In 1994, members of the World Trade Organization agreed to eliminate global textile and apparel import quotas by the start of 2005. The aim was to significantly increase developing countries' exports, and thus help lift millions of workers in these countries out of poverty.
Textile trade associations throughout the world now fear that the quota-lifting will cost 30 million textile jobs, many in developing countries on the front line of the war on terrorism, where social unrest is a real and constant concern. These are the same developing countries that demanded an end to the global quotas in 1994.
So what happened? In a word, China. What was not apparent in 1994 was that China would get itself in to a position to dominate the textile and apparel trade. Indeed, in 1994, it was still uncertain when--or if--China would join the WTO, which it finally did in 2001.
Upon negotiating its accession, China agreed that other member nations could impose temporary import limits, known as "safeguards," if Chinese textile and apparel imports were, "due to market disruption, threatening to impede the orderly development of trade." Set forth in Paragraph 242 of the Working Party Report to China's Protocol of Accession to the WTO, the U.S., the EU and others are now citing this provision to justify new restrictions on surging Chinese textile and apparel imports into their home markets.
The justification is not apparent. For one thing, an increase in Chinese imports must have been contemplated, if not when the quota elimination was negotiated in 1994, then at least when China joined the WTO in 2001 and agreed to the terms of Paragraph 242.
Thus, the question is not whether Chinese imports have surged. It is if there is market disruption and whether, as a result, those imports are increasing so suddenly and dramatically and making market conditions so chaotic and unpredictable as to threaten to impede the orderly development of trade.
The objective of Paragraph 242 is to avoid restricting Chinese textile and apparel imports by more than is necessary to preserve the orderly development of trade. In this regard, Paragraph 242 authorizes importing countries, under appropriate circumstances, to limit increases of Chinese imports to no more than 7.5% per year.
This does not prohibit permitting greater increases, however. Indeed, much greater annual increases are common in many product sectors.
But U.S. trade law does not even attempt to define the phrases "market disruption" or "the orderly development of trade." Nor does it explain the respective roles that market disruption and the increasing Chinese imports must play in threatening to impede that orderly development of trade.
Rather, U.S. decisions imposing Paragraph 242 safeguards seem to indicate that restrictions are deemed appropriate whenever a jump in the volume of Chinese textiles and apparel is viewed in Washington as "injuring" or threatening to injure a domestic industry.
This approach conflicts with Paragraph 242. It contradicts the goal of liberalizing textile trade by eliminating the quotas. And it is inconsistent with the position so often espoused by the U.S. of applying a rule of law in matters of international trade and the promotion of U.S. exports.
If anything, the U.S. approach to Paragraph 242 is itself disrupting the textile markets and impeding the orderly development of trade.
The U.S. began by requiring a showing of actual market disruption before imposing Paragraph 242 safeguard limits. Later reversing course, Washington decided to impose safeguards based on just the threat of market disruption. That flip-flop undermined expectations, forced the cancellation of countless import transactions and jeopardized investments.
Now, apparently in an effort to minimize or avoid safeguards, the Chinese government has discussed the possibility of imposing its own export taxes on certain products. These taxes will likely produce similar disruptions.
The Europeans have taken a different approach. They have developed guidelines detailing how much Chinese imports may increase before being viewed as disrupting the orderly development of trade.
That level would need to be substantial to be consistent with the goal of liberalizing textile trade. But, if properly implemented, the EU guidelines should also preserve sensible, stable business plans and expectations. Indeed, the EU has now reached a settlement with the Chinese government that is consistent with these goals.
Paragraph 242 ceases to apply on Dec. 31, 2008. By then, the WTO estimates that China will have increased its share of the U.S. textile and apparel market to over 50% from 16%, assuming conditions of fully liberalized trade. This assumption now seems unrealistically low.
The effect of China gaining full access to textile and apparel markets should have been better foreseen and accounted for when it joined the WTO in 2001. In any event, textile and apparel trade will eventually be liberalized and China will assume its naturally dominant position.
Whether gracefully or through constant irritation and litigation, it now appears that the end of 2008, not the start of 2005, will be when that finally occurs.
Duane Layton, Peter Koenig and Jeffery C. Lowe
