Textile trade after 2004

Textile trade after 2004

A significant change will occur next year in global textile and apparel trade. The U.S. must eliminate the remainder of its complex and restrictive quota regime, and permit liberalized trade in a sector that has been highly protected for more than 30 years. Although some quotas have been removed through staged reductions, the remaining quotas are in sensitive sectors, including some that might be the most vulnerable to international competition.

Developing countries hope to be the primary beneficiaries of the end of the quota system. Many have developed textile and apparel production to diversify their economies from dependence on basic commodities. In support of this diversification, the U.S. has extended preferential trade benefits in the textile and apparel sector to developing countries under the Caribbean Basin Initiative, Andean Trade Preference Act and the African Growth and Opportunity Act. In addition to the increased trade resulting from these preferences, the U.S. Trade Representative cites increased investment in textile and apparel production facilities in African countries as evidence that these preferential programs are realizing tangible benefits.

Despite the rhetoric of liberalized trade in textiles and apparel, many believe that new restrictions will replace the quotas. There is serious concern that when the quotas are lifted, the U.S. will use statutory trade-remedy weapons to impose other restrictions.

Mechanisms available for new, onerous trade restrictions include the anti-dumping, countervailing duty and safeguards laws. Under anti-dumping law, the U.S. may impose duties on imports that have been sold at less than normal value, causing or threatening to cause material injury to the domestic industry. From a legal perspective, dumping occurs when the sales price is lower in the U.S. market than in the home market. In other words, a business may make a rational decision to sell in a foreign market at a competitive price that happens to be lower than the price in its home market, but that rational decision could result in the imposition of anti-dumping duties if injury is also found.

Countervailing duties are imposed when a foreign country subsidizes a production sector that exports to the U.S., causing or threatening to cause material injury to the U.S. domestic industry.

Dumping and subsidization are considered unfair trade practices. However, the U.S. trade remedy quiver is not limited to unfair trade practices. Even fair trade practices can be subject to restrictions. If a surge of imports injures or threatens to injure a domestic industry, the U.S. International Trade Commission may recommend relief, including quotas, tariffs or tariff-rate quotas. The president ultimately decides whether relief should be granted. This mechanism was recently used to give broad relief to the U.S. steel industry. The textile and apparel industry has already put President Bush on notice that it expects similar relief.

Developing countries are aware that they may be subject to increased trade-remedy actions. In February, a coalition of developing countries submitted a paper to the WTO outlining the rampant use of anti-dumping duty investigations against developing countries in this sector. They accuse the European Union of being "by far the biggest user of anti-dumping cases in the textile sector, targeting it for as many as 53 new initiations during 1994-2001." However, they fear future U.S. actions as much, if not more. The paper quotes U.S. trade associations and government officials as indicating that the domestic industry is actively considering ways to protect itself after the quotas are removed.

The American Textile Manufacturers Institute, the U.S. industry's leading trade association, has already stated its expectation that some exporting countries will allege subsidization or dumping in order to maintain a U.S. market presence - a claim that could well be a signal that trade remedy cases will be brought.

Commerce Secretary Donald Evans also is well aware of the availability of trade-remedy laws to protect the domestic textile industry. The developing countries expressed concern over a letter by Evans to the House of Representatives textile caucus, in which he emphasized "the administration's commitment to enforcing trade remedy laws generally, and on behalf of our textile industry in particular."

When the Doha Round was launch-ed in 2001, WTO members, including the U.S., agreed to exercise "particular consideration" before instituting anti-dumping proceedings against developing countries during the first two years after quotas are ended. It remains to be seen whether the U.S. and the European Union will abide by this pledge.