition, there are more than 10 regional and bilateral free trade agreements in various stages of negotiation. How they play out will in large measure determine the very future of the textile industry, and how and where retailers and other importers will buy their goods. Above and beyond that is the role of China in a quota-free world. It is a matter of major concern not only for textile manufacturers in the United States and abroad, but for their customers and consumers as well.

Cass Johnson, interim president, American Textile Manufacturers Institute (ATMI), said 2004 will be a "make or break year" for US manufacturers. But Eric Autor, the National American Retail Federation's international trade expert, sees a "recipe for gridlock" in the positions taken by textile manufacturers. Julia K. Hughes, vice president, international trade and government relations, US Association of Importers of Textiles and Apparel (USA-ITA), foresees an "extremely tough year" ahead, fraught with uncertainties as retailers cope with questions of quota management and how, when and where they will be able to get the products they need in order to compete in a quota-free world. She says they need "flexibility in order to compete, and success in that regard will be heavily influenced by government decisions."

Each of the proposed free trade agreements must be considered by Congress, and under the president's fast track negotiating authority, Congress can only accept or reject agreements - it cannot amend them. The first major showdown will be the Central America Free Trade Agreement (CAFTA), over which importers and manufacturers have had major disagreements. Both sides agree a "good" CAFTA could be effective in competing with China, but their definition of "good" varies widely.

As has been the case with all trade agreements, the textile industry wants a yarn-forward rule of origin, requiring all of the components of apparel to be made in one or more of the participating countries. It is strongly opposed to tariff preference levels (TPLs) and "cumulation" that permits inputs from non-participating countries. The industry also wants strong Customs enforcement to prevent transshipments.

Importers, on the other hand, are seeking flexibility in their sourcing. They strongly support the principles of cumulation and TPLs. In addition, they want the government to permit use of outside imports when it can be demonstrated that components are in short supply and cannot be obtained in participating countries. They, too, support strong Customs enforcement to prevent circumvention of agreements.

A tentative agreement reached in December has a yarn forward rule of origin, but provides for cumulation in products from Mexico and Canada, and TPLs for Nicaragua. US textile industry trade associations were sharply critical of the agreement and vowed to fight it in its present form. While importers say it falls short of what is needed, they see the framework as a step forward that they can live with.

Political Action
globe_Copy While textile trade is a complicated and thorny economic issue, it increasingly is becoming a highly contentious political issue, and that will only increase as this year's presidential and congressional election campaigns unfold. The textile industry and importers believe the textile industry's grassroots political efforts were a key element in getting the government to act on the Chinese safeguards.

Encouraged by that success, domestic manufacturers are moving forward with programs to put more pressure on Congress and the administration to act in their favor on trade issues. The American Manufacturing Trade Action Coalition (AMTAC) - which includes not only textiles, but also paper, chemicals, woodworking and furniture interests - is launching a major education program to acquaint the general public with the impact current trade practices are having on manufacturing jobs. ATMI is doing the same thing.

Auggie Tantillo, AMTAC's Washington coordinator, says activities will include trade forums, town meetings, and voter registration and get-out-the-vote drives. Its efforts will not be directed at any specific candidates, but will be designed to bring home the impact trade has on jobs. Voters then can make their own decisions. "We want to talk about specifics. Not about free trade or fair trade or level playing fields, but how trade is impacting jobs. Then voters can connect the dots," Tantillo said.

At the same time, importers are becoming more visible in Washington and stepping up efforts to address their problems. Last year, four major retail organizations - the National Retail Federation, American Apparel and Footwear Association, International Mass Retail Association and USA-ITA - signed a joint appeal to members of Congress urging them not to support the textile industry's agenda with respect to China trade and other issues. They also sharply attacked the industry's safeguard petitions. They say the time has come for the United States to "fundamentally rethink" its textile and apparel trade policies if domestic textile companies hope to survive and prosper in the future.

All of these issues will land in the lap of Congress, either for ultimate decisions or to influence negotiations. In December, six trade associations and the Union of Needletrades, Industrial and Textile Employees wrote to Bush administration trade officials in connection with the CAFTA agreement, saying, "We firmly believe that including job-destroying loopholes will so poison agreements that it will become impossible for them to pass in Congress."

All said, it's going to be quite a year.

The End Of Quotas
Under agreements signed 10 years ago, all textile and apparel import quotas are to be removed by the end of this year, but as that deadline grows closer, some countries appear to be having second thoughts. Many trade experts both here and abroad fear that only a handful of countries - such as China, India, Pakistan, Thailand, and perhaps Cambodia and Vietnam - will benefit. They see these countries dominating trade in a quota-free world in very short order. US manufacturers got a dose of what can happen when quotas were removed from four categories of Chinese textiles and apparel last year, and imports soared.

While tariffs will remain in place, there is a good possibility that if the World Trade Organization's Doha Round of trade liberalization negotiations is resumed, textile and apparel tariffs will be cut. Even if tariffs remain at present levels or are cut, they will be pretty meaningless where China is concerned. Chinese costs of production are extremely low, and a controlled currency exchange rate amounts to a huge subsidy for its exports. In addition, a current cost of doing business in China is the buying and selling of textile and apparel quotas, which are traded like commodities. A quota-free world would immediately reduce China's costs by as much as 25 percent, as manufacturers no longer would have to pay for quotas.

The US textile industry won a symbolic victory last year, when the US government agreed to negotiate quotas under the so-called "safeguard mechanism" in the US-China bilateral textile agreement. While the products involved - bras, dressing gowns and some knit fabrics - are not a major part of the problem, the industry was encouraged that the safeguard procedure might be utilized again if Chinese imports disrupt markets, as they are expected to do in 2005 and beyond.

In addition, a new issue has developed with respect to the quota phase-out. Current bilateral import agreements permit the use of "carry forward," a process that allows countries to borrow quota from the next year when quotas are filled. Since there will be no next year after 2004, there is no quota to borrow, but importers believe they should be able to increase their quotas by an amount equivalent to what they could have borrowed under the quota system. Importers are pressing hard for this - they believe that as the economy improves, quotas will be filled rapidly, and there could be tight markets in which their costs will increase. Predictably, domestic manufacturers say this is a loophole and should not be permitted.

January 2004