It is sad for company executives to curb business growth themselves. But the curbing of growth is now being hotly debated among Chinese textile producers.

All quotas restricting textile and clothing trade between the World Trade Organization (WTO) members will be eliminated by December 31, 2004, according to the Agreement on Textiles and Clothing reached under the General Agreement of Tariffs and Trade (GATT) in 1994. GATT was the forerunner of the WTO, of which China became a member in 2001.

After looking forward to the removal of quotas for a decade, the bosses of Chinese textile companies are considering whether they should set a voluntary cap on export growth.

And why would China accept a new ceiling, passing up the chance to increase its share of the US$27 billion US apparel and shoes market?

It has to, because if it does not, China faces a "safeguard" threat, a provision in the WTO rules that allows the United States or any other WTO member, to limit imports on the grounds that its local market will be disrupted.

The Bush administration decided to impose safeguard measures on Chinese imports of knitted fabrics, dressing gowns and bras last November and socks this October.

Just days before, Bush also announced he was considering a request by the US textile industry to have caps on shipments of Chinese-made cotton trousers to the United States.

The US textile industry has also filed petitions for limits on Chinese shirts, sheets and other textile items.

Grant Aldonas, the Commerce Department's undersecretary for international trade, visited China in September to seek an agreement on voluntary caps. The Bush administration hopes to persuade the Chinese to agree to limits in areas where US manufacturers are strong, like trousers and knitted shirts.

The US Commerce Department says it is willing to accept petitions from US manufacturers who are feeling threatened that Chinese shirts or towels will inundate the market once there are no quotas.

But so far, the Chinese Government has rejected suggestions by the Bush administration.

China should not accept the request just because of the threat of safeguard measures, said Wang Li, an analyst from the Chinese Academy of International Trade and Economic Cooperation.

The elimination of the 30-year-old quota system for textiles and clothing was a crucial demand of developing nations in talks that led to the establishment of the WTO, Wang said.

China entered the third stage of quota cancellation when it became a WTO member in 2001. The cancellation of quotas on 87 items by the United States and the European Union (EU) in that year helped China's exports of textile products jump from US$53.3 billion in 2001 to US$80.4 billion in 2003, up 51 percent in two years.

The United States and the EU are expected to further abolish quotas on 126 items by 2005, which account for about 60 percent and 61 percent of their total textile imports, respectively. The cancelled quota of the United States is estimated to be worth US$76.0 billion.

In fact, the trade volume put under quota restriction accounts for about 70 percent of the total textile trade in the world, and the trade volume that is free of quota restriction is about 30 percent.

By contrast, China's exports of textile products account for only 5 percent of the world's total textile trade under quota restriction, and 30 percent of the total free of quota restrictions.

The figures show that China's export of textiles has been seriously affected by the quota restriction, Wang said.

"Why give up benefits which we have been expecting for a decade and which we got after hard negotiations and many concessions," Wang said.

Wang said he was worried other WTO members would follow after China accepts the agreement with the United States.

Wang said China can protest caps or safeguards proposed by the United States at the WTO.

But textile bosses said to solve every dispute at the WTO was not practical and was not the best business solution.

"If China files all the WTO cases it wants, by the time we finish with the WTO case it might be 2008," said Liang Xing, president of the Shandong Weiqiao Textile Company.

The possible safeguard dispute has been a big concern for both foreign and Chinese textile companies.

The Chinese Export Commodities Fair in Guangzhou showed the uncertainty.

Garment companies signed deals valued at US$2.76 billion, a dip of 1.2 percent year-on-year. And contracts of textile products reached US$2.14 billion, rising only 0.1 percent.

Liang said the US companies were very cautious when signing agreements because of the possible textile trade disputes. They also asked to add an appendix about possible safeguard measures.

Ma Bin, manager of the department for US and European markets of the Ningbo Shenzhou Textile Co Ltd, said local textile companies dare not sign big deals with US companies before the textile trade policy is clear.

"Our products will have to move back if the US Government orders a ban, even if we have arrived at the port," Ma said.

At a recent closed-door meeting on the post-quota period, an official from the Ministry of Commerce asked whether companies would support stricter industry management after quotas are lifted.

Seventy to 80 percent of the 400 company representatives present raised their hands.

To Ma, stricter industry management is equivalent to voluntary caps on exports.

"It is necessary for government or industry organizations to control blind development," Ma said.

With quota costs being eliminated in China by the end of the year along with US and EU limits, international buyers have begun putting pressure on suppliers to further reduce prices, especially in China, Ma said.

Price pressure is nothing new, however. The average export price of China's woven apparel has already declined 27 percent in the past five years while prices of knitted apparel are down 33 percent.

As total revenues of China's textile and apparel companies would be up 30 percent to US$163 million in 2004, profits would only rise 5 percent at US$4.6 billion, an industry report said.

Liang agreed with Ma, saying they would prefer a steady growth rate rather than the fear of uncertainty because of a dispute.

"I believe the United States will file more safeguards to protect its textile industry. I do not want to see my business be broken suddenly." Liang said.

Zhang Hanlin, director of the WTO Research Center at the Beijing-based University of International Business and Economics, suggested Chinese textile manufacturers and exporters form alliances.

If export growth goes too rapidly, they should try to slow it down, he said.

"Maybe we will win in a legal sense. But the business will suffer more," Zhang said.

Safeguards are simpler than anti-dumping actions because there's no need to prove that the exporter was selling at prices below the cost of production, he said.

Therefore, safeguards are abused, he said.

The Chinese side will have greater room for negotiation for voluntary limits rather than bargaining with the United States after it decides to impose safeguard measures, Zhang said.

According to WTO rules, China has to restrict shipments of socks to a level no greater than 7.5 percent above the amount that entered the United States during the first 12 months of the most recent 14 months preceding the request for safeguard consultations.

The rules also say consultations with China will begin within 30 days of notification of the request and the two countries have 90 days to reach a resolution.

If the two sides fail to reach a resolution, the United States can unilaterally impose quotas for one year, limiting growth of China's imports in categories to 7.5 percent.

Limits on Chinese knitted fabric, dressing gowns and bras remain at 7.5 percent because consultations failed.

However, even as stricter management is supported by the government, it is still a big question on how to put it into place.

An unnamed official from the China Chamber of Commerce of Import and Export for Textiles said it was a fresh topic and the Chinese Government had never handled such issues.

Many private textile companies are against the stricter management system, which they fear will bring them back to the old quota system, said Zhao Hanyu, chairman of Zhejiang-based Tianlong Holding Co Ltd.

The quota has greatly increased the price of Chinese clothes and other textile products sold to the United States. For example, in order to reach quotas, Chinese manufacturers will have to pay an extra US$80 for 12 pairs of cotton trousers whose price is only US$120.

Quotas are usually shared among State-owned companies and private companies have to buy quota from State-owned companies.

The costs of quotas have made the price of many Chinese textile products close to those of some quota-free Southeast Asian countries, although China's manufacturing costs are much lower, Zhao said.

"We believe stricter industry management is a choice facing the US safeguard threat, but it should be an effective way rather than the allocation of export share by the government," he said.

Reports said some insiders have proposed capping the export growth rate by 25 percent or more.

And export registration is another way to control the speed of the flow. Some producers also suggested establishing floor export prices for a series of products.

If a management system is to be adopted, it should be put in place next month, before the lifting of quotas on January 1, 2005.

(China Daily November 2, 2004)