Saturday, September 10, 2005

Chinese officials recently waxed indignant about the breakdown of talks over textiles. “The U.S. government’s decision to yield to domestic protectionists has time and again egged them on to demand more and more,” said an editorial in the China Daily, a state-run newspaper. Unsurprisingly, that editorial failed to mention some of Beijing’s surreptitious protectionist measures, like the distribution obstacles it places on many exports that have technically been allowed to enter China. Beijing is in an awkward position to criticize Washington on protectionism.

Under a global trade agreement, quotas on textile imports had to be phased out by Jan. 1. Given the enormous volume of Chinese textile exports though, China agreed when it was allowed into the World Trade Organization to allow countries to put up so-called safeguard quotas if they became inundated by Chinese textile exports.

Countries around the world have experienced that inundation. In the first six months of the year, China’s textile exports to the United States surged 97 percent to $7.4 billion. U.S. clothing manufacturers say Chinese textile exports since the beginning of this year have forced 19 U.S. plants to close, causing a loss of 26,000 jobs. The United States in May first invoked its right to put up safeguard quotas in several areas, and did so again on Sept. 1, when it placed quotas on two categories of Chinese clothing.

Although the United States has the ability to invoke safeguards, it is still in U.S. interests to negotiate a broader textile agreement with China. The U.S. textile industry has to reapply for the safeguards in every product area every year, a laborious process that creates uncertainties for the industry, U.S. importers and Chinese exporters as to when quotas will be applied and to which product areas. China itself would benefit from a broad and flexible agreement with the United States that would, for example, allow the Chinese to “borrow” from next year’s quota if certain imports are brought in too quickly.

China’s textile agreement with the European Union, reached in June, originally did not include that needed flexibility and European importers were given short notice about the new, negotiated quotas. As a result, many quotas were filled quickly and millions of pieces of Chinese clothes that were ordered by EU importers were warehoused at EU customs posts, forcing European authorities to renegotiate with Beijing a more flexible agreement. A new EU-China deal was reached this week.

The United States still has the right to invoke safeguards until the end of 2008 and is therefore in a strong negotiating position. Beijing insists that the United States should try to compete commercially in more sophisticated areas, leaving the textile trade to emerging economies, like China’s. Strategically speaking, Beijing is right, but for the time being the U.S. textile industry is providing jobs for U.S. workers. Those workers need more time to make a transition. After 2008, the United States will be forced to reckon with the full brunt of Chinese textile exports. Until then, the White House should make sure it gives its U.S. workers the time they need to find new jobs.

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