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U.S., China Reach Deal on Textiles

 
 
The U.S. and China reached a tentative agreement Saturday to cap exports of Chinese clothing to the U.S. over the next three years, textile industry representatives for importers and producers said.

The agreement raises the allowable U.S. import growth rate for Chinese pants, knit shirts, bras and other items to 10% in 2006 and to about 16% by 2008, said the officials, who spoke on condition of anonymity.

In return, U.S. textile makers get a set standard of trade restrictions they say is needed to protect them from the low- priced Chinese clothing that has flooded the U.S. market. The U.S. had been imposing caps on a case-by-case basis by examining individual complaints by companies – a time-consuming process that must be redone yearly under global trade rules.
This year, the U.S. has imposed an annual growth limit of 7.5% on $3.4 billion worth of Chinese textile imports, more than one-fifth of U.S. imports of textiles and clothing from China.

 
 

The U.S. is likely to sign the agreement in Geneva as early as Tuesday, officials said.

 

 

 

China Likely to Dominate Textile Trade

 

  China is set to dominate the world textile and apparel industry, grabbing a significant share of the market from many developing countries once quotas are lifted at year-end, according to a widely awaited report released Tuesday.

The report by the U.S. International Trade Commission details the dramatic changes expected after Dec. 31, when worldwide apparel and textile quotas will be completely phased out.

As predicted by many, the elimination of quotas – which guarantee market share to certain countries in products ranging from baby garments to luggage – is expected to accelerate the shift of apparel manufacturing to low-cost and efficient producers in China and India. That could be devastating to less competitive countries in Southeast Asia, Latin America and Africa that employ millions of workers in the industry, according to the report.

Economists say it also probably will accelerate the loss of jobs from higher-cost U.S. clothing manufacturers, including some in Southern California. But it will lower prices for retailers and other importers, which can pass along those savings to consumers.

The ITC report probably will fuel an election-year push by U.S. manufacturers for increased protection from China. Last year, the Bush administration agreed to impose restrictions on the import of Chinese-made bras, dressing gowns and knit fabric. Domestic manufacturers are hoping the government will pressure China to limit its textile and apparel exports after the quotas end.

It’s very sobering,” said Cass Johnson, senior vice president of the American Textile Manufacturers Institute in Washington. “This is more evidence that we need the government to address the disaster that’s going to happen.”

U.S. manufacturers are waging a fierce campaign in election-year battlegrounds in the South that have been hit hard by cutbacks in textile and apparel manufacturing. They say tens of thousands of more jobs will be lost if China’s low-cost firms are set loose on the global market without restraints.

The effect already is being felt around the globe, as foreign governments and companies scramble to reinvent themselves. U.S. companies are restructuring their supply chains. Poor countries such as Mauritius, which employs 80,000 people in textiles, are struggling to develop new industries. Hong Kong quota traders are trying to figure out their next line of work.

The repercussions will be felt in Los Angeles County, where apparel manufacturing employment has fallen from a peak of 103,900 in 1996 to 67,800 in 2002, according to the Los Angeles County Economic Development Corp. On the flip side, China’s booming textile producers have become top customers for California cotton growers.

The quota system stems from the history of textile and apparel production as one of the world’s most heavily protected industries. To protect their domestic manufacturers, the U.S. and many other governments issued quotas that set annual allotments for imports from apparel and textile producing countries. Under pressure to eliminate those barriers, the World Trade Organization negotiated the Agreement on Textiles and Clothing in 1994. That pact was designed to gradually phase out quotas over a 10-year period.

With their market share guaranteed under quotas, certain countries developed textile and apparel industries. Those countries now are threatened by the quota phase out.

The report, requested by the U.S. trade representative’s office, doesn’t analyze the effect of the quota phaseout on the U.S. manufacturing sector or on consumer prices. But it does conclude that China is expected to become the “supplier of choice” for most U.S. importers because of its “ability to make almost any type of textile and apparel product at any quality level at a competitive price.”

China’s capabilities can be seen in areas where quotas don’t exist or have been lifted. In Japan, which doesn’t have quotas, China had 77% of the apparel import market in 2001, the report says. China’s share of the U.S. baby garment market rose from 3% in 2001 to 27% in 2002 after quotas were lifted in that segment.

China’s low labor costs and high productivity are the biggest factors behind its likely dominance of this industry, the report says. Although other countries have lower wages, China’s base of modern factories, a growing number of suppliers and increasingly efficient shipping networks have made it difficult for other countries to compete.

China will not be the only player left standing, however. The report notes that U.S. importers are leery of becoming too dependent on one country, and also are fearful of getting caught in a trade battle between the U.S. and China.

That means retailers will be placing orders in other countries, with India and Pakistan probable beneficiaries.

U.S. importers argue China is being used as a scapegoat by U.S. manufacturers that are uncompetitive because of their high costs and rising wages. They disagree with the charge that a recent surge of Chinese imports has devastated the U.S. manufacturing base, given the decades-long movement of labor-intensive manufacturing offshore.

Though they agree that China will become a more significant force in the global apparel and textile industry next year, they say other countries will remain competitive because of long-standing relationships with U.S. buyers and the importance placed on diversification.

Companies don’t want to be diversified in 35 countries and they don’t want to be limited to one,” said Brenda Jacobs, counsel for the U.S. Assn. of Importers of Textiles and Apparel, a Washington trade group. “That gives you too little leverage. It exposes you to too many factors outside of your control.”

Importers agree, however, that the biggest losers in a quota-free world are countries with higher labor rates or inefficient manufacturing operations and transportation networks. Delivery time is critical, which gives regions closer to the U.S. an advantage.

But even Mexico, which has been one of the U.S.’ leading suppliers of jeans and T-shirts, is expected to lose ground because of lagging competitiveness.

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