Twisted Threads in U.S.-China Trade


By Paul Magnusson After two days of talks in San Francisco on imposing new quotas on Chinese exports of clothing to the U.S., the two sides concluded with an agreement to continue talking. Sound familiar?

It should. The history of trade negotiations between the two nations doesn't feature any examples of lighting-quick deals.

IRREVERSIBLE TREND. It took 13 years for the U.S. and China to negotiate the terms of China's entry into the World Trade Organization, for example. Talks on relaxing Beijing's strict peg to the dollar continued for two years before the announcement of a tiny 2.1% revaluation in July. And the current San Francisco talks are just part of a string of negotiations over China's clothing and textile exports that date back to the first Clinton Administration.

So don't expect any quick turnaround of the U.S. textile and clothing industry's enormous losses. Just the opposite, in fact. Since 1994, employment in the U.S. clothing industry has fallen from 858,000 to just 258,000, a drop of 70%. Whatever the results of the negotiations on China's exports, clothing-industry job losses will continue.

To see why, step back to 2002, when China joined the WTO. By joining that 148-nation group, China came under WTO rules that required all its members to finally phase out the clothing and textile import quotas that had protected clothing manufacturing in the U.S., Europe, and Japan from low-wage producers worldwide. As the most efficient producer, China stood to dominate the world market.

EUROPE'S EXPERIENCE. But the U.S. and the EU managed to erect one small hurdle in front of Beijing: If China's exports exploded, the U.S. and the EU would be allowed to hold down imports in selected clothing categories to increases of 7.5% through 2008. After the quotas finally came off last Jan. 1 and China's exports to the U.S. of clothing soared by around 50% -- and more than 1,000% in some categories -- the U.S. and Europe imposed new quotas.

The current talks with the U.S. are an attempt by China to ratchet up that 7.5% yearly increase through 2008, just as it did with Europe, which earlier granted larger increases of 8.5% to 12.5% in various categories. But so quickly have China's exports to surged that it has reached nearly 100% of its yearly European quotas in some clothing lines such as sweaters. And that's with more than four months -- and the Christmas buying season -- left in the year.

Not surprisingly, European retailers, which vastly outnumber the Continent's clothing and textile manufacturers, are loudly complaining and calling for the just-imposed quotas to be relaxed. If U.S. quotas begin to bite on Chinese imports, expect the same howls from U.S. retailers.

"ENORMOUS" PRESSURE. U.S. workers in the clothing-manufacturing industry are pinning their hopes on vague promises that the Bush Administration made to congressmen from America's Textile Belt to secure their votes for a recent trade deal with six Central American and Caribbean nations. The White House promised to help America's dwindling clothing industry if Republican Congressmen from the Carolinas and Virginia would support the Central American Free Trade Agreement (CAFTA).

"The Bush Administration is now under an enormous amount of pressure to make good on a lot of promises made to textile Congressmen to get their vote after they stuck their neck out," says Lloyd Wood, a spokesman for the American Manufacturing Trade Action Coalition, a group of mostly U.S. textile and apparel manufacturers that opposed CAFTA and support renewed quotas on China.

But the truth is, voters in the textile belt have short memories. Some of the House vote-switchers, such as Robin Hayes, (R-N.C.), who cast a similar last-minute tie-breaking vote in 2001 to give President Bush authority to negotiate CAFTA, have escaped retribution from the voters. After insisting that he was "flat-out, completely, horizontally opposed to CAFTA," Hayes said he changed his mind late on the evening of the vote after House Speaker Dennis Hastert (R-Ill.) promised that the Administration would protect Hayes' constituents from Chinese imports.

PREMIUM ON PATIENCE. Asked recently what exactly the Administration promised to do about China, the third-term Representative replied he had received "the Administration's assurances on these new provisions and about renewed efforts to crack down on the main adversary to our domestic industry -- China."

Apparently no one told Hayes exactly when the Administration would crack down. And it doesn't look like it will be soon. Magnusson is a correspondent in BusinessWeek's Washington Bureau


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