The US decision to impose new ‘safeguard’ quotas on imports of some Chinese textiles can only be described as a dumb move by an Administration that has apparently not learned the lesson of the steel ‘safeguard’ tariffs: they don’t protect jobs or promote adjustment. They hike costs, hurt productivity and reward lazy capital. It’s not clear that holding the growth of dressing-gown and bra imports from China to a 7.5% annual growth rate (down from an “alleged(link to the Economist Magazine)”:http://www.economist.com/agenda/displayStory.cfm?story_id=2242312 growth rate of 32% this year) will do any harm to China. Exporters could well profit from the firming of US domestic prices that will likely follow the Bush decision. The meaning of the safeguards to other exporters of textiles and clothing is, however, very clear. In fact, many observers have been predicting new US quotas on Chinese imports since the China and the USA negotiated Article 16 (the ‘safeguard’ article) of the China WTO Accession Protocol in 2001. They have been convinced—rightly it seems—that the USA would never allow China to take full advantage of the liberalization of textile markets that has been slowly and unsteadily taking place over the last decade. A decade ago, the United States and other industrialized countries agreed to abolish all textile and clothing quotas from 1 January 2005, replacing the quantitative barriers, which are otherwise illegal in WTO, with tariffs. It was one of the two most important agreements ever signed in WTO (the other is the 1994 Agreement on Agriculture); the pre-eminent trade policy contract between the industrialized ‘north’ and the industrializing ‘south’. The completion of the WTO “Agreement on Textiles and Clothing(link to WTO site with more information)”:http://www.wto.org/english/docs_e/legal_e/ursum_e.htm (ATC) in 13 months’ time will allow competition in the global textile and clothing market to reflect rapidly changing competitive conditions on the production side. Some countries (e.g. China, Vietnam) that have no historical ‘shares’ in the import quotas that remain in the EU, Canada and the USA can expect to be big winners, gaining access on a non-discriminatory ‘tariff only’ basis. Consumers in industrialized countries are also be big winners from the quota liberalization of the ATC. When China joined the WTO in 2001 it won immediate access to the benefits of the first seven years of quota liberalization under the ATC. US consumers proved to be so hungry for competitive Chinese products that US textiles and clothing imports from China increased by 125% in 2002 while apparel imports increased by 60%. Any sign—such as these new ‘temporary’ quotas on competitive production—that the USA might welch on its commitment to replace its remainign textile and clothing import quotas with tariffs on schedule on 1 January 2005 will deeply sour global trade relations particularly with developing country governments in parts of East Asia. On the other hand (there’s usually an “other hand” in trade negotiations) it might secretly please governments in countries of Africa that rely on preferential access to the US textiles market to remain competitive. And it might please exporters in regions such as Central America whose customers could well turn to e.g. China once the market is opened up to all competitors. For a review of ATC liberalization issues—who wins and who might lose—see the International Trade Center’s “Forum Magazine(link to ITC site)”:http://www.tradeforum.org/news/fullstory.php/aid/550/Textiles_and_Clothing:What_Happens_After_2005.html
Peter Gallagher is student of piano and photography. He was formerly a senior trade official of the Australian government. For some years after leaving government, he consulted to international organizations, governments and business groups on trade and public policy.
He teaches graduate classes at the University of Adelaide on trade research methods and the role of firms in trade and growth and tweets trade (and other) stuff from @pwgallagher