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Washington Outlook Archive
James A. Morrissey, Washington Correspondent

Trade Issues On Washington Agenda

By James A. Morrissey, Washington Correspondent

A lthough Congress ordinarily is reluctant to deal with international trade issues in an election year, as lawmakers return to Washington there are a number of issues they need to address - election year or not. What to do about burgeoning trade with China will draw most of the attention. While the Bush administration has been reluctant to get tough with China, Congress is getting increasingly impatient, and China-bashing could be a popular sport this election year. The two highest-priority issues for US textile manufacturers are an undervalued Chinese currency and what will happen when import quotas on sensitive apparel imports are dropped at year's end. Textile manufacturers also are concerned about trade agreements with other countries that are indirectly related to trade with China.

The Currency Issue
A broad range of industries involved in importing and exporting with China believe the yuan is being held artificially low in order to give China an advantage in world trade, making exports from China cheaper and discouraging imports into China. The value of the yuan has increased by 6 percent this past year - hardly a dent in what some say is a 45-percent advantage. Treasury Secretary Henry M. Paulson Jr., who has some long-standing relationships with the Chinese, believes the best course is negotiation, and he says legislation would be counterproductive. The Chinese have dug in their heels and in effect are saying they will address the problem in their own way and in their own time.
That does not sit very well with members of Congress, and they are likely to pursue legislation if something does not give pretty soon. Senate committees have approved bills that would permit the United States to take punitive measures against the Chinese, employing such things as tariffs that would offset the currency advantage, or anti-dumping and countervailing duty laws. House members are pushing legislation that would define exchange rate manipulation as a prohibited export subsidy and permit the president to use the anti-dumping and countervailing duties against state-run economies such as China. That cannot be done under current law. The legislation also would apply to Vietnam, which has become a major player in textile and apparel trade. If China does not take meaningful action on its currency, some form of this legislation could be enacted. It would face a presidential veto, so the question then would be whether Congress has the votes to override it.

The National Retail Federation (NRF) and other importers of textiles and apparel are opposed to the currency legislation, as they believe it would be illegal under World Trade Organization (WTO) rules and could result in higher consumer prices.

The End Of Quotas

When the United States scrapped all of its textile and apparel import quotas in 2005, there was considerable concern that China would overwhelm the market, so the two countries drew on a safeguard mechanism in China's accession to the WTO to impose new quotas on Chinese imports. Eventually, 34 product categories were covered, but those quotas are due to expire Dec. 31, 2008.

US textile manufacturers remain fearful that China will move into those categories big-time when the quotas are removed, so they are seeking some kind of a substitute for the expiring quotas. The simplest thing would be to roll them over for another given period of time, but that cannot be done under WTO rules. As with the currency issue, US manufacturers are looking to see if they might employ anti-dumping or countervailing duty trade remedies. In that case, they would have to demonstrate market disruption. The catch is that under current law, textile manufacturers do not have standing in cases involving apparel imports because they do not make like products, even though yarn and fabric production is hurt by apparel imports.

Free Trade Agreements

Congress can be expected to take a look at pending and new free trade agreements (FTAs). Three pending agreements - with Colombia, Panama and South Korea - were negotiated while the president still had his Trade Promotion Authority that permitted him to negotiate agreements that would be subject to an up or down vote by Congress with no amendments. All three FTAs are controversial. When the Democrats won control of Congress last year, they started to exert more authority over trade agreements and have insisted that they include environmental, human-rights and labor-rights provisions. Action has been held up on the Colombian pact because of alleged human-rights and labor-rights abuses in that country, although those issues are getting closer to being resolved, and it may win congressional approval. US textile manufacturers support the Colombian agreement because of its rule of origin that requires apparel inputs to be made in the participating countries. However, they recently have become concerned over lack of Customs surveillance of apparel imports, and their support could be watered down or dropped. An agreement with Panama, which involves only a small amount of trade, has been held up by some members of Congress who are concerned that Panama's president is wanted in the United States on a charge of killing a US soldier.

Importers' Wants

Retailers and other importers of textiles and apparel want the import quotas to die a natural death and rest in peace. They don't think protectionist measures actually save jobs, but instead simply complicate and disrupt global markets. Eric Autor, vice president and international trade counsel for the NRF, says his organization will "fight tooth and nail any effort to come up with some new gimmick to replace the quotas." Importers particularly are opposed to expanding the reach of trade remedies such as anti-dumping and countervailing duties, contending that existing laws are sufficient. Importers also are opposed to legislation designed to address the China currency issue in the belief that the yuan will continue to rise and is on a path toward correcting the problem. They also are opposed to continuation of the Vietnam import monitoring problem, which they say is not correcting any problems but has a chilling effect on trade. Autor says the actual result of the program is not to help US manufacturers but simply to shift Vietnamese trade to other countries. Although importers are not altogether happy with the rules of origin in the pending FTAs, they would like to see Congress approve them, as they do present more sourcing opportunities.

January/February 2008