The US Commerce Department announced the introduction of special safeguard measures on November 18. Ever since, the move has attracted much attention both at home and abroad for it imposes quota restrictions on certain textile products from China. Knitted fabrics, bras and dressing gowns have been targeted. Dr Hu Jiangyun, an assistant researcher with the State Council Development Research Center offers an expert opinion on the problems quotas will bring.

1. Reasons given for the quotas.

The US government has advised that it is bringing in the quotas in response to the needs of the US textile industry. The regulations governing China's entry into the World Trade Organization (WTO) include provisions under which the US (and other WTO members) may set temporary quotas on Chinese textile products should such imports from China give rise to disruption in domestic markets.

According to the explanation offered by the US Committee for the Implementation of Textile Agreements (CITA), imports of certain textiles and clothing from China saw such rapid growth that US markets have been de-stabilized (see table)

Year-on-year growth in imports from China in the nine months to Sept 2003

Source: US Commerce Department: see http://otexa.ita.doc.gov

2. Effects of the quotas.

Regardless of whether or not the US quotas on Chinese textile products are reasonable and/or tenable, they will certainly make their influence felt.

Impact within China:

Quotas will lead inexorably to unemployment in China's textile industry during a time of economic transition. China is a developing country with a huge population. Jobs are important and unemployment brings very real difficulties. Textiles play a key role in China not least because this is a labor-intensive industry. Quotas on China's textiles were removed following WTO entry. This led to a time of rapid growth in the industry with many new job opportunities. The return of quotas will mean the return of the scourge of unemployment for some textile workers.

Quotas will be detrimental to the restructuring of China's textile industry. The country implemented industrial restructuring in the late 1990s and the improvements are now apparent. When it was necessary to lessen the impact of the Asian financial crisis, China brought in government compensation schemes and reduced its textile production. The imposition of quotas on Chinese textile products is sure to damage the restructuring of the textile industry. It will upset the balance between supply and demand. Those other industries that depend in one way or another upon the textile industry will also be affected to a greater or lesser extent.

Quotas set a bad precedent. China's textile exports may now be more likely to encounter frictions over trade with other countries. Other WTO trading partners may follow the US lead and invoke the regulations, further squeezing the overseas market access available to Chinese textile products.

Impact on the US economy:

Protectionism will lead to higher prices of domestic textile products as they find themselves cushioned for a while against the realities of lower labor costs elsewhere.

Protectionism is detrimental to the development and revival of the US economy. Textiles are consumer goods and price increases are reflected in overall consumer spending. Such a protectionist approach can hardly enhance the competitiveness of the domestic industry. It may lead instead to a vicious circle that puts obstacles in the path of economic development and revival.

Protectionism may well bring hardship to the US. An overly zealous recourse to WTO regulations in a multilateral trade context could provide an example for other WTO members to follow and see reprisal follow reprisal. At the end of the day the US may see protectionism come home to roost.

Protectionism will be detrimental to the development of healthy trade relations between China and the United States, which overall is China's second biggest trading partner. The US is China's biggest export market while China is the fourth biggest export market for the US, now lying behind only Canada, Mexico and Japan. More investment has come to China from the US than from any other country. The quotas will affect US textile enterprises operating in China.

3. Behind the headlines

US trade protectionism

The grounds given for the introduction of US textile quotas are not well founded and China's Foreign Ministry and the Ministry of Commerce have both called in representatives from the US embassy to register their complaints.

The ministries made clear their view that the quotas do not actually conform to CITA procedures on special safeguards with respect to Chinese textiles and clothing. In addition they are at variance with the pledges contained in the working group's report on China's accession to the WTO.

The distortion and misuse of limitation measures do not have a sound legal basis. The quotas are at odds with the documentation relating to China's entry into the WTO for they go against the principles of free trade, transparency and non-discrimination. What's more they also send the wrong signals to US industry and other WTO members.

Other countries have actually been experiencing much higher growth rates in their textile exports to the US in the affected categories. They are members of the North American Free Trade Area or have other agreements with the US and they have not seen quotas imposed.

The underlying reasons behind the textile quotas are to be found in domestic economic and political pressures in the United States. The cycle of economic recovery has been slow in the US and the dollar has weakened. Stagnation in the US textile industry comes as a result of a lackluster domestic economy. The large trade deficit with China is due in no small measure to the United States' own actions in limiting high tech exports to China where they would find a ready market.

The upcoming 2004 presidential and congressional elections coupled with a worsening situation in Iraq have given rise to the pressures in the United States that have led to the wrong decision being made on quotas.

Back in early 2002, the United States went ahead with the 201 Steel Case only to be on the receiving end of a negative judgment from the WTO. The textile quotas are just another case of trade protectionism.

Resolving the dispute

Sino-US trade relationships have now entered a sensitive stage. This is a time to keep a cool head and work carefully to bring about a settlement to these present difficulties:

Good mutual communication is necessary to spell out the disadvantages to both sides resulting from the imposition of quotas. Stagnation in the US textile industry does not result from imports from China.

During multilateral trade negotiations, China should press the case that as a new WTO member, it should enjoy those rights appropriate to a developing country and a new member of the WTO.

As the issue develops we may see various avenues being followed. Those US enterprises, organizations and transnational corporations whose interests in China are disadvantaged may well chose to lobby the US Congress. There could be recourse to WTO dispute resolution mechanisms. Then there would be the option to adopt retaliatory measures.

(China.org.cn translated by Li Xiao, December 5, 2003)