As the US Commerce Department reported that the trade deficit reached a record $61 billion in
February, industry lobbyists called for the government to take measures to correct the currency
imbalance that gives China and other nations an advantage in pricing their exports to the United
States. In the first two months of this year, the trade deficit with China rose by 47 percent over
the comparable period last year, and industry officials said at that rate it could grow to $238
billion this year. The US trade deficit in textiles and clothing was $12.9 billion in the first two
months of this year, an increase of 16.5 percent. If trade continues at its present rate, the
textile and apparel deficit could reach $85 billion this year.

Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, said
the deficit should send a strong signal to Congress and the White House that the current trade
policies are not working, and he called for passage of legislation pending in Congress that would
declare currency manipulation illegal and levy tariffs on goods from countries that subsidize their
currencies to help offset pricing advantages resulting from currency imbalances.

As textile and apparel imports from China continue to rise sharply, the Bush administration has
initiated a procedure that could result in the imposition of new import quotas later this year. The
inter-agency Committee for the Implementation of Textile Agreements (CITA) announced it has
self-initiated safeguard proceedings in three critical product categories to determine whether
imports are causing market disruption. Under the agreement that brought China into the Word Trade
Organization, countries that can show Chinese imports cause or threaten to cause market disruption
can use a safeguard mechanism to negotiate or unilaterally impose temporary quotas limiting growth
to 7.5 percent.

Commerce Secretary Carlos Gutierrez said the “government’s action was taken to demonstrate that
the administration is committed to enforcing our trade agreements and to provide assistance to our
domestic textile and apparel industry consistent with our international rights and
obligations.”

Products subject to the review will be cotton knit shirts and blouses (Category 338/339), cotton
trousers (Category 347/348) and cotton and man-made fiber underwear (Category 352/652). Import data
for the first quarter of this year show Chinese imports in these three categories grew at 1.250
percent, 1,500 percent and 300 percent, respectively. While US textile manufacturers and labor have
filed more than a dozen safeguard petitions on their own, the self-initiated petitions by the
government could result in much quicker results.

CITA will publish notices in the Federal Register seeking public comments regarding each product
categories within the next 30 days. After that, CITA has 60 days to render a final determination.
If the committee determines that Chinese imports are contributing to disruption of the US market,
it will seek consultations with China with a view toward easing or avoiding market disruption. As
of the date such consultations are requested, a quota will be put in place to limit US imports of
the products. The Commerce Department said every effort will be made to reach agreement on a
mutually satisfactory solution within 90 days of the request for consultations.

US textile manufacturers hailed the government’s action, but it was sharply denounced by textile
and apparel importers as an unjustified act. Laura E. Jones, executive director of the United
States Association of Importers of Textiles and Apparel, said, “There is no reason to believe that
imports of these products from China are causing market disruption,” adding that she sees no
pattern, and no consistent and substantial increases to justify what she called the the drastic
action of self initiation. Kevin Burke, CEO of the American Apparel & Footwear Association,
said that while there have been substantial increases in the products involved, the Bush
administration provides no evidence that this surge has caused market disruption. Claiming that
past safeguard actions have shown no evidence of preserving US jobs, Burke said the
administration’s time and energy would be better spent promoting quick congressional passage of the
Central American Free Trade Agreement, which he says is specifically designed to promote US textile
jobs.

Textile manufacturers, on the other hand, see the action is a significant step forward and
expressed gratitude that the US government has recognized the Chinese threat. Allen Gant, chairman
of the National Council of Textile Organizations, said the industry anticipates that a final
decision on these petitions could be reached in as little as five weeks. Auggie Tantillo, executive
director of the American Manufacturing Trade Action Coalition, urged CITA to act as quickly as
possible, noting that while the US government can wait up to 60 days after the comment period to
render a decision, it does have the power to make that decision the day comments are closed. He
said the US industry cannot afford to wait an additional 60 days for a decision.

As these efforts move forward in the United States, Europes major textile and apparel trade
association, Euratex, urged the European Commission to act on its 12 petitions for relief using the
safeguard mechanism. Bill Lakin, Euratex’s executive director, said the time has come to limit the
seemingly voracious appetite of Chinese exporters for the European market.

April 2005

The Central American -Dominican Republic Free Trade Agreement (CAFTA-DR) is moving through
Congress on an uncertain course for textile manufacturers and the agreement itself. The House Ways
and Means Committee and the Senate Finance Committee have held an initial round of hearings that
underscored the vast amount of disagreement about the pact that would grant duty-free access to the
US market for products from Costa Rica, El Salvador, Nicaragua, Guatemala and the Dominican
Republic. Under procedures covering the legislation, Congress must either approve or disapprove of
the agreement without the right to amend it.

At the moment, the role of textile lobbying organizations is uncertain. The National Textile
Association and the American Manufacturing Trade Action Coalition are flatly opposed to CAFTA-DR,
while the National Council of Textile Organizations, which has expressed concerns about the
agreement, does not have an official position. This could lead to a split similar to what happened
in connection with the North American Free Trade Agreement (NAFTA). Retailers and other textile and
apparel importing organizations, while not entirely pleased with the agreement, are supporting it.
They believe it will provide them with more flexibility in their sourcing of clothing and
textiles.

At a House Ways and Means Committee hearing, the head of a manufacturing coalition that includes
some textile companies launched a scathing attack on the agreement. George Shuster, CEO of Cranston
Print Works, who, along with Roger Milliken ,CEO of Milliken & Company, co-chairs of the
American Manufacturing Trade Action Coalition, told committee members voting for CAFTA-DR is a vote
for China and a vote against American manufacturing. Shuster, Milliken and other AMTAC officials
have been highly critical of NAFTA, contending that it has not benefited US textile manufacturers,
and they say CAFTA-DR will be a similar failure. In his testimony, Shuster said: “From surpluses
before NAFTA we have gone to continuous deficits. Over this period, hundreds of US factories have
closed and relocated south of the border in order to take advantage of low productions costs in
Mexico.” He said CAFTA-DR makes it easier for US companies to outsource high-paying manufacturing
and service sector jobs by guaranteeing investment rights and access to the US import market.
Charging that the CAFTA rule of origin requirements are riddled with loopholes that allow US
duty-free treatment for the assembly of components parts from every corner of the globe, Shuster
said CAFTA-DR is worse than NAFTA.

Meanwhile, House democrats accused Ways and Means Committee Chairman Bill Thomas and the acting
US Trade Representative of excluding them from deliberations on the agreement. Committee Ranking
Member Charles Rangel (D-NY) said the administration has refused to address labor and environmental
issues that are being raised by democrats, and he warned that is discouraging bi-partisan support
for the bill. House Majority leader Tom Delay (R-TX) has set a deadline of the end of May for the
House to vote, but Speaker Dennis Hastert ( R-IL) has simply said he would like to see a vote soon.
On the Senate side, republican leaders don’t foresee an early vote, as they have encountered more
opposition than expected, and they are seeking more time to lay the groundwork for a successful
vote.

April 2005