An international coalition of trade groups and analysts are warning of an impending textile and apparel industry meltdown if China isn't forced to answer concerns before the World Trade Organization.
Pushing the WTO for an emergency meeting, the coalition has produced the “Istanbul Declaration” — a request by industry groups worldwide to have the WTO review the textile and apparel quota phase-out on Jan. 1, 2005. As of June 9, 88 trade associations from 43 nations have co-signed the declaration.
In a sign that trade groups are getting their concerns across, 117 members of Congress signed letters to President Bush urging the emergency WTO meeting. Sent June 9, the bi-partisan letters included signatures from 88 representatives (54 Democrats, 34 Republicans) and 29 senators (16 Democrats, 13 Republicans).
Speaking from a news conference shortly after the letters were sent, Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition (AMTAC), says the Istanbul Declaration is “based on the fact that there have been enormous changes associated with the transition period that began on Jan. 1, 1995. Those changes can be summed up, generally, by pointing to the fact that China joined the WTO in 2002. China is the single largest player and they're playing by a different set of rules in terms of their production capabilities and state-sponsored subsidies that govern their manufacturing base.”
As a result, China has, along with several other off-shore suppliers, “an enormous capability to capture and monopolize global textile and apparel markets. We're asking the WTO to review (the situation and consider) solutions to avoid the displacement of tens of millions of workers in every region of the world.”
It's rare when an issue transcends normal boundaries, says Tantillo.
“This has gone well beyond a trade issue — it's seeping into a strategic national defense issue. When you look at the countries at play, many are on the front line of the ‘war on terror.’ Countries such as Sri Lanka, Bangladesh, Turkey, and Egypt have economies that are largely dependent on their ability to produce and export textile and apparel products to global markets.”
Tantillo argues that if such nations fail to continue having reasonable market access, it will dramatically impact regional stability.
Further, he says, the relevance and viability of the WTO is being tested. “Is (the WTO) a stagnant, bureaucratic mechanism that can't respond to development and pending crisis? Does the WTO work for its members or do the members work for it? If two-thirds, or more, of the WTO members come together and say, ‘We have to have a solution to this,’ there will be a great cost for China and India to object. There will also be a great cost for the WTO if it doesn't work to facilitate a solution.”
If nothing changes, the world is looking at a “train wreck with the imports from China in 2005,” says Karl Spilhaus, of the National Textile Association (NTA). That wreck, he says, has already begun — Chinese imports have quadrupled since 2001 from 2.2 billion to 8.3 billion square meters.
“So far, only a handful of import-sensitive categories have been taken out of quota,” says Spilhaus. “What's happened with those has been horrendous. In the case of items important to my association — knit fabrics went from 42,500 kilograms in 2001 to over 7 million in 2002. During that same period, our own knitters' productions fell 27 percent. There doesn't seem to be any question about… the effect on domestic production by these imports.”
In addition, Spilhaus points to Chinese piracy. “Our members are already seeing pirated copies of their designs.”
There have been government-to-government contacts between developing nations and the Chinese on these issues. Reports suggest the Chinese position isn't one of compromise.
From the other side, Tantillo says U.S. retailers have also been asked about reducing levels of Chinese textile and apparel imports. “There's (somewhat of a) split in the retail community — many of them don't want to put all their eggs in the China basket,” he says. “At the same time, they realize that if the rules drive people toward one or two suppliers, they may be forced to put an inordinate amount of their textile and apparel goods into China and India.”
An example of this is shown with those competing in the same market segment. One might decide to put 20 percent more of its sourcing into China at a considerably reduced price. Their competitors are then forced to source more from those same suppliers.
“Our point to the government is that unless they inject some discipline into the process, the gravitational pull will be so strong that, despite the best efforts of retailers, they'll end up sourcing goods from the lowest cost suppliers,” says Tantillo.
