Treasury Secretary Is Key Man On Chinese Trade

S Treasury Secretary Henry M. Paulson Jr. has emerged as the point man for the Bush
administration’s US/China trade relations, and whether that bodes well for the textile industry
remains to be seen. In any event, nothing substantive is likely to happen in the near future. As a
former Goldman Sachs executive who traveled to China frequently, Paulson has developed close ties
and access to top Chinese officials. But following his first meeting in Beijing as treasury
secretary, Paulson came home empty-handed except for a commitment to a strategic economic dialogue.

Warning that there are no short-term quick fixes on trade issues with China, Paulson said he
will meet twice a year with Chinese officials to address both bilateral and global issues.
President George W. Bush gave the dialogue his blessing, saying the economies of the United States
and China have been “engines of global growth,” and that “we must ensure that citizens of both
countries benefit equitably from our growing economic relationship.”

Although the proposed dialogue did not elicit strong responses from Washington lobbyists on
both sides of textile trade issues, the Washington-based US Business and Industry Council, which
includes textile manufacturers in its membership, called the plan “bureaucratic gimmickry” that
will avoid dealing with what the council called China’s “predatory trade practices.”

Successive secretaries of commerce in the Bush administration have shown an understanding and
sensitivity regarding textile trade issues, and they, along with the USTR, were successful in
developing the safeguard mechanism to deal with market disruption by Chinese imports.

At a news conference following his meetings with Chinese officials, Paulson was pressed for
comments on dealing with specific issues. He emphasized the importance of the process that was
developed, and said the goal is to discuss long-term structural issues rather than to seek
immediate solutions to issues of the day.

Paulson indicated little progress had been made on resolving what US industries consider
Chinese currency manipulation that gives that country an unfair trade advantage. There again, he
said this is a complicated issue that China will have to deal with gradually as it attempts to move
toward more of a market economy. He did say that issue will be addressed on an ongoing basis, along
with protection of intellectual property rights and greater access to the Chinese market. He was
unwilling — or unable — to predict when there will be concrete results.

Textile Companies May Have New Trade Tactic

Although US textile and apparel manufacturers and their supporters in Congress failed to
block permanent normal trade relations with Vietnam, concessions wrung from the Bush administration
may have some long-term benefits.

There are two key provisions with respect to Vietnamese trade: The bilateral agreement
between the United States and Vietnam provides that if Vietnam fails to eliminate subsidies to its
textile and apparel manufacturers, the United States may reimpose import quotas; and the Bush
administration is committed to self-initiating anti-dumping procedures against Vietnam if it can be
demonstrated that its products are being sold on the US market at less than fair value.

In the past, anti-dumping remedies against state-run economies were not available to US
textile manufacturers, as the government had ruled they do not have standing. That precluded US
textile manufacturers from seeking relief from Chinese imports. In letters to Sens. Elizabeth Dole,
R-N.C., and Lindsey Graham, R-S.C., Commerce Secretary Carlos M. Gutierrez and USTR Schwab said the
Bush administration will systematically monitor and review US imports of textiles and apparel from
Vietnam, and the Commerce Department will examine whether initiation of an anti-dumping action
would be warranted under US law and applicable World Trade Organization (WTO) rules.

The letter stated that, for the duration of the Bush administration, the Commerce Department
will take note of the special sensitivity to the domestic industry of trousers, shirts, underwear,
swimwear and sweaters. The trade officials said they hope this will alleviate the domestic textile
industry’s concerns. Textile industry officials say a precedent has been established, and that same
principle can be applied to China.

That precedent — if it is one — was soundly denounced by a coalition of eight importer trade
associations whose members account for virtually all of the US imports of textiles and apparel.
They said the commitment “has effectively turned the administration’s back on a long-standing
policy of resisting political pressure to self-initiate anti-dumping cases.” The associations said
the commitment sets a “terrible and likely irreversible precedent” for the Bush and future
administrations in the conduct of anti-dumping cases. They said this would harm not only US apparel
retailers, importers and manufacturers, but any US industry in manufacturing and agriculture that
depends on a global supply chain. In a separate letter to government trade officials, the New York
City-based US Association of Importers of Textiles and Apparel (USA-ITA) called the agreement a “
secret deal” that has “pulled the rug out from under Vietnam,” adding that the procedure could be
applied to any other country or industry. USA-ITA Executive Director Laura E. Jones said, “After
Vietnam agreed to do more than any other country to get into the WTO, the administration and the
senators have created a process that robs Vietnam and importers and retailers of the one benefit
Vietnam had paid a high price to obtain and is absolutely essential in our business.”

That is all well and good as far as US textile manufacturers are concerned, as they see it as
a powerful tool in dealing with China as well as Vietnam in the remaining years of the Bush
administration. In view of the highly controversial nature of the commitment, the question will be
just how quickly and effectively the Bush administration is willing to carry out the commitment.

Government Cracks Down On Illegal Imports

The US government is cracking down on illegal imports of textiles and apparel on several
fronts with considerable success, as $120 million in illegally smuggled or transshipped goods were
seized over the past year. As the United States has negotiated more and more free trade agreements,
it has become increasingly important that nonparticipating countries do not benefit from the
special quota and tariff concessions.

Government trade officials are focusing on burgeoning trade in counterfeit goods that violate
copyrights and trademarks. The US Chamber of Commerce says these intellectual property violations
amount to as much as $12 billion a year in apparel and footwear trade. Although there are a goodly
number of seizures of illegal goods each year, industry officials believe only a fraction are being
caught. The Arlington, Va.-based American Apparel and Footwear Association is working with its
members to address the problem, and a number of individual apparel companies have enforcement
departments looking for violations in stores, on the Internet and on the street.

Noting that China is a top intellectual property concern, US Trade Representative (USTR)
Susan C. Schwab said China’s enforcement of intellectual property rights is “inadequate and
unacceptable.” To address problems with China and other countries, Schwab said, “[W]e are using
existing tools, engaging our trading partners on multilateral and bilateral levels, beefing up
efforts within the USTR office and other government agencies, and thinking of new ways to address
these problems.”

Congress has appropriated more than $3 million in the coming year to continue US Customs and
Border Protection programs designed to stop illegal transshipments of textiles and apparel. The
service is using jump teams to visit factories to determine whether they have the capability of
producing products shipped in their name, and using sophisticated technology at ports of entry to
determine if shipments are legal. If not, they are seized and kept out of commerce.

November/December 2006