Impact of China imports is exaggerated

'Impact of China Imports is Exaggerated, Report for US Congress says'

There is no clear correlation between the decline of US textile industry and the surge in US apparel imports from China, a report for the US Congressjust asserted. With US quotas on imports from China set to be removed at theend of next year, first arguments appear for a decisive text ile debate in the2008 election year.

Although quota removal of January 2005 resulted in asignificant increase in US apparel imports, it did not trigger the textile bigbang previously predicted by experts, a report for the US Congress justasserted.

The report published by the Congressional Research Service(CRS) was written to help US lawmakers in making up their minds about US apparel imports from China and their impact on US textile and apparel industries.

Predictions and reality

With the definitive removal of US quotas on imports from China due on 1 January 2009, the textile chapter may attract some interest from US politicians inthe coming election year.

Interestingly, the CRS report clearly tries to minimizearguments of textile lobbyists in Washington about the alleged threats causedby Chinese products.

"The year-on-year increase in clothing and textileimports between 2004 and 2005 was not significantly greater than the yearsbefore and after," says author Michael Martin, a specialist of Asianpolitical economics.

In sharp contrast with earlier predictions, textile andapparel production in countries outside China and India were not harmed by theremoval of quotas.

Other producers have maintained the value of their exportswhile China however took most of the growth in US apparel imports.

More important for US Congress, there is no clearcorrelation between the rise in US imports from China and the decline intextile and clothing employment in the country, the report says.

General safeguard

Job losses in domestic textile and apparel industries appeared in the 90s witha peak between 1995 and 2003.

Production of textile industry in value terms declined from1997 but less significantly falling in the last years, although imports from China sharply rose.

Data actually provide "rather ambiguous results on thepossible impact of quota elimination on the US textile and clothing industry."

The big question behind this report is related to future protectionist measures to be taken by the United States after quotas will be eliminated.

If the textile safeguard will not be available after 2008, US textile lobby may try triggering the so-called "general safeguard" availableuntil 10 December 2013.

Another solution would consist in requesting anti-dumpingduties for products made below cost or countervailing tariffs for products which are subsidized in China.

China currency bills in preparation may also offer opportunities for UStextile lobby.

The end of textile quotas will clearly not put an end to thedebate around textile trade protection in the United States.

Trends in Clothing Imports

The nation that made the greatest gains in the U.S. clothing market between 1990 and 2006 was not China, but Mexico. In 1990, Mexico was not among the top five clothing suppliers to the United States, but between 1998 and 2001, it was the clear leader, providing an average of14.3% of the U.S. clothing imports over those four years.

However, since its accession into the World Trade Organization in December 2001, China has overtaken Mexico, increasing its market share from 11.9% in 2001 to 22.6% in 2006. Meanwhile, Mexico's market share has declined from 13.0% in 2002 to 7.4% in 2006.

The other major changes in the top five clothing suppliers for the United States were the gradual disappearance of Hong Kong and the more recent emergence of India. In 1990, Hong Kong was the leading source of U.S. clothing imports, with a market share of 16.1%.

During the following 10 years, Hong Kong slid slowly down to be the third leading source of U.S. clothing imports in 2000, with a market share of 7.1%. By 2005, Hong Kong was the fourth largest U.S. clothing supplier, and in 2006, it dropped out of the top five altogether. By contrast, India did not join the top five list until 2001, but since then has rapidly increased its market share and position.

In 2006, India was the third largest source of U.S. clothing imports, with a market share of 5.3%. The biggest annual shift in the source of U.S. clothing imports took place in 2005. China's market share increased by 7.6%, while Mexico's market share declined by 2.4% of total imports. India moved up to third place, providing 5.1% of U.S. clothing imports, while Hong Kong had its share decline to 4.5%.

Finally, Indonesia sprang into the top five for the first time, pushing out Honduras. In 2006, China continued to make gains in the U.S. clothing market, raising its share of imports to 29.1%. Mexico continued to see its clothing exports to the United States drop in market share and in value, emerging with 7.4% of total U.S. clothing imports.

India held onto third place, and Indonesia slid into fourth. Finally, another new party to the top five appeared in 2006, with Bangladesh overtaking Hong Kong for fifth place.

Trends in Textile Imports

The dynamics of U.S. textile imports since 1990 was similar to the pattern for clothing imports. Previously major sources of textiles were surpassed by countries that were well behind the frontrunners in 1990. However, the pattern for textile imports differs from clothing imports in two ways.

First, while China has risen to the top supplier of U.S. textile imports, it is not CRS-13 dominating the market like it is for clothing. Second, the other top textile suppliers are not experiencing absolute declines in their sales to the United States, as has been the case with clothing.

Table below lists the top five suppliers of textile imports for the United States from 1990 to 2006. From 1993 to 2005, Canada was the leading source of textile imports for the United States

It was superseded in 2006 by China, which had moved up from being the fifth largest textile supplier in 1990 and second in 2003. By contrast, Japan slid from being the leading source of textile imports in 1990 to fourth in 1995 and disappeared from the top 5 in 1996. India, which was not among the top five sources from 1990 to 2001, replaced Italy for fifth in 2002 and moved into third place in 2006.

