WorldCity Business Magazine

Sewing up a deal

by Jeffrey Sparshott

If you think the textile spat between Asia and the European Union has nothing to do with the United States, you should think again.

Wags in Britain called it a tempest in a D-cup.

A June agreement between the European Union and China to limit the Asian nation’s exports of textiles and apparel caused a massive pile-up of garments at European ports and a shortage of clothing at some European retailers.

E.U. Trade Commissioner Peter Mandelson in early September struck a deal with China to ease quotas and admit half of the surplus sitting in European warehouses.

“This is a large volume of garments, I realize. But the consequences of not doing so will be severe economic pain for many smaller retailers and medium-sized businesses,” he told members of the European parliament.

If you’re not planning to hit boutiques in Rome or Paris anytime soon, you may think the spat between Brussels and Beijing is irrelevant. However, the 25- nation bloc is struggling through the same transition as the United States. The stakes are high and the situation may change quickly, but for now the textile and apparel trade is one of the most pressing U.S.-China commercial issues.

On Jan. 1, 2005, a decades-old system of textile and apparel quotas expired. The quotas limited how much any one country could sell to Europe or the United States, effectively protecting domestic manufacturers in wealthy nations and keeping the global industry diversified across multiple nations.

Retailers prefer to simplify supply lines and source from one country. That is what many in Europe and the United States had been planning to do, and China’s manufacturers were ready to pounce. The country’s clothing exports have skyrocketed, to the detriment of manufacturers just about everywhere else.

To combat the surge, Mandelson negotiated a deal with China capping imports in 10 categories of clothing, including bras and bed linens, through 2007. The quotas quickly filled and retailers faced clothing shortages until the September compromise.

Across the Atlantic, the Bush administration also has been trying to sew up a deal on fabric and clothing. U.S. imports of Chinese apparel and textiles have grown 67 percent in 2005 compared to 2004, giving China $10.8 billion in exports in the first half of the year.

In some clothing categories, like cotton socks, sweaters and skirts, the increase in volume is more than 1,000 percent. U.S. manufacturers, meanwhile, shed 26,000 jobs while 19 textile plants closed from January through July.

When it joined the WTO, China agreed to abide by a system of safeguards that allows the United States to cap imports on individual lines of clothing if those imports prove disruptive. In late August, manufacturers petitioned for safeguards on 19 clothing categories and received new caps on eight, including some cotton pants, shirts, underwear and socks.

The cap limits import growth on those items to 7.5 percent.

Decisions on the other 11 categories were postponed to allow the United States and China to reach a broad agreement. It now looks as if talks have stalled.

U.S. manufacturers are pressing a hard line and would prefer no deal to a bad deal. The industry is ready to file yet more safeguard cases a move China considers unwarranted protectionism. U.S. retailers, meanwhile, appeared relieved that a too-stringent deal was not reached.

“The Europeans have taught us what happens when an agreement is negotiated haphazardly and without adequate consultation with the importing and retailing community,” said Laura Jones, executive director of the U.S. Association of Textiles and Apparel.

U.S. importers, long aware that manufacturers were likely to seek and get some protection, have been more cautious about putting all their eggs in the China basket. But they are vulnerable.

Chinese cotton trousers, cotton knit shirts and underwear are now banned from the U.S. market because quotas were filled. China hit its newly imposed limit on those products in July, a mere six weeks after safeguards were imposed, as importers rushed products into the market.

Time will tell if the fight socks it to U.S. consumers.