Eyes On Asia
Industrialized Asian countries face pitfalls, seek opportunities, while China anticipates
advantages of WTO membership. The production of commodity textile products, like
lightning, seems always to follow the path of least resistance. Since the dawn of the Industrial
Revolution, when English and American cotton mills began the mass production of fabric, textile
production has settled in what is, at best, a temporary home.From the American Northeast, the
industry migrated south, to take advantage of cheaper labor and proximity to raw materials. And
now, of course, the industry is moving again to Mexico, the Caribbean and other countries
throughout the world.Perhaps no area in the world has been such a hotbed of textile and apparel
production in recent years, though, as the Pacific Rim. As these nations developed their textile
industries much of it with U.S. assistance their products began eroding the market share for U.S.
companies. This erosion is due primarily to the combination of inexpensive labor, favorable trade
agreements and subsidies by many governments in the Pacific Rim that supported production
costs.Interestingly enough in economic circles as in life what goes around, comes around. And now,
industries in such countries as Taiwan, South Korea and Hong Kong are finding their own pitfalls to
remaining as competitive and profitable as in the past. A poor society might be content to remain
poor, as there is no higher standard to which one can aspire. But a taste of prosperity brings on a
craving for more, and companies in industrialized Asia are now finding they are following much the
same path as that traveled by the U.S. industry. Changing Fortunes In KoreaConsider for a
moment the situation in Korea. In the United States, the barometer for trade is the level of
imports. With each percentage point increase in imported textiles and apparel, U.S. jobs are lost
and American plants are forced to close. In Korea and the rest of Asia as might be expected success
is measured in exports. When exports decrease, jobs are lost and plants are closed. And Korean
textile exports have been plummeting.In May 2001, for example, part of peak-demand season, exports
declined 12.8 percent from the previous year to a total of $1.475 billion. By item, shipments of
textile raw materials showed a 10.1-percent decrease; yarn, a 12.3-percent drop; fabrics, a
7.9-percent slide; products, a 14-percent fall; and garments, a 17-percent plummet. For the first
five months of 2001, total Korean textile exports plunged 10 percent to $6.6 billion.The stagnancy
of textile exports, according to the Korean Federation of Textile Industries (KOFOTI), is primarily
due to the economic recession in the United States and Japan, as well as mounting pressure for unit
price reduction by buyers and increasing consumer tastes for low-priced goods.The industry in Korea
has been suffering, as well, from excessive supply and price increases in raw materials. Therefore,
the industry, mirroring the U.S. situation, has established the development of value-added products
as a major focus for the coming years.Not only are economic conditions creating difficulties, but
troubles with organized labor threaten the profitability of the synthetic-fibers industry in South
Korea. The industry is attempting to regain its competitive posture by replacing old equipment and
relocating its plants to foreign countries.The industry, however, is facing difficulty in carrying
out its restructuring plans due to strong opposition from the labor union and creditors. A Hyosung
spokesman was recently quoted as saying, [M]anagement recently tried to implement rearrangement of
workers because of the replacement of old facilities but its trial faced strong opposition from the
union and, eventually, bore no fruit. Under these circumstances, how can we improve our
competitiveness in the international market, where were losing share As well, he said, the union
objects to the building of a fibers factory in China.Hyosung is making a major push in the U.S.
market as well, having recently opened an office in Charlotte, N.C., to market its Creora® spandex
line.When U.S. companies build off-shore facilities, the most likely location is Mexico, Central
America or the Caribbean. For Korean companies, cheaper labor can be found in China and Vietnam,
although there has been investment in the United States and other developed nations as well.Korea,
behind China (including Hong Kong), Italy and Germany, is the worlds fourth-largest exporter of
textile products. Hong Kong Poised For OpportunitiesFurther south along the Pacific Rim, Hong
Kong has developed into the worlds ninth-largest trading entity. As a hub for fabric and garment
brokering, the Hong Kong industry is well-positioned geographically to meet a number of
international demands.Hong Kong, as well, stands to benefit significantly from Chinas impending
accession to the World Trade Organization (WTO), and will likely realize even more access to world
markets, particularly by those companies that have production facilities on the Chinese
mainland.Rising production costs, however, coupled with by Asian standards stringent environmental
regulations, have resulted in a number of Hong Kong companies shifting commodities production to
the Chinese mainland. Manufacturing operations in Hong Kong are more focused on value-added
productions, including both ring-spun and open-end yarn, fine-gauge knitted fabrics and complicated
dyed and printed fabrics.Of Hong Kongs exports, almost 70 percent go to the Peoples Republic of
China. Asia as a whole consumes about 85 percent of textile production from Hong Kong. The United
States, the second-largest customer of Hong Kong exports, accounts for about 4 percent of the
total.As in the United States and Korea, much low-end manufacturing is shifting away from Hong Kong
and onto the Chinese mainland and other countries in Southeast Asia. Some companies have even
established facilities in Mexico and Caribbean Basin countries in order to take advantage of
preferential U.S. trade agreements, such as the North American Free Trade Agreement (NAFTA) and the
Carribean Basin Initiative (CBI).As well, Chinas WTO membership will, ostensibly, require the
mainland to lower import tariffs on textile and apparel products, further opening opportunities for
Hong Kong textile producers. China Heads Toward WTO MembershipThe sleeping giant of the
Pacific, though, is China. And the major issue currently confronting that country is when the
much-anticipated election to the WTO will occur.Chinas quest to join the WTO is a 15-year-long
battle that is now all but over. Bilateral agreements reached in June with both the United States
and the European Union have removed almost all of the final obstacles to end the protracted
saga.Following six days of talks at WTO headquarters in Geneva in June, diplomats announced that
practically all of the membership issues had been settled, paving the way for China to join the
141-member organization by early next year at the latest.We hope that this advance will lead us to
be able to make the formal decision on Chinas membership in [November], top E.U. negotiator Karl
Falkenberg told the Reuters news service. The WTO trade ministers will meet in Qatar in November.
