Editor's note: this article was written just
before the final announcement of the US-China textile
deal. At the official press conference in
London announcing the agreement, US Trade Representative
Rob Portman said: "This textile agreement
is an example of how the US and China have
the ability to resolve tough trade disputes that
benefit both countries." Chinese Commerce Minister
Bo Xilai commented that US "flexibility" in
negotiation had contributed to the successful
conclusion. "This textile issue between China
and the United States has been [very] difficult
over the past few years," he said, adding,
"We do not expect that this single achievement can
help solve all the conflicts or problems between
us."
HUA HIN, Thailand - After several
months of difficult negotiations, including at
least five separate meetings between US and
Chinese officials, it appears that a comprehensive
US-China textile trade deal may be at hand. The
proposed arrangement would govern
China's massive textile
exports to the US for the next three years.
Indications that the meetings were nearing a
successful conclusion have been steadily
increasing for the past few days. US newspapers
reported over the weekend that US trade
representative Rob Portman would conclude a
textile deal with Chinese Commerce Minister Bo
Xilai during world trade negotiations taking place
in Geneva this week.
On November 7,
Reuters quoted Carolyn Hern, a spokeswoman for US
Representative Robin Hayes of North Carolina, as
saying that Portman and Bo would sign the pact on
Tuesday morning in London.
Meanwhile,
industry groups on both sides expressed optimism
that an agreement would be signed soon. Cass
Johnson, president of the US-based National
Association of Textile Organizations, said: "There
are still some outstanding issues, but I think
they'll be cleared up." And the BBC cited Sun
Huabin of the China National Textile and Apparel
Council as also confirming an imminent deal.
At the same time, as of this writing, US
officials cautioned that the final details had not
been ironed out. "Nothing is agreed until
everything is agreed," said trade spokeswoman
Christin Baker. And Neena Moorjani, a spokeswoman
for Portman, told Agence France-Presse: "Our teams
continue to work through remaining issues ... we
still have some outstanding issues, but we are
hopeful those areas can be resolved."
The specifics The purported
agreement dealt with 34 different categories of
textile goods, dividing the 34 into two broad
groups, with significantly different arrangements
concluded for each. One group, which included the
14 largest and most "sensitive" categories
(sensitive largely because the quantity of imports
in those categories drastically increased this
year), consisted of items such as pants, shirts,
knitwear, underwear and bras. It is believed that
shipments from this category will be limited to a
5.5% increase in 2006, 7.8% in 2007 and 10.3% in
2008. Within the second group, with 20 other
categories, China was allowed more generous
increases of 10-12% in 2006, 12-15% in 2007, and
16% in 2008.
Prior to the agreement, China
was limited to 7.5% annual increases for most of
these categories, in line with World Trade
Organization (WTO) safeguard clauses which permit
member states to limit import growth in particular
categories of goods when certain thresholds are
exceeded. With numbers such as 10.3% in the
agreement, it appears that China was granted
substantial concessions over the existing
safeguard quantity of 7.5%.
But a closer
analysis of the numbers shows that this is
misleading. It must be remembered that the
percentage increases are cumulative - like
compound interest - so the earlier years have a
greater effect on the end result than later years.
Seen in this light, the modest 5.5%
increase for 2006 becomes highly significant. If
one actually calculates the projected quantity
increases using the published numbers, and taking
2005=100 as a baseline, it turns out that in the
first category of goods, which are the most
sensitive, China was allowed increases in 2006
that are actually lower than if no agreement had
been reached (see chart below).
In 2007,
with the higher increase, the amount ends up being
almost the same compared to the status quo
ante. And in 2008, there is a benefit to
Chinese producers from the agreement, but it is
small (125.4 versus 124.2 on the relative scale).
In the second category, the difference between the
situation before and after the purported agreement
is much greater, with a substantial benefit to
Chinese producers by 2008.
However, recall
that China's exports in the second group were less
contentious because they increased more slowly
than the first group in 2005, implying that China
has less of a comparative advantage for the goods
in this category. So the higher allowable growth
in the second category may be less of a concession
than it appears at first sight. (Note: percentage
increases for the second category have not been
precisely defined; the chart assumes that the
actual increases will be in the middle of the
range that has been reported, so a 10-12% range
was taken as 11%, for example.)
Even
for the first category of goods, the higher
percentage increases granted to China will
eventually become very significant, just as
a bank account paying 5% interest will eventually
contain much more money than an account paying
4.5% interest, even if the 4.5% account initially
holds more cash. But the resulting increases will
not have significant magnitude until after 2008 -
when the next US presidential election will be
held. Bearing in mind that many swing states in
the US south have a large textile industry,
readers may judge for themselves the reason for
this detail, just as they may logically infer why
the Chinese media will not be including the chart
above in their accounts of the upcoming agreement.
The background of the
dispute The squabble over textiles dates
back to January 1 of this year, when the
expiration of the Multi-Fiber Agreement opened the
global textile market to the most competitive
producing country - China. Vast increases in
import quantities for particular goods quickly
followed; Chinese imports of socks to the US, for
example, increased from fewer than 12 million a
year four years ago to a staggering 700 million
pairs (five Chinese socks for every man, woman,
and child in the US) in the first eight months of
2005 alone. Jeans, underwear and various other
items saw increases of a similar magnitude.
On May 18, the Bush administration used
the WTO safeguard measures and slapped a 7.5%
annual limit on increases of the most rapidly
increasing categories, which went into effect on
May 23. China immediately protested, and several
rounds of negotiations followed: the first in
mid-June, the next in early July, then two more
meetings in August, and another in late September.
