WASHINGTON — So much for the quota-free world.
Totally free trade among World Trade Organization countries lasted barely five months as the Bush Administration moved aggressively Friday to limit three categories of apparel imports from China. Reaction to the move depended on which side of the business you are on — manufacturer or importer.
Meanwhile, industry executives expect Friday's action to be the first in a string of similar quotas the administration will slap on other categories from China, as the European Union, Turkey and Brazil are moving ahead with their own limits on Chinese apparel and textile imports.
The Bush Administration's decision Friday involves imports of Chinese cotton knit skirts and blouses, cotton trousers, and cotton and man-made fiber underwear, valued at $624.5 million, which will be curtailed to protect U.S. businesses, the Committee for the Implementation of Textile Agreements, an interagency panel chaired by the Commerce Department, said on Friday.
"Today's action by CITA demonstrates this administration's commitment to leveling the playing field for U.S. industry by enforcing our trade agreements," Commerce Secretary Carlos Gutierrez said in a statement. "We will consult with the Chinese to find a solution that will permit the orderly development of trade in a quota-free environment."
A spokesman for the Ministry of Commerce said in a statement posted on the government's Web site that China believes its exports of cotton knit shirts, cotton trousers and cotton and man-made fiber underwear have not disrupted the U.S. market and it opposes the quota restrictions.
The spokesman said, "The U.S. decision runs counter to the World Trade Organization's agreements on trade of textile and apparel products, deviates from the WTO spirit of free trade, and fails to conform to the conditions…concerning China's accession to the WTO."
He said the decision sets a "very bad precedent" because it is based on figures "gathered in a short period of time." He said China reserves the right to "take further actions within the WTO framework."
Domestic textile companies viewed the new restrictions as an important buffer from harsh competition and importers saw them as expensive complications to the sourcing process. The government, while coming down on the side of the domestic industry, might also view new quotas as a pawn that could help move the rest of its trade agenda forward, particularly the pending Central American Free Trade Agreement.
WASHINGTON — So much for the quota-free world.
CITA's action came after a self-initiated review begun in April and will result in limiting imports in the three categories to a 7.5 percent increase, based on the volume in the last 12 months. For the first three months of the year, imports of cotton trousers from China shot up 1,573 percent to 101.2 million square meters, according to government data. Cotton knit shirts and blouses jumped 1,277 percent to 42.8 million SME, while cotton underwear rose 307.2 percent to 60.6 million SME.
China agreed to the possibility of such constraints, known as safeguards, when it joined the World Trade Organization in 2001. The 30-year global quota system ended on Jan. 1 among WTO member countries after a 10-year phaseout. The European Union is also considering fresh restrictions on Chinese imports and Turkey and Brazil have imposed safeguard quotas on certain goods from China in recent months.
CITA moved quickly to impose the safeguards, waiting just four days to act after the 30-day comment period for the cases ended May 9. CITA will request consultations with China by the end of the month, which would then be held within 30 days. The two governments have 90 days from the time of the request to find a way to ease the market disruption or safeguards will remain in effect for the rest of the year.
"They're rushing to put quotas in place and we're very disappointed," said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles & Apparel. "The real losers are going to the consumers, since the early imposition of safeguards will merely push up prices."
Rather than helping U.S. industry, Hughes said it would be other Asian suppliers that would benefit from additional orders when China imports hit their ceiling.
Representatives of the domestic textile industry, which has filed petitions for safeguards on several other categories, said U.S. jobs depended on the action.
"The unprecedented surge of Chinese imports imperiled tens of thousands of jobs," Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, said in a statement.
The U.S. textile industry has closed 18 plants and lost 17,000 jobs since quotas were dropped.
"This isn't the end," Tantillo said. "The U.S. textile industry plans to file several more safeguard cases in the near future."
The industry already has two slates of overlapping petitions pending, including 12 filed last year that were based on the threat of market disruption and seven filed last month on $1.45 billion worth of goods based on post-quota import figures.
After the Court of International Trade issued a preliminary injunction halting the CITA review of those petitions representing $1.9 billion in Chinese exports to the U.S., the federal Court of Appeals lifted it last month, allowing the process to go forward. A final ruling from both courts is pending.
"The next thing we're all going to hold our breath about is what is the ultimate decision in the threat-based safeguard lawsuit," said Jonathan Fee, a partner at the Washington law firm Alston & Bird. "I'm sure what the industry wants to do is make petitions for 2006 sometime in October, November, so they'll go into effect immediately on Jan. 1. In order to justify that, they have to win the threat-based safeguard lawsuit."
Cass Johnson, president of the National Council of Textile Organizations, predicted CITA would move "as expeditiously as possible" on the other safeguard cases. Johnson said, "We'll know, up or down, very quickly whether the government believes these cases have merit or not."
As for possible disruption to vendors' and retailers' shipments, importers had always widely anticipated safeguards and have planned their sourcing with the restrictions in mind.
"We talked about this in August 2003," said Tom Haugen, president of Li & Fung USA. "We had our management meeting and tried to lay out what would happen. Even then, we knew that the safeguards would happen."
Accordingly, Li & Fung has a limited exposure to the quota categories in China.
"If you can save a dollar on a garment [by making it in China], what's it matter if it can't be delivered?" he said.
Beyond the domestic employment and sourcing issues linked to the decision, many see the administration's move to implement safeguards as an overture to textile-state lawmakers to gain their vote on CAFTA.
"It's a response to political pressure as opposed to reality," said Wendy Wieland Martin, vice president of international trade services at Kellwood Co. "The administration wants CAFTA and I don't know how there can't be a direct link. None of these actions are isolated. That is the real world."
She said the increase in imports of knit tops to the U.S. from all countries was 8 percent based on the last 12 months.
"I don't care if China increases 2,000 percent because if you put it into the whole pie, that is part of less than an 8 percent increase overall and that is hardly market disruption," Martin said.
The company has less than 30 percent of its production in China, sourced in 40 countries last year and still maintains vendor relationships in many of those nations, she added.
"This is not going to hurt Kellwood," she said. "Did we hold something back that might have gone to China, as a precaution? Probably."
The connection with CAFTA wasn't seen by all, though.
"I'm sure other people see that link, but I don't see that expressly," said Mark Jaeger, vice president, general counsel and corporate secretary at Jockey International.
Jockey has a balanced sourcing model in the Caribbean, Asia and the U.S., and would not be adversely impacted by the safeguard quotas on China, he said.
"We've been watching closely how much to put into China and we've been holding back on placing growth business into China," he said.
"Quotas are never likely to cease, but change over time," said Bill Winsor, president and chief executive officer at the Dallas Market Center and Market Center Management Co., which manages the sprawling Shanghai Mart, a permanent trade center in China.
— With contributions from Kristi Ellis, Washington, and Rusty Williamson, Dallas