The quota system that has controlled world textiles trade for over 40 years will come to an end in two more months to come. World textiles trade will herald trade liberalization.

Cancellation of quota promotes trade liberalization

Quota control set up on textiles has been a time-honored practice. For a long time, the United States, Western Europe and other developed countries have instituted trade protectionism for their textile industries plagued by gradually declining competitiveness. Driven by their pressure, the "Agreement on Short-term Cotton Textiles" and "Long-term Cotton Textiles Trade Agreement" had been formed in succession since 1961 within the scope of the General Agreement on Tariffs and Trade (GATT). This was expanded further to "Multi-fiber Agreement" in 1974. In 1986, developing countries and regions held a coordination meeting in Beijing and published the "Beijing Declaration", urging developed countries to open textiles and garment markets.

The "Uruguay round negotiation" listed textiles and garments trade as one of 15 topics for negotiation and determined to include textiles and garment trade in the targets of negotiation on GATT rules. Through the unremitting efforts and persistent struggles by developing countries and regions, the developed nations made fairly big compromise, the various parties involved in the negotiation finally reached the "Textiles and Garments Agreement" in December 1993. This agreement was used to replace the "Multi-fiber Agreement", thus making transitional arrangements for the final cancellation of quota restrictions. The "Textiles and Garments Agreement", which is a phased agreement, aims mainly to gradually cancel restrictions within the10-year period of validity from January 1, 1995 to December 31, 2004, so that textiles and garments trade that has long been deviating from multilateral trading rules will finally be included into the framework of WTO rules, and thereby give an impetus to trade liberalization.

Textile circles and news media are making predictions on the cancellation of textiles and garments quotas, saying that China will be the greatest beneficiary. Figures show that China's inland textiles and garments exports hit US$35.55 billion in 1994, surpassing that of the Hong Kong region for the first time to rank itself first in the world, with the gross export volume accounting for 13 percent of the world total that year.

Beginning in 2002 after its accession to the WTO (World Trade Organization), China's exports to the United States and the EU have witnessed rapid growth. China's textiles and garments export volume has experienced rapid growth in recent years, the total volume of China's exports of such products came to US$78.85 billion in 2003, representing 18 percent of China's gross export volume in that year. In the first half of this year textiles export stood at US$15.67 billion, up 26.3 percent year-on-year; garments export at US$25.96 billion, up 21.7 percent. The Hong Kong region, Japan, the EU, the United States and the Republic of Korea (ROK) are the five major markets for Chinese textiles and garments. As everybody knows, Hong Kong functions as a transit market, in fact, Japan, the EU and the US are three major markets for China's textiles and garment exports.

China's textile industry faces grim challenges

In early March this year, textiles and garments industry organizations of the United States, Turkey and Mexico formed an alliance for fear that future world markets would be monopolized by China, they published the "Istanbul Statement" in Turkey, calling on the WTO to convene an emergency conference to discuss the proposal on extending the term of textiles quota to the end of 2007. Thereafter, over 90 organizations from 52 countries put their signatures on the Declaration as an expression of support. But presently, cancellation of quota on January 1, 2005 has become a foregone conclusion. Backtracking is unfavorable to trade development of the whole world and is thus unpopular.

In fact, as signs show, after the abolition of the quota system, the complexity and volatility of the trading environment will pose severe challenges to China's textile industry. In late August this year, the report issued by the WTO economic research department points out that after global textiles and garments quotas are abolished, China will not control the global textiles market. The report points out that some developing countries are the neighbors of garment importers, their geographical advantage gives these countries a competitive edge.

In addition, many developing countries can compare favorably with China in the aspect of labor cost, such as India, Pakistan, Turkey, Indonesia, Bangladesh, Vietnam and Poland. The report also points out that in the garment industry, China's garment designs and styles are still at a backward level. But the report cites data to predict that after the cancellation of quotas, China's share in the US garment market will rise from 16 percent to 50 percent, and its share in the textiles market will go up from 11 percent to 18 percent; and in the EU garments market from 18 percent to 29 percent, and in the textiles market from 10 percent to 12 percent.

After the cancellation of quotas, China's textile industry will face furiously rampant international trade protectionism, the United States and the EU are bound to frequently resort to anti-dumping and safeguard measures, particularly the use of transitional safeguard measures and other legal means for specifically dealing with textiles and garments by the end of 2008. On May 21, 2003, CITA under the US Department of Commerce formally made public the procedures for implementation of safeguard measures against Chinese textiles. Viewed from the procedures, the procedure executor is the highly political textiles agreement execution council, its decision-making process is not made open and is guided by the highly interested group.

Furthermore, the cause-effect relationship between the standard for dealing with "market disruption" and the import of Chinese products is ambiguous, the stipulations on the repeated implementation of the same product and the scope of applicants is too broad and general, the requirement for the applicants to provide data is too general and loose, especially on the question of "market disruption", the procedure fails to give a clear definition, as a result, in negotiating whether there exists market disruption, the US side can only rely on its own supposition. This procedure entirely runs counter to WTO rules on the transparency and openness of trade. If the US government implements this procedure, it is entirely possible for the Chinese government to appeal to the disputes-settlement institution of the WTO to argue cases with the US side at the courtroom.

US adoption of safeguard measures against Chinese textiles is contrary to WTO principles. The liberalization of textiles trade is the general trend, China should enjoy the benefits brought by the cancellation of quotas. After China's entry into the WTO, increase in China's export of textiles to the United States is a normal manifestation of China's gradual freedom from quota restrictions. Chinese textiles' share of the US market has increased, but US gross import of this product has not increased, the recession of US textile industry is the result of the country's domestic industrial restructuring and its overseas investment, limiting the import of Chinese textiles does not help lift US textile industry out of predicament, it can only cause real harm to the vital interests of US importers, wholesalers, retailers and the broad masses of consumers, it will also affect the interests of US cotton farmers.

In 2003 China imported 870,000 tons of cotton, converted into US$1.169 billion, this strong demand also boosted the price of US domestic cotton. In addition, the United States, the EU and Japan will continue to adopt technical trade barriers, the protection of intellectual property rights, the implementation of SA8000 social responsibility standard and other means to impel China to increase the costs of textiles and garments and to reduce its competitiveness. Chinese textile industry should be adequately prepared against this.

Future countermeasures

The fundamental way out for coping with international trade protectionism is to vigorously transform the mode of growth and strive to optimize the export commodity mix. Products, be they textiles or garments, require intensive processing, increasing high added value, multiplying varieties and designs, improving packaging and decoration, upgrading and creating brand names. Great efforts should be made to enhance per square yard value and price (generally speaking, various countries put restrictions on the quantity rather than the price of textiles), this is the road that must be followed in sustainable development.

Relying merely on the growth of quantity cannot last long. It is necessary to effect, at the quickest possible pace, a change from achieving success on the strength of quantity and low price to achieving success through quality. It is necessary to go through the course from selling cheap and fine products to selling fine products at reasonable price or at high price which they are due or are worth, specifically, the higher the price, the better the quality of the commodity, a product sold at low price cannot be product of really good quality.

Currently, it is foreseeable that China's textile industry will be able to accomplish much aster the cancellation of quota; but the road ahead is by no means plain and smooth, it may even be a path covered with thorns. All these possible difficulties need to be surmounted by the joint efforts of Chinese enterprises or industrial associations, import and export chamber of commerce and even up to the government, this may be called a boundless wonderful scene is in the perilous peak.

The above article written by Zhou Shijian, executive director of the China International Trade Society, was published page 7 of People's Daily on October 22, 2004, and translated by People's Daily Online