My Space

Soaring Chinese textile exports creating problems in major markets

M D Dewani

Tension seems to be rising between China on one side and the US and the European Union on the other side, in view of the surge in exports of textile and apparels from China to these markets after elimination of quota restrictions. Both the US and EU are under pressure from their own textile interests to reimpose restrictions on these imports. However, China cannot be expected to take all this lying down. It may initiate some counter measures. This may well result in a full-fledged trade war.

No doubt, soon after the end of quota restrictions on textiles and apparels, imports of these products from China to both these markets have sharply gone up, perhaps much beyond the textile industry's estimate in those markets. But if they misjudged the possible situation after the abolition of quota restrictions, they cannot blame the other side for the same. For it was clear to almost every one that China had been frantically preparing itself to expand and modernise its textile and apparel industries in order to step up sharply its share in the world markets. Every one is free to do so.

In fact, the system of free trade is based on the assumption that every country may be better equipped to carry on certain manufacturing activities compared with other countries. If, therefore, every country concentrates its energy on production of those items for which it has certain advantages, the world economy may, as a whole, stand to benefit.

It has been a known fact that the textile industries in Europe and the US depended for its development and growth on import restrictions and certain assistance by the authorities. When such props disappear, entrepreneurs who entered this area taking advantage of such props are bound to find it increasingly difficult to remain in this business. The obvious course for those who entered such manufacturing activity, there is to shift to some other activity where they have better competitive advantage. Their struggle to continue somehow the activity where they lack competitive advantage may not help them in the run.

However, this is neither easy nor palatable. Consequently, leaders of textile industry in the US, for instance have been urging their government to re-impose restrictions on imports of some Chinese textile and garment products by taking advantage of conditions on which China was allowed entry in the World Trade Organisation (WTO). These conditions allow the importing countries to impose safeguard restrictions, if imports result in "market disruption" or "threaten to impede orderly development of trade" in an products. When, however, such safeguard restraints are imposed by the importing country, they are not final in the sense that the exporting country is then called upon to negotiate with the importing country some restrictions that may be acceptable to both.

All this may look quite easy on the face of it but such consultation cannot be smooth. For, China can initiate some counter measures to weaken the US government's stand on the issue. It is a well known fact that though China is the largest producer of cotton in the world, it remains a major importer of this natural fibre to bridge the gap between its own production and consumption. It may threatened to discontinue purchases of cotton from the US if the latter persists with the safeguard measures. Such a counter measures, if initiated by China, may place the US authorities in a tight position as they cannot ignore interests of domestic cotton growers. It, therefore, remains unpredictable where the proposed safeguard measures can ultimately lead.

It may be worth recalling that the Chinese authorities have already opposed similar measures by the European Union. China had told EU that the inquiry into surging imports from China initiated by it runs counter to the spirit of free trade and could end up disrupting Sino-European trade ties. China's commerce ministry's spokesman Mr Chong Quan warned the EU that China hoped Europe recognises the negative impact of any such limits on the bilateral economic and trade relations.

Thus the authorities in the EU are also under pressure from two sides. While domestic textile manufacturers want them to restrict imports from China, the latter is threatening disruption of trade relation if they do so. It is, therefore, doubtful whether Euorpean authorities will go ahead with the imposition of import restrictions regardless of consequences of such a step. Evidently China cannot let go an advantage for which it has been preparing itself for long. Textile manufacturers in the US and Europe may have to withdraw from this field sooner or later, because, they cannot survive against competition from low-cost producers in the free-trade regime.