Debate Begins On Textile Tariff Cuts

he opening salvos have been fired in what will be a months-long battle over whether and
how much to cut textile and apparel tariffs during the current round of global trade negotiations
by World Trade Organization (WTO) members.

U.S. Trade Representative Robert Zoellick asked the U.S. International Trade Commission to
conduct hearings to assess the probable economic impact of tariff reductions on U.S. industries.

On the basis of information gained, he will make recommendations to President George W. Bush
this month with respect to the U.S. negotiating position.

At the commission’s recent hearing, Charles V. Bremer, vice president for international
trade at the American Textile Manufacturers Institute (ATMI), said the textile industry “cannot
countenance or withstand” any further tariff cuts.

He added, “It simply is unthinkable for the United States to grant further tariff
concessions to countries which have not even lived up to their Uruguay round of tariff and trade

On the other hand, Brenda Jacobs of the U.S. Association of Importers of Textiles and
Apparel said high tariffs do not protect U.S. industries from competition, and they add to the cost
of consumer products.

Jacobs said the United States should not “unilaterally disarm,” but the trade talks should
result in reciprocal reductions of tariffs and other trade barriers.

Administration Hangs Tough On Strong-Dollar Policy

Treasury Secretary Paul H. O’Neil has made it crystal clear that the Bush administration has
no intention of altering its policies supporting a strong dollar, a position that U.S. textile
manufacturers contend is having a devastating impact on business.

While admitting that some industries are hurt by the strong dollar, O’Neil told senators at
a recent Banking Committee hearing that he is much more concerned about the impact a weaker dollar
would have on consumer prices.

He told the senators, “I don’t know anyone who wants to reduce imports. If we take steps to
reduce imports, we become more of an isolated country and consumers pay more for their products.”

The strong dollar, which industry economists say is overvalued by about 30 percent, makes
imports cheaper and exports more expensive. This situation is contributing to a major increase in
the U.S. trade deficit.

A spokesman for a coalition of some 50 labor, agriculture and business trade associations
told the senators the overvalued dollar has resulted in the loss of 750,000 jobs in manufacturing
and farming, including 175,000 jobs in the textile industry alone.

They contend that the overvalued dollar amounts to a “30-percent tax” on U.S.-manufactured
goods, which cuts them out of markets at home and abroad.

Farm Bill Continues Cotton Competitiveness Program

The Farm Bill approved by Congress continues the textile industry’s coveted three-step
cotton competitiveness program through July 2006. The competitiveness program is designed to make
adjustments when the price for domestic raw cotton —which U.S. mills are required by law to use —
is higher than the world price.

Under the competitiveness program, the secretary of agriculture calculates the world price
for raw cotton. When the domestic price exceeds the world price, textile mills and cotton shippers
are paid the difference between the two prices. If the difference persists, mills are allowed to
import raw cotton.

Under the program, mills were required to pay the first 1.25 cents per pound of the subsidy,
but under the new legislation, that requirement is waived. U.S. manufacturers say the 1.25-cent
threshold puts them at a competitive disadvantage with overseas manufacturers and could cost as
much as $50 million annually.

June 2002