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Chinese textile exports at disadvantage from Korea-US FTA
19
Oct '11
The Republic of Korea-United States Free Trade Agreement (KORUS FTA) is likely to affect China's textile and apparel exports to the US in three areas.

The terms of textile and apparel sector are mainly listed in the second and fourth chapters of KORUS FTA. According to these terms, tariff concession on South Korea's exports to the US, the stringent 'Rules of Origin', and the severe customs border measures are the three areas that are likely to affect Chinese textile and apparel exports to the US.

Currently, textile and apparel items destined for the US are subject to average weighted tariffs of 11 percent and 16.5 percent, respectively. Under the KORUS FTA, the US will completely abolish these tariffs on Korean textile and apparel exports to the US within a decade, in three phases. Thus, after tariff adjustments, Korean textile and apparel exports to the US will enjoy a price advantage of 11 and 16.5 percent compared to its competitors like China. This will result in Korea snatching a share of the US market from China.

Secondly, although the KORUS FTA follows the basic 'Rules of Origin' principles as included in other trade agreements signed by the US in recent years, it also has a 'spinning forward' principle. Under it, each procedure adapted from spinning to finished products must be completed either in South Korea or the United States, to avail the tariff benefit. This clause will remove the 'transit route' for Chinese products to enter into the US market through South Korea.

Thirdly, Article 4.3 of the KORUS FTA explicitly requires South Korean companies to obtain and save all relevant information and documents in production process and circulation. The FTA also gives the US the right to conduct surprise spot checks of South Korea's textile and garment manufacturing units at any time. If during the checks, illegal trade practices are found, then the US can deprive the qualification of preferential tariff measures enjoyed by those products under the agreement. Such severe measures are not commonly imposed by the US in its trade agreements. In this case, it seems the measures are aimed to guard against any opportunities left for the Chinese companies to enter the US market through the Korean route.

Of the three areas, however, the tariff concession given to Korea will have the most direct impact on China's textile and apparel exports to the US.

Fibre2fashion News Desk - China

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