US trade groups representing retailers and importers are becoming more and more vocal in their attempts to halt the recent wave of petitions from domestic textile organisations seeking special safeguard limits on textile and clothing imports from China. Their objections make for interesting reading as they present the other side of the debate over free trade versus controlled trade.

The US Association of Importers of Textile and Apparel (USA-ITA), whose members include JC Penney and Liz Claiborne, recently took out an injunction to block the Committee for the Implementation of Textile Agreements (CITA) from considering new limits on goods ranging from cotton pants to knit shirts and underwear from China.

And the American Apparel & Footwear Association (AAFA) has set out its objections to a call for public comment on imports of cotton trousers (Category 347/348) from China.

In a letter to CITA chairman The Hon James C Leonard, AAFA president and chief executive officer Kevin M Burke says is insufficient data to trigger the safeguard consultations envisioned in Article 242 of the Working Party Report that facilitated China's accession into the World Trade Organisation (WTO).

"The petitions also fail to provide the information required by regulations promulgated by CITA with respect to such safeguard petitions," he says.

AAFA's objections make for interesting reading as they present the other side of the debate over free trade versus controlled trade. They also illustrate the explosive nature of the issue.

Background to the safeguard process
Safeguards are temporary, one-year quotas that an importing nation may impose on certain Chinese goods if it determines they are severely injuring or threatening to injure the domestic industries.

The threshold to invoke safeguards is met if the US believes imports of Chinese origin textiles and apparel products threaten to impede "the orderly development of trade in these products."

Under the terminology of Article 242, the injurious action must have occurred in the past, and the US must request consultations with China and present current data justifying its decision.

A properly filed petition should also include data demonstrating that imports of Chinese origin textile and apparel products competing with those produced by the domestic industry are "increasing rapidly in absolute terms."

A description of how the Chinese origin textile and apparel product(s) have adversely affected the domestic industry is also permitted.

"Although these regulations apparently do not envision so-called threat-based petitions, Commerce Department officials have repeatedly advised us that clarifications would be forthcoming for comment to make these procedures consistent with a threat based approach, including information on what evidentiary standards would be used in evaluating such petitions," Kevin Burke says.

"As of the date of the filing of these comments, no such clarifications have yet been published.

As far as the petition against imports of cotton trousers is concerned, AAFA says it fails to establish that US imports of cotton trousers from China have increased or that there is an adverse impact between imports from China and alleged market disruption in the US. It also fails to prove a specific threat created by Chinese producers of cotton trousers the trade group says.

Analysis of cotton trousers petition

US imports of cotton trousers from China have not increased.
US imports from China have stayed fairly constant over the past several years, hovering around 2.5 million dozen per year. In fact, US imports of cotton trousers from China as a per cent of total US imports of cotton trousers during this period have actually dropped from 2.5 per cent to 2.0 per cent.

Moreover, US Commerce Department data shows that US imports of cotton trousers from China dropped by 30 per cent for the first nine months of 2004 compared with the same period in 2003.

There is no evidence that US production of cotton trousers has been affected by US imports of cotton trousers from China
US production of cotton trousers for the first nine months of 2003 dropped by 4 million dozen over the same period from 2002. Total imports of cotton trousers during this period increased by 15 million dozen while imports from China declined.

US total imports of cotton trousers from China during the 12-months ended September 2004 actually fell 4.6 per cent against the same period a year earlier, while US imports of cotton trousers declined by more than 34 per cent.

As Figure 2 shows, in a comparison of costs of landed duty paid prices of US imports of cotton trousers from China and other top supplier countries for the first nine months of 2004, China ranks among the most expensive.

Costs are nearly double the $84.64 average rate for all imports. In addition, costs from China have actually increased over the past several years, rising by more than $20 per dozen since 2001.

Consequently, although US data shows production of cotton trousers has dropped during the past 5 years, imports of cotton trousers from China have not played any role in causing or contributing to this decline.

Figure 1:
US production and US imports from china of cotton trousers
(thousands of dozens)

Click to enlarge

Source: Request for Textile and Apparel Safeguard on Imports of Cotton Trousers from China, p. 15,
http://otexa.ita.doc.gov/347-348_electronic_petition.pdf

Figure 2:
Landed duty-paid cost of US cotton trouser imports from top 15 suppliers and China
(Dollars per dozen)

Click to enlarge

Source: US Bureau of Census (based on data from January through September 2004).

Petition provides insufficient data to point to US market disruption
The petition also provides little specific information on whether market disruption in the US cotton trouser market is even taking place, according to AAFA.

There are general employment declines for all apparel, but none specific to cotton trousers.

Suggestions that there will be possible disruption of western hemisphere outward processing operations, such as those under the North American Free Trade Agreement or the Caribbean Basin Trade Partnership Act (CBTPA) which use US textile inputs, are also rejected by AAFA.

Petition provides no category specific threat information
AAFA also argues that the petition provides no specific evidence that imports of cotton trousers from China threaten market disruption in the future.

The petition, for instance, lumps together information on both the textile and apparel industries in China, even though it only seeks safeguards to address the cutting and sewing of Chinese-made cotton trousers, and not the fabrics or yarns used.

Also, information on the Chinese apparel industry is not specific to the manufacture of cotton trousers.

And the petition fails to disclose any mitigating factors that may lead apparel companies to diversify their sourcing from China, with or without safeguards.

For example, a recent report by the Chinese Government Ministry of Labour and Social Security that warns of shortages of skilled migrant workers in several key export oriented provinces. There are also concerns that labour unrest and logistical, economic, energy, and infrastructural issues could hamper growth.

