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Washington Outlook Archive
James A. Morrissey, Washington Correspondent

WTO Rejects Appeal To Retain Import Quotas

James A. Morrissey, Washington Correspondent

T he World Trade Organization (WTO) has rejected an appeal from textile manufacturers in the United States and developing nations for an emergency meeting to discuss the impact of the removal of all textile and apparel quotas by next January 1, but it left the door open for top-level discussions of issues next month. The coalition of some 100 textile and apparel trade associations that calls itself the Global Alliance for Fair Trade in Textiles (GAFTT) had asked the WTO to call an emergency meeting to discuss, among other things, the possibility of extending the quota removal deadline by three years. The GAFTT request was supported by governments of seven less-developed countries that made a formal request for such a meeting. The request was set aside, however, in view of opposition from the governments of China, India, Pakistan, Hong Kong, Brazil, Egypt, Indonesia and Thailand.

In turning down the request, WTO officials agreed to put the issue on the agenda for a meeting of the high-level Council on Trade and Goods scheduled for early October. The timing of that meeting scrubbed any hope for extending the deadline for removing all remaining import quotas. However, that meeting will provide a forum for the United States and its less-developed-country allies to make a case for other actions to avert a takeover of world textile markets by China, India and perhaps one or two other countries.

Trade with China likely will dominate that meeting. The United States and other countries are expected to address a broad range of issues including currency manipulation, export subsidies, direct state subsidies to textile manufacturers and other tax and economic incentives, as well as what they believe are widespread illegal transshipments through third countries. While these issues will be discussed, it is difficult to do anything about them. The most practical approach to limiting China trade would be greater use of the so-called safeguard mechanism that is part of the Chinese accession agreement with the WTO. Last year, the United States invoked that provision and placed quotas on three categories of textiles and apparel. Those quotas, which were based on proving market disruption, are due to expire in December.

The safeguard mechanism permits the United States and other countries to impose quotas when it can be demonstrated there is market disruption or a threat of market disruption.

The threat approach has never been employed, but US manufacturers are expected to take that approach on what they see as a rash of import-impacted products in the near future. They will seek support from other GAFTT members to pressure the US government to take that approach once additional petitions are filed.

While there is some support among US importers for steps to temper China’s dominance of the US market, they do not want the quotas extended, and they have opposed use of the safeguard mechanism. They do not believe a strong case was made for imposing quotas as a result of market disruption last year, and they certainly do not think the threat approach is valid.


US Wraps Up Free Trade Agreements

Congress and the Bush administration have capped a major push to negotiate free trade agreements with individual countries and regional pacts, but a biggie, the Central American Free Trade Agreement (CAFTA), remains on hold. Before leaving town for its summer recess, Congress approved free trade agreements with Morocco and Australia, bringing the total to seven. The United States also has free trade agreements with Canada, Mexico, Jordan, Chile and Singapore. In addition, the United States has preferential trade agreements with the nations of the Caribbean Basin and sub-Saharan Africa.

Where textiles are concerned, these pacts for the most part have followed a familiar pattern. They generally include a yarn-forward rule of origin, but they also include tariff preference levels (TPLs) that permit given amounts of inputs from non-participating countries. US textile manufacturers support the yarn-forward rule and are opposed to TPLs.

Importers, on the other hand, don’t like the yarn-forward rule of origin but support the use of TPLs that provide them with greater flexibility in their sourcing.

While there has been a good deal of interest in these preferential trade agreements, results have been anything but exciting. For the most part, trade has been flat in areas where preferential programs were supposed to have stimulated trade. US textile manufacturers say the potential for these agreements has been undercut by what they view as loopholes that permit the use of specified amounts of yarn and fabric from countries that are not participants in the agreement. They contend this has opened the door to products from China and other Asian nations.

US retailers appear to be equally disappointed by the results of the preferential agreements. They would like to do more business in areas such as the Caribbean and Central America because of their proximity, but not much is happening as China and other Asian nations are siphoning off any growth that might occur and then some. The problem from the standpoint of retailers is that the agreements negotiated to date have rules of origin and customs requirements that are so complicated that they actually discourage people from doing business in those areas. Eric Autor, the National Retail Federation’s international trade expert, points out there are two basic considerations in retail sourcing of apparel — proximity and price. He says the Caribbean and Central American manufacturers are close by, but they have trouble competing on price. On the other hand, Asian nations such as Bangladesh, Pakistan and India are low-cost manufacturers, but they are far away from the market. In the middle is China, which is far away, but increasingly is able to provide what retailers want, when they want it and at favorable prices.

Retailers contend preferential trade agreements can be a way for US textile manufacturers to compete and for retailers to have the flexibility they want for their sourcing. They place a good deal of confidence in CAFTA, but it is highly controversial, and Congress is unlikely to deal with it this election year. US textile manufacturers are strongly opposed to it “in its present form,” as is Democratic presidential contender John Kerry. 

Both US textile manufacturers and importers have long urged the government to do a better job of policing textile and apparel imports, but with more and more resources being devoted to controlling drug traffic and strengthening homeland security, that is not very likely to happen. 

WTO Study Sees Chinese Takeover Of Textile Markets

A just-released World Trade Organization (WTO) study confirms what US textile manufacturers have been saying all along — that China and perhaps one or two other countries will completely dominate world trade in textiles when import quotas are removed Jan. 1, 2005. The study says China’s share of the US market could jump to as much as 50 percent from today’s 16 percent. The report also sees a tripling of India’s share of the US market. At the same time, the study says countries like Mexico will see a sharp decline in their share of the market. In spite of this, the WTO says Mexico, the Caribbean and Central American countries will continue to be a factor in the US market because of their proximity and preferential trade agreements, but it does not forecast any significant growth.

The big losers will be the scores of less-developed countries around the world that have a share of today’s US textile market. While they are low-cost producers, their distance from US, Canadian and European markets will hurt them. The WTO study is likely to provide US textile manufacturers and their less-developed-country allies with a new tool in their efforts to get the US government to restrain the growth of Chinese imports, but the manufacturers say the study is sadly deficient in that it deals with trade from 1995 to 2002. It does not reflect the much larger growth since 2002 of Chinese exports that is impacting not only the US market, but also those of other countries.

September 2004