Bridges Weekly Trade News Digest • Volume 9 • Number 11 • 6th April 2005

Chinese Textile Exports Surge; US, EU To Invoke Textile Safeguard?

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New data indicating a surge in Chinese textile and clothing imports since the abolition of trade quotas at the end of 2004 have prompted the US government to initiate a process that could potentially lead to the imposition of quantitative import restrictions on certain Chinese products. The EU, for its part, has unveiled a set of guidelines outlining the circumstances under which it will consider limiting imports.

Countries around the world reacted throughout March to initial data on rising Chinese textile exports. Though these seemed to confirm earlier anxieties about export surges from China, they were clouded by uncertainty as to whether the increases would be sustained. Textile producers in several countries have been asking their governments to invoke the ‘China textile safeguard’ established as part of the terms of China’s accession to the WTO. The mechanism allows Members to limit Chinese imports of textiles and clothing products to an increase of 7.5 percent above the previous year’s levels if they have been found to cause market disruption. Turkey and Argentina have already invoked the safeguard (see BRIDGES Weekly, 26 January 2005).

Just a “first step,” US says

US Commerce Department statistics released on 1 April show that Chinese textile and clothing imports into the US were 63 percent higher in the first quarter of 2005 compared to the previous year. The findings back up preliminary data for the month of January that had indicated significant increases in Chinese exports in the wake of the 31 December 2004 elimination of textile and clothing quotas. Responding to the new statistics, the US Committee for the Implementation of Textile Agreements (CITA), an interagency US government group chaired by the Department of Commerce, announced on 4 April that it was initiating ’safeguard proceedings’ to determine whether certain Chinese textile and clothing imports are disrupting the US market.

US Commerce Secretary Carlos Gutierrez described the investigations launched by Washington as the “first step in a process” to determine whether the US market is being disturbed and whether China is responsible for any disruption. The products subject to review will be cotton knit shirts and blouses, cotton trousers and underwear, categories in which preliminary data for the first quarter of 2005 suggest that imports from China increased by approximately 1,250 percent, 1,500 percent and 300 percent respectively relative to the first quarter of 2004.

The process will determine whether the US will decide to invoke the China special safeguard import restrictions, as US textile industry groups have been urging for several months.

The CITA will initiate a 30-day public comment period, after which it will make a determination within 60 days (with a possible extension for 60 additional days) on whether the Chinese imports are contributing to the disruption of the US market. If the CITA determines that they are, it will request consultations with the Chinese government and as of that date impose a quota to limit US imports of the relevant product.

“Free trade must be fair trade and we will work to ensure that American manufacturers and workers compete on a level playing field,” Gutierrez said. The American Manufacturing Trade Action Coalition, a lobby group representing US-based manufacturers, said they were “very pleased” by the US government decision to initiate the safeguard investigations and urged authorities to be as thorough and quick as possible. US retailers, on the other hand, countered that safeguards “simply are not warranted.” They argue that while there has been a shift among the countries exporting to the US, there has not been a shift from US-manufactured goods to imported equivalents and there is thus little grounds for a safeguard. .

EU announces “early warning system”

EU Trade Commissioner Peter Mandelson announced an “early warning system” for Chinese textiles and clothing import levels on 6 April. According to the guidelines, the EU would allow Chinese imports of particular products to increase by 10 to 100 percent before triggering investigations to determine their impact in terms of disruption of trade flows and possible injury to EU industry. In parallel to these investigations, the EU would start informal discussions with China to ask it to restrain its exports. Subsequent steps would potentially include formal consultations with China at the WTO under the terms of the textile safeguard — and eventually, a decision to impose defensive measures.

European producers have been lobbying heavily for the imposition of quantitative import restrictions on Chinese textiles, which already account for 20 percent of the trade bloc’s USD400 billion market. Italy and Portugal, countries with traditional clothing industries, have asked Mandelson to implement such limits; Sweden and the UK, on the other hand, have argued against them.

Mandelson stressed that it was too soon to invoke the safeguard mechanism, since there was not yet enough data to determine whether or not market disruption was likely to arise.

Other countries react

Little data is available from other developing countries regarding the impact of the elimination of textiles and clothing quotas. Bangladeshi press reports indicate that the country — which has been very anxious about the economic and social effects of the quota removal — increased its overall exports by 35 percent in February after a 13 percent decline in January, with some kinds of garments registering healthy increases over the previous year. Elsewhere, however, approximately six major textile factories shut down in Lesotho at the end of 2004 or early 2005, partially as a result of the quota elimination, although the government announced plans at the end of January to reopen one of the factories.

The “Guidelines for the use of safeguards on Chinese textiles exports to the EU” are available here, “Free of Quota, China Textiles Flood the US,” NEW YORK TIMES, 10 March 2005; “Statement to the Trade Committee of the European Parliament on China and Textiles,” EU PRESS RELEASE, 15 March 2005; “Chinese Polyester Manufacturers To Appeal EU Antidumping Ruling,” WTO Reporter, 22 March 2005; “China Seeks Talks With United States, EU On Textiles, Urges Patience With Surges,” WTO REPORTER, 17 March 2005; “Anxiety at EU plan to curb import of textiles,” FINANCIAL TIMES, 5 April 2005; “Italy, Portugal Ask EU Trade Commissioner To Restrict Imports of Textiles From China,” WTO REPORTER, 20 March 2005; “CITA Announces Self-Initiation of China Safeguard Proceedings,” COMMERCE NEWS, 4 April 2005; “Retailers Oppose Commerce Department Proposal on Chinese Imports,” NATIONAL RETAIL FEDERATION, 4 April 2005; “Reaction Statement to US Government Self-Initiating Safeguards,” AMTAC, 4 April 2005; ” Bangladesh’s Export earnings bounce back after January slow down,” BANGLADESH JOURNAL, 2 April 2005; “Lesotho: Textile factories may resume operations soon,” FIBRE2FABRIC, 31 January 2005; EU Sets Warning System for China Textiles,” REUTERS, 6 April 2005.