China Agrees to Curbs on Sales to U.S.

Under pressure to ease trade tensions before President Bush’s visit this month to Beijing, the U.S. and China signed a deal Tuesday that imposes limits on a wide range of popular Chinese-made clothing and textile imports.

At a signing ceremony in London that capped three months of negotiations, U.S. Trade Representative Rob Portman said the broad agreement was fair to both countries and would bring stability and predictability to bilateral apparel trade.

China’s Minister of Commerce Bo Xilai agreed, saying he “didn’t want to see such a small trade obstacle ... impede the overall trade and economic” relationship between the countries.

Industry officials said both governments wanted to finalize a deal before the president’s visit to China on Nov. 19, which will follow an Asia-Pacific summit in Pusan, South Korea.

The agreement, set to take effect Jan. 1, restricts Chinese imports in 34 apparel and textile categories, including knit shirts, cotton pants and underwear. Those imports will be restricted to annual growth rates of 8% to 10% in 2006, 12.5% in 2007 and 15% to 16% in 2008. After 2008, China would no longer be subject to the special textile and apparel restraints it accepted when it joined the World Trade Organization in 2002.

In the discussions leading up to Tuesday’s deal, China had originally sought growth rates as high as 30% and wanted to limit the restraints to two years, mirroring a similar pact with Europe earlier this year.

Tuesday’s announcement was a huge win for domestic textile manufacturers that had sought to restrain surging Chinese imports after the trade group eliminated global textile and apparel quotas in January.

Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition in Washington, said the restrictions would help struggling U.S. and foreign manufacturers squeezed out of the American market by Chinese factories that benefit from “pennies-per-hour labor” and “massive state-sponsored subsidies.”

The biggest foreign beneficiaries of the U.S.-China pact are likely to be India, Pakistan, Vietnam, Hong Kong, Macao and Taiwan, according to industry officials. Work in some products might also shift back to factories in Mexico and Central America that have preferential trade pacts with the U.S. and are large buyers of U.S. textiles.

Mark Jaeger, general counsel for Jockey International Inc., the giant underwear company, said Tuesday’s agreement would make it easier to plan his company’s sourcing for the next three years. But he expressed disappointment that growth would be heavily restricted in the most popular categories.

Under pressure from domestic manufacturers, the U.S. last year imposed safeguard limits on 19 categories of textiles and apparel, including bras and nightgowns. The new agreement will allow China to export 3.2% more apparel in those categories than if the safeguards had been extended throughout the life of the agreement.

Importers said they wouldn’t know the full effects of the deal until China announced how it would manage its restricted exports and whether it would sell the right to produce those goods. Brenda Jacobs, chief counsel for the Assn. of Importers of Textiles and Apparel in Washington, said retail prices for U.S. consumers could rise if those costs were passed on to importers.

“Certainty came at a very high price,” she said of the deal.

As details of the textile pact spread to China on Tuesday afternoon, criticism of the government’s handling of the row began to mount on leading Internet chat lines. Some Chinese chafed, saying they were unfairly targeted by American politicians.

China’s Ministry of Commerce posted a statement on its website, saying the resolution of the textile issues would “contribute to a stable development of bilateral trade relations.”

But Chinese textile manufacturers, while agreeing that the deal would create a more orderly flow of trade, expressed dissatisfaction. They complained that the growth limits were too low and would force them to change the kinds of clothes they manufacture or ship goods from other countries without quotas.

“I was quite disappointed with the result,” said Liu Xunzhong, general manager of foreign trade at China Jiangsu Textile Import & Export Group. The Nanjing company is one of the largest textile firms in the nation, with annual sales of $500 million.

Liu said his company would try to develop new products and customers. He doesn’t expect layoffs. But he said it would be difficult because China Jiangsu, like many other companies, had invested heavily in new equipment, anticipating that a boom in orders would follow the end of global quotas.

Yao Weiqun, director of the Shanghai WTO Affairs Consultation Center, a nongovernmental group, said the new textile agreement should be a wake-up call to both sides. China’s textile industry has “overdeveloped” in recent years, he said, and should restructure and move away from producing cheap commodities.

“For American manufacturers,” he said, “I think it’s time for them to adjust to high value-added products and stop persisting in the manufacture of labor-intensive products,” where U.S. labor costs aren’t competitive globally.

On Tuesday, there were no signs that U.S. manufacturers were abandoning the fight. They said the next step in their battle against unfair Chinese trade practices was persuading the WTO to set up a new global system for managing trade in apparel and textiles. They plan to raise this issue at the group’s December ministerial meeting in Hong Kong.

“This does not solve the problem; it only pushes the danger from China further off,” said Cass Johnson, president of the National Council of Textile Organizations, speaking of Tuesday’s deal.

Nicholas Lardy, a China expert at the Institute for International Economics in Washington, said he didn’t expect pressure on China to subside, given U.S. complaints about the ballooning trade deficit, alleged currency manipulation by Beijing and inadequate anti-piracy measures.

“Maybe at the margins it’s a plus,” he said of the textile deal. “But I don’t think it can possibly be described as a big breakthrough in advance of the president’s trip.”

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Iritani reported from Los Angeles and Lee from Shanghai.