Bridges Weekly Trade News Digest • Volume 12 • Number 36 • 30th October 2008

Controversy Brewing over Chinese Textiles

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The upcoming expiration of US and European export quotas on Chinese textiles could be the start of a new international trade dispute. China is hoping to cooperate with its trading partners on the issue, but the US has said that it “has begun to prepare a potential WTO dispute settlement request” against Chinese textile subsidies.

US and European export quotas on Chinese textiles and apparel will expire on 31 December. With that deadline quickly approaching, China is seeking to establish dialogue with these two major trading partners to ease the shift into more liberal trade of its products beginning in 2009.

“We are going to engage in dialogue and communication with relevant countries to ensure a smooth transition and create an enabling environment for Chinese textile exports,” China’s Commerce Minister said in a press release on 26 October.

But the US has already shown its reluctance to eliminate its quotas and possibly face a surge of Chinese imports. Global demand for textiles is shrinking thanks to the global financial crisis.

US Trade Representative Susan Schwab said in a letter to Senator Elizabeth Dole of North Carolina that she had appealed to the Chinese government to quickly remove its textile subsidies, which she said “appear to raise serious WTO issues,” or face the prospect of WTO dispute settlement, for which her office was already preparing.

The prospect of a massive influx of cheap Chinese products may be daunting for textile manufacturers in the US and the EU, but China has promised to work with its domestic producers to help maintain “stable and sustainable” export levels after the quotas expire.

According to the protocol for China’s accession to the global trade body, WTO Members were allowed to maintain restrictions on imports of Chinese textiles until the end of 2004. But that was not long enough for the EU and US, who claimed that dropping the quotas would do damage to their markets and domestic industries.

In 2005, the EU and the US signed independent agreements with China that established export quotas for different categories of textiles, including t-shirts, underwear, bras, and bedding fabrics. Those deals allowed for imports to grow between 10 and 17 percent per year.

Chinese textile exports amounted to US$ 171 billion in 2007. But in the first nine months of this year, Chinese textile exports totalled only US$ 136.94 billion - 11.9 percent lower than the same period of last year. The main markets for Chinese clothes are Hong Kong, Japan, the EU and the US.

ICTSD reporting; “No safeguards against Chinese textiles from 2009,” PEOPLE’S DAILY ONLINE, 27 October 2008; “China wants orderly end to textile export quotas,” REUTERS, 26 October 2008.