By: Sheng Lu
The U.S.-China textile and apparel trade hasseldom been able to avoid the heavy intervention of trade policy. Over the pastthree decades, from quota restrictions to safeguard measures, various kinds oftrade management tools were creatively developed, mostly by the U.S. side, to prevent the surge of imports from China. But 2009 probably will turn out to be anexception: fewer trade restrictions are expected. Why is that?
U.S. domestic demand for trade protection definitelyis far from waning. In September 2008, the National Committee of TextileOrganizations (NCTO), the "spokesman" for the current U.S. textileindustry, submitted three separate requests to the U.S. Department of Commerce,the United States Trade Representative Office, and the Congress, asking toapply a special import monitoring program on Chinese products at the end of thethree-year U.S.-China textile agreement in 2008. In particular, NCTO stronglyrequested that the U.S. government instantly take safeguard measures in casethe monitoring results "suggest" Chinese exports "disrupt"the U.S. market, the same vague standard that invoked the U.S.-China textiletrade dispute between 2003 and 2005.
However, even if the Obama administration iswilling to offer a positive response to that call, technically it is hard torealize. As a matter of fact, one fundamental change brought to the U.S. sideafter China joined the World Trade Organization (WTO) in late 2001 is thenecessity to legitimize any trade measures affecting China's exports beforeputting them into practice. For example, Article 242 under the "WorkingParty Report" of China's WTO Accession will expire this year. That meansthe United States can no longer legally use the so-called "transitionaltextile safeguard" to restrict Chinese products, although it successfullycaused the embargo of 24 categories of Chinese textiles and apparel in 2005.
Neither is it easy for the U.S. side to resort to other traditional trade remedies such as anti-dumping andcountervailing duties for protection. That's because one prerequisite forinvoking these measures is to prove that the U.S. domestic industry producingthe directly competing "like product" has suffered from injury causedby the Chinese imports. But currently, it is the U.S. textile industry thatactively looks for trade restrictions on Chinese apparel products while the U.S. apparel industry quite favors lower trade barriers, as a large portion of its businessactivities already rely on sourcing from China. Therefore, unless the U.S. textile industry justifies why they are hurt by imports that they do not directlycompete with, their chances to win the case are slim.
On the other hand, the Chinese government isless likely to compromise on any major trade restrictions in 2009 compared with2005. On October 26, 2008, China's Ministry of Commerce officially declaredthat it would not place licensing requirements on textile and apparel exportsanymore beginning in 2009. This statement largely denied the possibility that China would continue self-managing exports as it did in 2008 under the pressure of theEuropean Union. The Chinese governments shift to this stronger stance originatedfrom the lesson it learned from this year's tough economic situation. Recently,the Chinese government had deliberately discouraged the development of thetextile and apparel production sector as well as its further expansion inexports because they are regarded as low-profit margin, resource-intensive, andwithout a promising future.
As a result of rising production costs andslower overseas demand growth, over one-third of Chinese textile and apparelmanufacturers in southern China shut down in 2008, causing hundreds ofthousands of workers to lose their jobs. These unemployed workers demonstratedon the streets asking for their unpaid wages and posed great challenges tolocal social stability.
This has made the Chinese government realizethat as a country with 1.3 billion people, it cannot afford to give up a labor-intensiveindustry that still plays important roles in maintaining the steady growth ofthe national economy and social stability. It also may take China a much longer time than any other economies to upgrade and transform its textile andapparel industry from being labor intensive to one that concentrates on capitaland technology intensive sub-sectors. To bolster industry recovery, the Chinesegovernment has taken the unprecedented step of raising the export tax rebaterate for textiles and apparels twice, from 11 percent at the beginning of 2008,to 14 percent by December, the highest level in 10 years.
Furthermore, even without trade restrictions, U.S. -China textile and apparel trade in 2009 will probably see one of the lowest growth rates in a decade. The gloomy prospect of the U.S. economy sinking deeper into recession is the main cause for the import demand shrinkage. This trend was felt at the 104th China Import and Export Fair -the largest annual trade fair of its kind in China -held early in November 2008. Textile and apparel export contracts from U.S. customers at this time dropped by almost 30 percent compared to the previous year, suggesting a pessimistic outlook for 2009.
Despite the low ebb in trade volume, the year 2009 could be a golden opportunity for the textile and apparel industry both in the United States and China to reform and change. The U.S. textile industry at present urgently needs to figure out some new business models and explore more overseas markets to meet the challenges of lessening domestic demand. On the other hand, the task for the Chinese is to further reduce reliance on exports while absorbing the production capacity of the industry by stimulating more domestic consumption. With the economic interests between the U.S. and Chinese textile and apparel industries conflicting rather than complementary, potential trade tensions will not simply disappear. Restrictive trade policies, perhaps in new forms, are expected to return after 2009.
About the Author
Sheng Lu is currently a doctoral student in the Department of Textile and Apparel Management at the University of Missouri. Before coming to the United States, he graduated from Dong Hua University (the former China Textile University) with bachelors and masters degrees in economics. From 2004 to 2007, he worked for the Shanghai World Trade Organization Affairs Consultation Center, a well-known think-tank in China, and conducted trade policy analyses with a special focus on the textile and apparel industry. Sheng Lu's main research area is the operation of the textile and apparel industry in the globalized economy, including restructuring strategies adopted by developed economies, regional and global production networks, international marketing and merchandising, and trade policy impact assessment.
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