Falkenberg said he expects a couple of loose ends to be tied up at the next meeting, and then,
hopefully, we can gavel the whole thing through.The legislatures of WTO countries, as well as
Chinas parliament, must ratify the deal before it can be implemented. Chinas accession to the WTO
will occur exactly one month after the Chinese parliament notifies the WTO of ratification.The
impact that the countrys accession to the WTO will have on the rest of the world is both eagerly
anticipated and significantly feared, depending upon the point of view of the individual.Chinas
accession to the WTO is heralded as a boon for the economies of the worlds developed nations by
China/WTO supporters. With its huge population and heretofore-untapped market, there is opportunity
for considerable export and prosperity. Opponents argue that, while China does indeed represent
opportunity, reality is a different matter. China, they say, has not honored its trade agreements
in the past, refusing to remove barriers to exports while engaging in illegal product dumping to
its trading partners. Textile Leaders Voice ConcernWithin the U.S. textile/apparel complex,
there are several issues with which industry leaders take exception.In 1995, all WTO members had to
face a 10-year period during which the United States would phase out its quotas on textile and
apparel imports. China, on the other hand, should it gain WTO membership in 2002, would face only
three years before phase-out.As well, according to the American Textile Manufacturers Institute
(ATMI), the WTO has been ineffective in enforcing the bilateral and multilateral agreements under
which its members trade. The WTO, according to ATMI, has not provided market openings it promised,
and the U.S. government has not taken action to open those markets.Five years into the WTO, at
least 16 major exporting countries, including India, Pakistan, Egypt and Thailand, have failed to
meet their WTO obligations and open their markets to U.S. textile and apparel imports, an ATMI
report states. In fact, this report could not find a single country that is currently a major
exporter of textiles and apparel to the United States that has provided significant market access
because of the WTO.China was granted permanent Normal Trade Relations (Ntr) status by the U.S.
Congress last year. That status, however, only takes effect once China becomes a WTO member. Until
such time, Ntr status for China must be renewed annually. President George W. Bush cleared the way
for renewal this year by waiving the Jackson-Vanik Amendment, which specifies that Ntr may not be
granted to any non-market economy that restricts free emigration, unless the President of the
United States waives the restrictions for certain specified reasons.ATMI, in a hearing July 10
before the House Ways and Means Subcommittee on Trade, released a statement opposing renewal of Ntr
for China that read in part:With respect to textile-related issues specifically, China has signed
six bilateral textile trade agreements with the United States over the past two decades and has
subsequently broken every one of them. China illegally smuggles more than $4 billion worth of
textiles and apparel into the United States each year. It routinely violates U.S. design and
copyright laws in fact, China has signed four intellectual property rights agreements and
intellectual property theft in China remains rampant. In fact, a recent National Trade Estimates
report compiled by the U.S. Trade Representatives Office notes that U.S. industry estimates of
intellectual property losses in China due to counterfeiting, piracy and exports to third countries
have exceeded $2 billion.In addition, China is already exploiting a loophole which exists in
current U.S. trade regulations that allows it, as a non-market economy, to be inexplicably exempted
from U.S. countervailing duty law against export subsidies. Further, China maintains tariff and
non-tariff barriers that have restricted U.S. textile and apparel exports, despite repeated
promises to liberalize. This is yet another example of how China gets better treatment than our
other trading partners.Thus, there is nothing normal about the manner in which China conducts its
trade policy, and it is not deserving of Ntr status with the U.S.Also, make no mistake about it Ntr
status for China, and the terms under which it is preparing to enter the World Trade Organization,
will severely undermine the economic partnerships that have formed and continue to form between
U.S. yarn and fabric producers and apparel manufacturers in Mexico and the Caribbean. Once all
global textile and apparel quotas are removed, China is poised to essentially wipe out these
mutually beneficial trade arrangements we have made with our hemispheric neighbors.This concern is
borne out by a 1999 U.S. International Trade Commission (ITC) study on Chinas accession to the WTO,
which determined the Chinese share of apparel imports into the U.S. would more than triple as
quotas are phased out by the year 2005.Already the largest producer of textile products in the
world the country accounts for fully 25 percent of world production China stands poised to enter
the WTO with the capacity and governmental support to further erode market share of industries
throughout Asia, Europe and the Americas. Critical to the prosperity of the worlds industry is the
willingness of the Chinese to abide by their trade agreements with other nations. As well, both the
WTO and its individual members must pursue compliance by China with dogged tenacity.
September 2001
