The loud protest by the US textile industry has been growing stronger by the day, as the industry feels threatened because of a number of factors like pouring out subsidies by the Chinese Government on their textile and garment exporters. The US textile manufacturing industry, led by the National Council of Textile Organizations (NCTO) is continuing to wage a determined lobbying campaign with the US Government in an effort to persuade Congress and the Obama administration to establish restrictions on imports of sensitive textile and apparel products from mainland China.

NCTO's current position on China is perfectly showcased in comments submitted to the Office of the U.S. Trade Representative on 22 September regarding China's compliance with its WTO commitments. NCTO's comments identify a range of protectionist and mercantilist policies allegedly being pursued by the Chinese Government and seek to make a case for a more robust U.S. trade enforcement policy against imports from the mainland.

NCTO is firmly of the view that China has adopted "a slew of mercantilist actions designed to increase its market share and exports to the US textile sector" despite a pledge it made at the April G-20 summit in London not to take any protectionist actions through the end of 2010. For example, the Chinese Government has allegedly provided some US$10 billion in export subsidies to its textile sector by increasing value-added tax rebate rates provided to textile and apparel exports from 11 percent to 16 percent. NCTO claims that China continues to provide massive subsidies to domestic textile and apparel manufacturers in the form of research and technology grants, bank lending programmes, tax exemptions and preferential tax programmes, in addition to the already mentioned VAT rebates for exports. China's subsidy structure also remains opaque and is plagued by a lack of transparency, which makes it difficult to determine the subsidies that are actually being provided to domestic producers.

NCTO has pointed out that China's adoption of a new textile revitalisation plan in April 2009 which, among other things, increased various subsidies, reduced labour costs through forgiveness of payments to social insurance programmes, extended new loans and credit guarantees to textile companies, and provided increased Government aid for research and upgrading equipment. NCTO has also objected that the Chinese Yuan has remained steady versus the U.S. dollar over the past 14 months. The US textile sector believes that the Yuan is undervalued by as much as 40 percent, providing "enormous financial support" to Chinese exporters. Textile interests also allege that the lack of enforcement of U.S. trade agreements, including allowing China to maintain a broad range of subsidies and to keep its currency undervalued, has resulted in an erosion of popular support for trade liberalisation that will not recover "until meaningful action is taken to reverse the current imbalances."

In fact, NCTO has appealed to the Obama Administration to take steps like moving quickly on a commitment made by President Obama during his presidential campaign to monitor textile and apparel imports from China; Condemning recent Chinese actions on textiles and other industrial products that are mercantilist in nature; and acknowledging that China is manipulating its currency in order to gain an unfair export advantage and support legislation and other actions that will either compel China to begin appreciating its currency or allow US manufacturers to defend themselves and their workers from this predatory practice.

NCTO has viewed the present situation so serious as to explore the possibility of filing one or more trade remedy petitions against selected textile and/or apparel products from China. While textile manufacturers would appear to lack standing to file virtually any trade remedy petition against apparel, a potential Section 421 case could conceivably be filed by a union (or group of workers) that is representative of the U.S. apparel industry. Even if a safeguard petition were filed on selected textile and/or apparel imports from China, however, there are no guarantees that President Obama would again agree to grant relief in the form of safeguard duties or quotas. The Obama Administration has vowed to pursue a more robust trade enforcement agenda but is not interested in starting a trade war with China or placing additional burdens on businesses or consumers as the US economy continues to gain forward momentum. Textile manufacturers have successfully filed a handful of anti-dumping and/or countervailing duty petitions against mainland Chinese textile products, including the on-going proceedings on woven electric blankets and narrow woven ribbons with woven selvedge and past proceedings on laminated woven sacks, polyester staple fibre and greige polyester/cotton print cloth. Nonetheless, textile manufacturers are especially interested in restraining mainland Chinese apparel in order to preserve their export markets in Latin America. Indeed, any eventual AD/CV actions on mainland Chinese apparel would not be able to protect US apparel manufacturers, who generally oppose restrictions on China, but rather to preserve and strengthen US commercial ties with the apparel manufacturing sectors in Canada, Mexico, the Caribbean Basin and the Andean region. These regional partners are critical for the U.S. textile industry as they accounted for a combined 85 percent of total U.S. yarn exports and 69 percent of total U.S. fabric exports during January-July 2009. The key challenge for U.S. textile manufacturers will be to find a way to overcome their apparent lack of standing to file AD/CV petitions against apparel imports, a hurdle that may ultimately prove insurmountable.

But will it lead to trade war between the US and China, as is being feared in some quarters. However, a sober assessment is, NO. As of now, China's industrial output grew at a faster pace of 12.3% in August, after registering a growth of 10.8% in July, indicating that the Chinese economy is gearing up and is likely to meet the Government's target of 8% during 2009. However, Chinese exports have plummeted by 23.4% I August, following a contraction of 22.8% in the previous month. However, it is the domestic market that has been sustaining the industrial growth, despite recession elsewhere in the world pulling it down. Although China is in news trade dispute with the US over the latter's imposition of an emergency duty on Chinese tyres in early September, a full-blown trade war is highly unlikely as this would come into conflict with the interest of both the countries. It needs to be borne in mind that China continues to be the biggest creditor of the US, while the US is China's second largest export market after the European Union. A trade war between the world's two biggest economies could be damaging to both the economies and would, therefore,' be avoided, notwithstanding the fierce lobbying that the US textile industry may undertake.

Originally published in The Stitch Times: November 2009