Despite the gains of China and India, and the losses of Japan, other contenders

Italy, Mexico, and South Korea shifted between second and fifth place among U.S. textile suppliers largely maintained their share of the overall market. Italy, which remained among the top five sources for U.S. textile imports until 2001, still held a market share of 4.9% in 2006. Meanwhile, South Koreas textile market share went from 7.75 in 1990 to 8.65 in 2001 and 2002, to 7.6% in 2006.

Similarly, Mexico's market share rose from 7.2% in 1996 to 8.9% in 2002, and declined to 7.4% in 2006.

Although there has been a rearrangement of the order of the top five textile suppliers for the United States over the last 10 years, unlike the case for clothing, China has not pulled away from the other countries. The value of China's textile shipments has risen rapidly since 2001, but was only $177 million more than textiles imported from Canada in 2006.

Canada's textile exports to the United States experienced some fluctuations during the last 10 years, but were still $324 million higher in 2006 than in 1997. Similarly, textile imports from South Korea and Mexico rose $250 million and $224 million respectively between 1997 and 2006.

Impact of the Quota Phase Out

As previously stated, the elimination of clothing and textile quotas was done in four phases, starting in 1995 and ending in 2005. Each party to the ATC, including the United States, was to specify when their existing quotas would be eliminated.

If the existing quotas were constraining imports, their removal should cause a subsequent increase in imports. U.S. trade data for phases 2, 3 and 4 of the ATC quota removal reveals a more complicated pattern.

For goods included in phase 2, there was no apparent increase in the growth of imports following the elimination of their quotas on January 1, 1998.

Similarly, products included in phase 3 did not jump sharply after the elimination of their quotas on January 1, 2002. Items included in phase 4 did show a modest growth spurt in 2005, but then sharply declined in 2006.

Interpreting Pre- and Post-ATC Trade

In general, the trade data confirm many of the predictions by the market analysts prior to the termination of the ATC quotas. Global clothing and textile trade is growing more rapidly after 2005 than it did before 2005 and China is a major beneficiary of the greater growth.

China secured nearly three-quarters of the year-on-year increase in clothing trade between 2004 and 2005, and its increase in textiles exports between 2004 and 2005 was slightly greater than the total rise on global textiles trade. Plus, as predicted, the United States is importing more of its clothing and textiles from China.

However, when examined more closely, there are patterns in the trade data that either were not anticipated or are not consistent with some of the analysts' predictions. For example, while there has been the expected market growth, both in the global and U.S. market, the foreseen major shifts in production have not occurred.

Instead, the data suggests that most nations were able to maintain the value of their clothing and textiles exports after the termination of the ATC quotas, possibly indicating that the preferential trade programs were helping some nations clothing and textile trade.

However, most countries were unable to significantly increase their exports, while China- and to a lesser extent, India- were able to expand their exports. In other words, China was able to increase its share of the global and U.S. clothing and textile markets by capturing most of the market growth.

Also, the "surge" in Chinese clothing and textile exports in 2005 was smaller than many analysts suggested it would be. For example, China's shares of the U.S. clothing and textile markets in 2006 - 29.1% for clothing and 14.9% for textiles - is well below the levels projected by the ATMI study.

This in part may be due to the imposition of safeguard measures in 2005 and 2006. However, the under utilization of the U.S.-China MOU quotas in 2006 may indicate that much of the increase in Chinese clothing and textile exports has passed.

Similarly, U.S. clothing and trade data and industry figures for the U.S. clothing and textile industry present a mixed picture of the impact of the end of the ATC quotas on U.S. clothing and textile production and employment.

The value of U.S. clothing textile production rose during the initial stages of the ATC quota phase out, with the major declines starting after China's WTO accession. By contrast, employment for both the clothing and textile industry declined steadily from 1990 to 2005, but not necessarily concurrently with the elimination of quotas.

As previously discussed, the U.S. utilization of safeguard measures may have mitigated some of the negative impact of the termination of the ATC quotas. However, the fact that the 2006 quotas were not fully used would seem to indicate that the safeguards are not necessarily preventing Chinese imports from sub-planting U.S. manufacturers and workers.

An unanticipated - and perhaps, unpredictable - trend in the U.S. trade data was the substantial rise in clothing and textile imports starting prior to the end of the ATC quotas. In the clothing market, U.S. total imports jumped by $5.8 billion in 2003, touching off a four year run of rapid increases. In the textile market, the big increase in total imports occurred in 2004 not in 2005 or 2006. Besides the possible effects of the safeguard measures, another possible explanation for the pre-ATC termination growth was China's accession to the WTO in December 2001.

One final prediction that proved to be comparatively accurate was the use of trade remedies by the United States. Yet, there are two aspects of the use of trade remedies that the analysts did not foretell.

First, the "pre-emptive" petitioning of the CITA for safeguard measures prior to January1, 2005 was unprecedented. Second, following the announced preliminary countervailing duty decision by the U.S. Department of Commerce on Chinese coated paper, there are reports that a coalition of U.S. clothing and textile companies is consulting with lawyers about initiating a claim against Chinese clothing and textile imports.

Source: AEPC newsletter