"AAFA members producing and importing cotton trousers report that they expect to remain relatively diversified during 2005 in their global sourcing matrix, whether safeguards are imposed or not," explains Kevin Burke.

"Most indicated that they are not planning to place much additional production in China, if at all. If safeguards are imposed, they do not envisage changing their sourcing matrix greatly.

"More importantly, safeguards would lead few, if any, to place additional business in the United States. Most would likely place any redirected sourcing to other Asian countries, including those who would opt to use Asian outward processing arrangements (OPA), where partially assembled Chinese parts could be completed (in an origin conferring operation) in countries like Hong Kong, Taiwan, and Macao.

"Those who suggested that they might consider placing additional business in Latin American countries, emphasised that the decision would be heavily influenced by whether they could take advantage of trade programs, such as still unratified US-DR/CAFTA, or improved access to financing for production sharing in the region."

Impact of safeguards
AAFA also urges CITA to review how previously approved safeguards have benefited US textile and apparel interests.

Questionable benefit for US interests
Safeguards on Chinese-made apparel do not constitute a safeguard on the Chinese textile inputs used to make that apparel and do not directly promote the use of US-made inputs. Instead, they push sewing operations into other, mostly Asian, countries, which are still likely to use the same (mostly Chinese) inputs.

Under the safeguards on dressing gowns and brassieres that were imposed at the end of 2003, for example, restraints on China simply ensured that production occurred in a number of different countries, including China.

In the case of dressing gowns, many of the top ten suppliers to the United States, including China, continued to expand their share of the US import market from 2003 to 2004.

Brassieres presented a similar enigma. Although imports from Mexico and several Caribbean Basin countries rebounded, most witnessed a drop in market share as US imports from other countries, such as Bangladesh and Indonesia, surged even more.

Market disruption after safeguards are imposed
AAFA believes market disruption will occur after safeguards are imposed. First, it says, US apparel companies operating under a safeguard environment face uncertainty as to whether safeguards will be invoked (or reinvoked), what costs will be incurred, and whether they will be able to clear their goods if they are caught in an embargo situation.

Safeguards could also have a harmful effect on the US textile companies who have managed to export successfully to China or are seeking to invest in that country.

Figure 3 shows US fabric exports to China since 1989, demonstrating that there has been considerable growth in recent years, especially since 2001, when China acceded to the WTO. Although still relatively small, there is clearly a rapidly growing market for US textile products in China.

Figure 3:
US fabric exports to china (millions of dollars)

Click to enlarge

Source: US Department of Commerce, Office of Textiles and Apparel
Note: 2004 figures based on 12-month period ending 9/04

Conclusion
AAFA believes the safeguard mechanism can be effective only when it is judged through a transparent and predictable process, and when it is based on facts and hard data making a clear link between a surge in imports of a particular product from China and market disruption for that product in the United States.

Petitions filed to date, and their status:

Reapplication of safeguard on brassieres
On December 1, a petition was filed with CITA to reapply for the safeguard placed on Chinese imports of cotton and man-made fibre brassieres, Categories 349 and 649, by the US government in November of 2003.
CITA has 15 working days to accept or reject the petition for a decision on the merits in early 2004.
In Category 349, cotton brassieres, China currently holds 34.77 per cent US import market share. In Category 649, China has a 35.55 per cent US import market share.
Petition filed for reapplication of safeguard on dressing gowns
On November 24, a petition was filed with CITA to reapply for the safeguard placed on Chinese imports of cotton and man-made fibre dressing gowns, Categories 350 and 650, by the US government in November of 2003.
CITA has 15 working days to accept or reject the petition for a decision on the merits in early 2004.
In Category 350, cotton dressing gowns, China currently holds 39.49 per cent US import market share. In Category 650, manmade fibre dressing gowns, China has 50.29 per cent US import market share.
Petition filed for reapplication of safeguard on knit fabric
On November 19, a petition was filed with CITA to reapply for the safeguard placed on Chinese imports of knit fabric, Category 222, by the US government in November of 2003.
CITA has 15 working days to accept or reject the petition for a decision on the merits in early 2004.
In Category 222, knit fabric, China currently holds 8.16 per cent US import market share.
Other synthetic filament fabric petition accepted for review
The US government's Committee for the Implementation of Textile Agreements (CITA) announced on December 1 that it had accepted a petition on Category 620, other synthetic filament fabric.
CITA has not yet released the date when the public comment period will close.
Combed cotton yarn petition accepted for review
The US government's Committee for the Implementation of Textile Agreements (CITA) announced on November 17 that it had accepted a petition on Category 301, combed cotton yarn.
Comments on the petition are due by December 23.
Public comment period on trouser, shirt and underwear petitions closed.
CITA's public comment period for the threat-based special textile China safeguard petition filed on Categories 347 and 348, cotton trousers, closed on December 3.
The comment period for the petitions on manmade fibre trousers, Categories 647 and 648, cotton shirts, Categories 338 and 339, man-made fibre shirts, Categories 638 and 639, non-knit shirts, Categories 340 and 640, and underwear, Categories 352 and 652 are due by December 9.
Decision on whether to accept petition filed on wool trousers expected in early December
CITA is expected to decide whether to accept the threat-based special textile China safeguard petitions filed on Category 447, wool trousers in early December.
The petition on wool trousers was filed on November 12.
CITA has 15 working days after receipt of the petition to decide whether to accept it for review.