WTO: China Likely to Dominate Textile Trade:
It will grab business from many other nations once quotas are phased out at year-end, a report says.

By Evelyn Iritani

LA Times
February 11, 2004

China is set to dominate the world textile and apparel industry, grabbing a
significant share of the market from many developing countries once quotas
are lifted at year-end, according to a widely awaited report released
Tuesday.

The report by the U.S. International Trade Commission details the dramatic
changes expected after Dec. 31, when worldwide apparel and textile quotas
will be completely phased out.

As predicted by many, the elimination of quotas - which guarantee market
share to certain countries in products ranging from baby garments to
luggage - is expected to accelerate the shift of apparel manufacturing to
low-cost and efficient producers in China and India. That could be
devastating to less competitive countries in Southeast Asia, Latin America
and Africa that employ millions of workers in the industry, according to the
report.

Economists say it also probably will accelerate the loss of jobs from
higher-cost U.S. clothing manufacturers, including some in Southern
California. But it will lower prices for retailers and other importers,
which can pass along those savings to consumers.

The ITC report probably will fuel an election-year push by U.S.
manufacturers for increased protection from China. Last year, the Bush
administration agreed to impose restrictions on the import of Chinese-made
bras, dressing gowns and knit fabric. Domestic manufacturers are hoping the
government will pressure China to limit its textile and apparel exports
after the quotas end.

"It's very sobering," said Cass Johnson, senior vice president of the
American Textile Manufacturers Institute in Washington. "This is more
evidence that we need the government to address the disaster that's going to
happen."

U.S. manufacturers are waging a fierce campaign in election-year
battlegrounds in the South that have been hit hard by cutbacks in textile
and apparel manufacturing. They say tens of thousands of more jobs will be
lost if China's low-cost firms are set loose on the global market without
restraints.

The effect already is being felt around the globe, as foreign governments
and companies scramble to reinvent themselves. U.S. companies are
restructuring their supply chains. Poor countries such as Mauritius, which
employs 80,000 people in textiles, are struggling to develop new industries.
Hong Kong quota traders are trying to figure out their next line of work.

The repercussions will be felt in Los Angeles County, where apparel
manufacturing employment has fallen from a peak of 103,900 in 1996 to 67,800
in 2002, according to the Los Angeles County Economic Development Corp. On
the flip side, China's booming textile producers have become top customers
for California cotton growers.

The quota system stems from the history of textile and apparel production as
one of the world's most heavily protected industries. To protect their
domestic manufacturers, the U.S. and many other governments issued quotas
that set annual allotments for imports from apparel and textile producing
countries. Under pressure to eliminate those barriers, the World Trade
Organization negotiated the Agreement on Textiles and Clothing in 1994. That
pact was designed to gradually phase out quotas over a 10-year period.

With their market share guaranteed under quotas, certain countries developed
textile and apparel industries. Those countries now are threatened by the
quota phaseout.

The report, requested by the U.S. trade representative's office, doesn't
analyze the effect of the quota phaseout on the U.S. manufacturing sector or
on consumer prices. But it does conclude that China is expected to become
the "supplier of choice" for most U.S. importers because of its "ability to
make almost any type of textile and apparel product at any quality level at
a competitive price."

China's capabilities can be seen in areas where quotas don't exist or have
been lifted. In Japan, which doesn't have quotas, China had 77% of the
apparel import market in 2001, the report says. China's share of the U.S.
baby garment market rose from 3% in 2001 to 27% in 2002 after quotas were
lifted in that segment.

China's low labor costs and high productivity are the biggest factors behind
its likely dominance of this industry, the report says. Although other
countries have lower wages, China's base of modern factories, a growing
number of suppliers and increasingly efficient shipping networks have made
it difficult for other countries to compete.

China will not be the only player left standing, however. The report notes
that U.S. importers are leery of becoming too dependent on one country, and
also are fearful of getting caught in a trade battle between the U.S. and
China.

That means retailers will be placing orders in other countries, with India
and Pakistan probable beneficiaries.

U.S. importers argue China is being used as a scapegoat by U.S.
manufacturers that are uncompetitive because of their high costs and rising
wages. They disagree with the charge that a recent surge of Chinese imports
has devastated the U.S. manufacturing base, given the decades-long movement
of labor-intensive manufacturing offshore.

Though they agree that China will become a more significant force in the
global apparel and textile industry next year, they say other countries will
remain competitive because of long-standing relationships with U.S. buyers
and the importance placed on diversification.

"Companies don't want to be diversified in 35 countries and they don't want
to be limited to one," said Brenda Jacobs, counsel for the U.S. Assn. of
Importers of Textiles and Apparel, a Washington trade group. "That gives you
too little leverage. It exposes you to too many factors outside of your
control."

Importers agree, however, that the biggest losers in a quota-free world are
countries with higher labor rates or inefficient manufacturing operations
and transportation networks. Delivery time is critical, which gives regions
closer to the U.S. an advantage.

But even Mexico, which has been one of the U.S.' leading suppliers of jeans
and T-shirts, is expected to lose ground because of lagging competitiveness.