China Trade Review Raises Questions

he Bush administration’s highly touted “ top-to-bottom review” of its trade policies with
China has created considerable interest among textile manufacturers and importers, and they are
closely watching how the rhetoric will be translated into action. In the report, the administration
used some of its strongest language in discussing trade with China, saying the United States’
bilateral trade relationship with China “ lacks equity, durability and balance.” The report,
entitled “US Trade Relations: Entering a New Phase of Greater Enforcement and Accountability,” says
“the time has come to readjust our trade policy with respect to China.”

The report calls for expanding the US Trade Representative’s (USTR’s) ability to monitor
Chinese trade and determine whether China is living up to its obligations under the rules of
international trade. In order to do that, the USTR will create a China Enforcement Task Force
headed by a chief counsel for China trade enforcement. It also will add personnel to its Beijing
office in order to expand its information-gathering, enforcement and negotiating capabilities. The
USTR will deal with protection of intellectual property rights as well as such issues as market
access, subsidies and structural problems like currency manipulation that have been bones of
contention with companies and industries doing business with China. The report also promises to
strengthen the executive-congressional partnership on China trade and provide congressional members
and staff with regular briefings about the administration’s China trade policy.

In a letter forwarding the report to key members of Congress, USTR Rob Portman said: “We are
entering a new phase in our bilateral trade relationship, and we must readjust our trade priorities
and resources accordingly. China as a mature trading partner should be held accountable for its
actions and required to live up to its responsibilities.”

While welcoming the report and its high-sounding rhetoric, textile lobbyists in Washington
are concerned about what it all actually means in terms of concrete results. Lloyd Wood of the
American Manufacturing Trade Action Coalition said the report does not have a “roadmap for actions”
for the US government to correct what he sees as major problems. He said the only time anything
meaningful on Chinese textile trade has come about was a result of actions such as the safeguards
that resulted in an agreement to impose quotas on 34 categories of textiles and apparel. He added
that China understands the stick better than the carrot, and there is “too much carrot and not
enough stick in our trade relations with China.”

At a news conference discussing the report, Portman cited the textile safeguards-related
agreement as an example of a “good, tough, but balanced agreement.” NCTO’s Cass Johnson voiced his
concern over rhetoric versus action by saying the language was harsher than ever before, but no
punitive actions were mentioned. He added he hopes the report sets the tone for “more aggressive

The nation’s retailers —the largest importers of textiles and apparel — see some positive
aspects of the report and nothing that appears to raise any red flags. One concern, as with textile
manufacturers, is how the report will be used as a basis for taking action. Eric Autor, the
Washington-based National Retail Federation’s international trade expert, sees it as a “fairly
objective report” that addresses the benefits of trade with China, as well as some of the problems.
He says retailers agree China should live up to its international obligations, and stronger
enforcement of US and international trade laws is called for where that is not happening. However,
he added, actions should not be taken unless they are appropriate and address real solutions to


US Textile Makers Don’t Like Korean FTA

US textile manufacturers are not at all pleased with the Bush administration’s plans to
negotiate a free trade agreement (FTA) with South Korea, fearing it has a potential to lead to
significant market disruption. Textile importers and a number of other industries, on the other
hand, feel it can be a very good thing. At the present time, the United States has a $2 billion
textiles and apparel trade deficit with South Korea, and a large portion of that is in textiles.

In an effort to gain support for the proposal, USTR Portman, along with South Korea’s
minister of trade, announced plans to move forward with the FTA at a ceremony at the US Capitol
attended by a number of congressional supporters. Following the ceremony, some 30 members of
Congress wrote President George W. Bush citing support from agriculture, automobile, motion picture
and pharmaceutical industries, which see it as an opportunity for greater market access to the
world’s 10th-largest economy. At the ceremony, Portman said, “[F]ew countries better represent the
promise of open markets, democracy and economic reform than Korea.”

Textile interests see the pact in an entirely different light. NCTO’s Johnson says the
textile trade deficit with Korea could only get worse under a FTA. Unlike other recently negotiated
FTAs, he does not see many opportunities for US textile exports because Korea has a large,
competitive textile industry, partly caused by currency manipulation that discourages imports, and
also because Korea subsidizes exports. He expresses the fear that Korean imports to the United
States could increase substantially, and he charges that in the past, Korea — with its border with
China — has been a major source of transshipments of textile products from China. As a result, he
says, any pact would have to provide for tough customs enforcement.

On the Korean side of the ledger, that nation’s agriculture interests are strongly opposed to
any agreement that would open markets to US farm products. With big companies with global interests
supporting the legislation, and Korean farmers, textile manufacturers and others concerned about
it, there could be a real battle over this one.

Importers See No Post-Quota Surge

Textile and apparel importers say that, contrary to some expectations, there has been no major
surge of Chinese imports following the removal of quotas in January 2005. Laura Jones, executive
director of the New York City-based United States Association of Importers of Textiles and Apparel
says an analysis of 2005 trade data shows a 10-percent increase in textile and apparel imports —
pretty much the same as increases under the quota system. Jones recalls there was an initial surge
of clothing imports from China immediately following the removal of quotas, but she says this was
the result of the Bush administration saying it was considering negotiating new quotas on
particularly “sensitive” products, which it eventually did on 34 product categories of textiles and
apparel. She said importers last January feared there would be new restraints within months of the
new year, so many companies rushed to bring goods in early.

Jones contends that instead of a surge from China, there has been a shift among suppliers
that reflects many changes in Asia rather than a major shift from other regions to China. Jones
said importers are looking down the road to 2008, when all quotas on textiles and apparel from
China will be removed, and she hopes warnings of an import surge will not be repeated.

Cass Johnson, president of the Washington-based National Council of Textile Organizations
(NCTO), took exception to Jones’ data, saying the 10-percent increase was for all apparel imports.

He said an $8-billion increase in Chinese imports did amount to “a flood,” and, he added, “
Our industry is lucky the US imposed safeguards on China before it could be wiped out.”

He pointed out that in apparel categories where there were no safeguards, Chinese imports
rose nearly 40 percent.

March/April 2006