The meeting in mid-August, in San Francisco, was
said to have produced "progress", but no deal
emerged, either then, or in the next meeting, held
in Beijing, which concluded September 1.
The next meeting, in Washington September
28, made progress and was even extended in hopes
of concluding a deal, but the negotiations stalled
largely in the question of the year of expiry.
China wanted the agreement to expire in 2007, like
its recently concluded pact with the European
Union over almost exactly the same issue (see Agreement ends EU-China 'bra
wars' , Asia Times Online, September 7
). The US was holding out for 2008. Although there
were also disagreements on the percentage
increases, it does appear that the US got its way
on the expiry year issue, at least, assuming the
proposed agreement is finalized.
Why
now? US-China relations have been rocky
over the past several months, due to a variety of
issues ranging from currency valuations to
intellectual property, oil deals, Iraq, and the
perennial issues of human rights, democracy and
the status of Taiwan. But stabilizing the
relationship remains extremely important to both
sides on both economic and political levels, so
the apparent resolution of the textile spat will
doubtlessly be welcomed in both Washington and
Beijing. It has been widely speculated, too, that
the consummation of a deal on textiles would
smooth the way for President George W Bush's visit
to Beijing, scheduled for November 19.
Winners and losers As is usual
in trade disputes, the agreement will produce two
sets of winners and two sets of losers. The two
winners, in this case, are Chinese textile
vendors, who stand to gain from increased business
and the greater predictability allowed by an
agreed-upon quota regime, and US consumers and
retailers, who will enjoy expanded access to cheap
Chinese clothes (although in both cases, due to
the very modest changes permitted by the deal, the
benefits will be felt slowly).
A major
part of the benefit to retailers was a removal of
the uncertainty surrounding the trade, not price
reductions. As vice chairman of the Hong Kong
Textile Council Willy Lin told the New York Times,
without any formal textile agreement, "There would
be a lot of uncertainty in the business
environment."
On the losing side of the
ledger are China's overseas competitors, who will
have to face the continuing erosion of their US
market share in the face of Chinese dominance. In
addition, of course, employment will continue
falling in the US textile industry - there will be
no interruption of this decades-long trend.
For US textiliers, reversing the tide of
Chinese clothes was not even on the table; the
most they had hoped for was holding the line at
the 7.5% annual safeguard increase. In reality,
even if they had succeeded, the writing was
already on the wall for them. Job numbers in the
sector have already fallen by more than half from
1990 to 2002, although not all of that decrease
was attributable to competition from imports (part
was due to technological improvements).
In
spite of this, union representatives complained
sharply about the apparent agreement. Bruce S
Raynor, general president of the textile workers'
union Unite Here, depicted the proposal as
"unnecessarily generous to the Chinese", adding,
"this agreement will cost tens of thousands of
jobs in the United States and in Central America,
and it gives us nothing in return."
Who
got the better of the deal? It is clear
that China gave way on the question of expiration
date, meaning the US was able to restrict Chinese
imports for a longer time than the EU (2008 versus
2007). At the same time, the US acceded to higher
percentage increases than the 7.5% it would have
allowed in the absence of an agreement.
However, as discussed previously, due to
the lower 2006 increase in the most sensitive
category, the benefits to China from this
concession will not really be felt for another
three years - when China will have to deal with a
new presidential administration, which may well
assign a lower priority to trade liberalization
than the Bush administration has.
On the
other hand, Chinese firms may respond to the freer
environment for the "less sensitive" categories of
goods by shifting production to those goods,
enabling them to sidestep one of the most
important negative aspects (to them) of the
proposed agreement. Furthermore, there are many
additional categories of textiles - covering
almost half the total trade volume - which are not
covered by the agreement at all; Chinese producers
may well boost output in these areas.
In
addition, interestingly, the National Council of
Textile Organizations (NCTO), a US textile
industry group, said that under the new agreement,
the US industry would keep the right to demand
safeguards on categories of Chinese imports not
specifically covered by the agreement. If true,
this would be a major concession by China.
Conclusion Ever since China and
the EU settled their similar dispute in mid-June,
industry observers have expected a similar deal
between the US and China, so the apparent
agreement that has emerged came as no surprise. It
should not be a surprise, either, if a
dispassionate analysis of the terms of the deal
shows that it seems to favor the US: China's
negotiating power in the textile arena is
fundamentally weaker than America's.
The
reason for this is simple: the textile industry
has far more political and economic importance in
China, where it is a major source of urban
employment, than in the US, where it is basically
a sunset industry that is only important in a few
states.
If China had refused to compromise
on the year-of-expiry issue, for example, the US
could have easily walked away, continued the 7.5%
increase safeguards, and US consumers would
scarcely have known the difference: it would
literally have been a question of paying US$1.19
for a pair of socks made in Guatemala rather than
$1.09 for a similar pair made in China, and even
that trivial inconvenience would have ended after
a few years.
Of course it is true that
inexpensive Chinese goods have contributed
significantly to keeping corporate profits high
and inflation low in the US, but the contribution
that textiles have made to this phenomenon has
been exaggerated, especially when one considers
that essentially every textile product China makes
could easily be made elsewhere, albeit at a
slightly higher cost on average.
Still,
the deal will benefit Chinese vendors and US
consumers, and it could have another effect that
is arguably much more significant: it could set a
precedent for the pragmatic, peaceful settlement
of US-China disputes. One hopes that the pattern
will hold in other areas more contentious than
textiles.
David M Lenard is a
correspondent for Asia Times Online based in
Thailand.
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