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Quota removal puts China in driver’s seat - I
M K Panthaki
Director, CMAI
China joined WTO on January 1, 2002. Accordingly, quotas were dismantled along
with the other countries, from the remaining categories of textiles and apparel
of which 29 related to apparel products.
Current position
China has been investing heavily in its textile and garment
units. It has also been the beneficiary of units being set by the US manufacturers
to manufacture garments for exports to the US. Thus, China already has considerable
US investments and consequently the US government is not keen to upset China.
On the other hand, China follows a labour policy not exactly attuned to the
WTO standards and a policy of pegging its currency to the US dollar at a fixed
rate of 8.28 yuan so as to give its exporters a price advantage of 40 per cent
and make imports into China dearer. Bank lending rates are 6 per cent on fixed
capital and 6.5 per cent on working capital and are further subsidised for export
transactions. Labour policy followed by China is also not in line with ILO conventions.
It is understood that other unfair practices by China include:
a) Preferential access to credit and capital by state-owned banks in China,
with differential lending rates, at times, even zero, being driven by political
and non-commercial considerations. Some of these lendings are not expected to
be returned.
b) Subsidised credit and discriminatory tax relief.
c) Privileged access to land by reduced rent.
d) Limitations on access to domestic market channels.
e) Direct support for research and development from the government budget. f)
Government subsidies to export industries.
On its part, China claims that the general tariff level has been brought down
from 15.6 per cent in 2000 to 10.6 per cent in 2004 and will be further lowered
to 10.1 per cent by 2005.
Chinese surge
The removal of quotas has put China in the driver’s
seat. China has already slashed prices by 25 per cent to 30 per cent in a pre-emptive
bid to capture as large a market share as possible. Exports of Chinese apparel
products have surged in the US and EU markets. Within one year, Chinese exports
to the EU on certain apparel products like work wear, babies garments, track
suits have jumped from 12-15 per cent to 27-35 per cent and in some cases to
as high as 55 per cent. The situation is not very different forthe US.
Safeguard clause
The accession agreement does have a safeguard clause against such unhindered
expansion of market access. Both the US and EU industries are petitioning their
respective governments to apply limits to Chinese exports. Under this clause,
imports into the US/EU can be restricted to 7.5 per cent over the average level
of imports in the 12-month period immediately, preceding 14 months from the
date on which limits were imposed. There is also a provision for consultation
to be held within a period of 30 days from a request so made. The negotiations
have to be completed within 90 days thereafter and on failure of negotiations,
a unilateral restraint of the level stated above can be imposed. All this, undoubtedly,
gives time to the exporting country to re-double its efforts to increase its
market share in order that the unilateral quota/sanction may be fixed at a higher
figure.
Another clause in the agreement stipulates that actual production in the importing
country of the product for which quotas are sought to be imposed, should be
adversely affected with job losses in the importing country. Thus, if parts
of the garments are out-sourced and the final garment is made up in the US/EU,
sanctions in such cases will be difficult to justify. This clause adversely
affects both the EU and US since the EU does outsourcing from East Europe, Cyprus,
Turkey, while the US does so from the African/Carribean Basin countries under
its AGOA.
A special provision in the Chinese agreement permits the US to impose new limits
on Chinese textiles and clothing imports from 2005 to 2008 if Chinese exports
disrupt American garment markets or even threaten to do so.
(To be continued)
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