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Are Quota’s Gone For Good?  The Integration of Textile And Apparel Quotas Under the WTO Agreement on Textiles and Clothing And The China Safeguard Provisions

March 17, 2004

Less than a year remains before the January 1, 2005 deadline for the elimination of all textile quotas pursuant to the World Trade Organization’s Agreement on Textiles and Clothing (“ATC”).  Concern continues to mount that U.S. and regional manufacturing will suffer further damage once quotas are completely abolished, and with good cause.  Textile quota categories that have already integrated under the GATT 1994 agreement have seen exponential increases in imports from the People’s Republic of China (PRC) since that country’s accession to the WTO in 2002.  For example, according to the American Textile Manufacturer’s Institute, once China’s quota category 239 for baby wear was removed, China promptly dropped prices for category 239 goods an average of 57%, to $2.54/square meter from $5.92 per square meter.  Domestic manufacturers of baby clothing responded by dropping U.S. prices by 8%, to $2.69 a square meter; however, they remained uncompetitive and have steadily lost market share.  See The China Threat to World Textile and Apparel Trade, American Textile Manufacturer’s Institute (July 2, 2003).

Fearing unfair advantage from China in the absence of textile quotas, U.S. firms have begun to apply for “safeguard” quotas for certain categories of textile goods from China before the United States Committee for the Implementation of Textile Agreements (“CITA”).  The balance of this article provides information on the types of safeguards currently available against Chinese textile imports, and their status.

Safeguards Available Against Chinese Textile Products

Market access safeguards are provided for in two WTO documents: the Accession of the People’s Republic of China, and the Report of the Working Party on the Accession of China, both of November 10, 2001.  The intended affect of these safeguards is to continue market protections afforded to U.S. textile manufacturers under the soon-to-be-abandoned system of quotas in the event of a “market disruption” due to particularly high volumes of Chinese imports.

"Paragraph 242" Textile and Apparel Safeguards

Chapter IV, Section D, Subsection 11 “Textiles”, of Paragraph 242 of the Report of the Working Party on the Accession of China by the WTO provides that if a Member believes that imports of Chinese textiles or apparel products are, due to “market disruption,” threatening to “impede the orderly development of trade”, it may request “consultations” with China with a view to easing or avoiding the market disruption.  This standard appears to be less stringent than that of “serious damage or actual threat thereof” required for initiation of safeguards under the current World Trade Organization Agreement on Textiles and Clothing, which expires on January 1, 2005.

To obtain the safeguard quotas, the requesting Member must provide China, at the time of the request, with a detailed factual statement as to the reasons and justifications for its request, supported by current data showing the existence or threat of market disruption and the role of Chinese products in that disruption.

During the period of consultation, China will agreed to hold its shipments of the textile products in the categories subject to these consultations to a level no greater than 7.5% (6% for wool product categories) above the amount entered during the first 12 months of the most recent 14 months preceding the month in which the request for consultations was made.  If no agreement is reached during the initial 90‑day consultation period, consultations would continue and the requesting Member can continue to impose the 7.5% limits. 

Time Limit on Paragraph 242 Safeguards

There is a time period for restraint limits under Paragraph 242.  It begins on the date of the request for consultations and runs through the 31st of December of the year in which consultations were requested, or where three months or less remains in the year at the time of the request for consultations, for the period ending 12 months after the request for consultations.  No Paragraph 242 safeguards may remain in effect beyond one year without reapplication and the agreement of China.  The provisions of “Paragraph 242”, apply to trade in textiles and clothing products until December 31, 2008. 

"Article 16" Product-Specific Safeguards

Section 16 of the Accession of the People’s Republic of China provides for a transitional product-specific safeguard mechanism, which is available to all WTO members until January 1, 2014. 

Section 16 allows WTO members, such as the United States, to initiate restraint levels against specific products of Chinese origin, including textiles, if significant increases in imports produce a market disruption to the economy of the member country.  A market disruption for the purposes of Section 16 is an increase in exports to the member country that threatens to “impede the orderly development of trade" in these products.

Before initiating an action for Section 16 safeguards, the effected WTO member must request consultations with China with a view to easing or avoiding such market disruption, just as required for Paragraph 242 safeguards.  Although the Section 16 provision does not directly address textiles, it is “product specific”, and could be used as a mechanism for restraining Chinese textile imports after expiration of the paragraph 242-safeguard mechanism on January 1, 2008.

Requests for Safeguards Currently before CITA

In the summer of 2003, CITA received three separate requests for safeguards from domestic interested parties covering certain textile product categories imported from China.  The domestic interested parties included the American Yarn Spinners Association, American Manufacturing Trade Action Coalition, American Textile Manufacturers Institute and the National Textile Association.  Upon receipt of the requests for consultations, China agreed to hold shipments of the contested categories to the limits imposed by Paragraph 242.

Textile Categories Covered by Current Requests

Currently, three paragraph 242 requests for safeguard quotas have been filed with CITA.  All three requests alleged that imports from China of the textile products listed below are causing a market disruption that threatens to impede the orderly development of trade in these products:

  1. Knit fabrics of textile category 222;
  2. Cotton and man-made fiber bras of category 349/649; and
  3. Cotton and Man-Made Fiber Dressing Gowns of Category 350/650.

The parties’ request and that CITA seek consultations with China on imports of these items and in December of 2003, CITA announced that the U.S. requested bi-lateral textile consultations with the Government of the People’s Republic of China with respect to these goods.  At the same time, CITA issued directives to Customs establishing import limits on categories 222, 349/649 and 350/650 for the twelve-month period of December 24, 2003 through December 23, 2004. 

Interim Visa Requirements

Paragraph 2.B. of the U.S.-China Textile Visa Arrangement provides that if additional categories become subject to import quotas, those categories shall be automatically included in the coverage of the Visa Arrangement.  In January 23, 2004, U.S. began to require that shipments of Chinese origin in categories 222, 349/649 and 350/650 be accompanied by an export visa and Electronic Visa Information System (“ELVIS”) transmission from the Chinese Government. 

Conclusion

Although the China safeguards are provided for in WTO documents, to which the United States is a signatory, U.S. Law and regulations remain silent as to their presence and applicability.  It took CITA a full sixteen months following the accession of China into the WTO to publish procedures for safeguard request.  So far, CITA guidelines are the only acknowledgement by any branch of the U.S. Government as to the validity of the safeguards as a mechanism of trade control in the absence of textile quotas. 

The three safeguard actions currently negotiated by CITA are under paragraph 242, and it remains to be seen how effective these applications will be.  It also remains to be seen if and how the Section 16 safeguards will provide any relief to U.S. textile manufacturers following the expiration of Paragraph 242 safeguards in January 2008.  What ever else is clear, it should be expected that the U.S. will attempt to protect what remains of its is domestic textile manufacturing base against market disruptions by China, and that importers of textile and apparel products will not have seen the last of quota and visas requirements despite the termination of the ATC on January 1, 2005.

If you have any questions on the issues raised in this newsletter or any other Customs related issues, please contact George R. Tuttle, III at (415) 288-0428 or via email at geo@tuttlelaw.com.

George R. Tuttle, III is an attorney with the Law Offices of George R. Tuttle in San Francisco. The information in this article is general in nature and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

Copyright 2005 by Tuttle Law Offices.

All rights reserved. Information has been obtained from sources believed to be reliable. However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.

 

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