Robert DuPree, vice-president of the National Textile Organizations, says the writing is on the wall. “We've seen what happens when China floods our markets with de-controlled goods. Sometimes prices of their goods can be cut 30 percent due to currency manipulation and other trade practices. This has allowed China to get approximately a 60 percent import share in these categories. And the most import-sensitive categories are still to come on Jan. 1, 2005.”
When China joined the WTO a few years ago, no one envisioned the country coming into the organization and playing by a completely different set of rules, says DuPree. But that's what the textile global industry is facing and that's why it's “imperative we get continued support from Congress. We also need support from the administration.”
Gaylon Booker, immediate past president of the National Cotton Council, is looking for a “reasonable way” to place disciplines into international commerce to prevent predatory trade.
“There were eight categories containing cotton that quotas were removed from in 2002,” says Booker. “On average, we saw a 640 percent increase in the first year after quotas were removed. That was accompanied by a 71 percent price reduction.”
Booker is pleased that the Bush administration has “seen fit to use a safeguard protocol included as part of the China session agreement. But we view that as only a partial remedy to this major problem because it still permits a substantial growth before safeguards are implemented and then allows around 7.5 percent growth thereafter.”
Booker acknowledges the cotton industry is a bit different from others involved in the coalition. China is a major customer for U.S. raw cotton.
“China will, perhaps, buy as much or more U.S. cotton than we'll sell to domestic mills,” says Booker. “We're not anxious to lose China as a customer but, nevertheless, believe in fair international trade.”
Coalition members insist that if China is allowed to proceed as it wants, textiles will be just the first of many ill-affected industries. The issue is “a global one,” says Ziyan Sukun of ITKID (a Turkish organization representing 8,000 textile and apparel manufacturers). “This isn't just a textile issue… It will hit the textile industry today but tomorrow it will hit everyone else.”
At a newly announced international conference in Brussels, the coalition will ratchet up pressure for the desired WTO emergency meeting. To be held June 15-17, the conference is titled “The Summit on Fair Trade of Textiles and Clothing.” It will be attended by those “supporting the Istanbul Declaration for the purpose of defining strategies for promoting this cause at the WTO and with individual nations,” says Tantillo.
With Chinese reluctance and Bush administration officials saying a quota extension won't happen, how realistic a chance does the coalition have to force the WTO's hand?
“The Bush administration has clearly stated both to us and other countries that they won't lead this effort,” says Tantillo. “The reason they refuse to lead is they view the phase-out as a commitment to the developing world.”
However, the U.S. government is in the same position as the WTO and EU. “The developing world (could) come to (the U.S. government) and say, ‘Look, you're not going back on a commitment or breaking a promise. Things have changed.’ If you look at statements coming out of our government and the EU, they've left themselves a bit of room in case this movement gains (major) momentum.”
And then there is the specter of the pending WTO case involving Brazil and U.S. cotton subsidies. “We've made a strong case we're playing by the rules,” says Booker. “If the WTO rules against the U.S. cotton program (and that ruling isn't overturned on appeal) then adjustments will be made. Our intent is to play by the rules.”
The distinction between the cases, says Tantillo, is China deems some of their practices, including currency manipulation, outside the reach of international trade law. “They protest (currency manipulation) has nothing to do with trade but monetary policy. Obviously, everyone involved in trading with China understands that when they peg their currency it gives them a 30 percent to 40 percent price break” with exports to the United States.
The Chinese also claim that their textile/apparel loan system is a monetary policy issue.
“They gave $45 million in free loans to industrial ventures last year,” says Tantillo. “Imagine how strong the U.S. textile base would be if our government came to us and said, ‘You have a ready source of capital and if you have difficulty in meeting your bottom line, we'll wipe your debt off the books.’ It's a ridiculous situation and it's time for our government and the WTO to acknowledge that these types of activities can no longer be condoned.”
If they are condoned, insists Tantillo, “then this disaster we're talking about in the textile sector will replicate itself throughout the rest of the manufacturing base.”