China Wary as US Puts Lid on Textile Imports

The ailing US textile industry plans to use Washington's decision to slap quotas on some Chinese imports as the first step in a campaign aimed at forcing Beijing to agree to comprehensive longer-term restraints on Chinese textile and clothing exports to the US.

The goal, which will stoke Chinese fears that Tuesday's decision may be the first of many import-restraining moves by the US, is to keep a lid on Chinese exports even after global quotas on textiles and clothing are removed at the end of 2004.

China reacted angrily on Wednesday to the US announcement that it would restrict imports of knit fabrics, cotton dressing gowns and brassieres, hinting that it might challenge the action in the World Trade Organisation.

Robert Kapp, the president of the US-China Business Council, said China feared that the US move could be the first of many. China is already the target of more than half the anti-dumping cases brought by US companies and could soon face restrictions on sales of big items such as furniture and colour televisions.

The textile sector is particularly sensitive, however. "The Chinese see textiles as one of their lifelines in the world economy," said Mr Kapp. "For China, the textile and apparel sector is a vast sponge that soaks up available workers."

But the US textile industry, which has lost 316,000 jobs since January 1 2001, is threatening to bring further actions under a special provision that was part of China's 2001 entry to the WTO. Industry leaders said that Tuesday's decision had created uncertainty for both buyers and sellers of Chinese goods, who will now fear that other products might be hit with quotas.

"This decision clearly sends a message [to US retailers] that you cannot move all your orders to China and expect your product to move," said Cass Johnson of the American Textile Manufacturers Institute. "It does set up a real sense of uncertainty."

He said there would now be a strong incentive for China to "negotiate a comprehensive arrangement that removes this uncertainty".

Tuesday's decision will kick off 90 days of consultations between the US and China to see if they can reach a negotiated agreement to cap Chinese exports of the three products, which reached nearly $500m in the first nine months of this year.

If the talks fail, the US will then impose a new quota limiting import growth of those goods to 7.5 per cent over the next year, compared with growth of between 32 and 96 per cent so far this year. But the industry wants the talks to be the first step towards a broader deal that would keep Chinese products under quota after 2004.

US leverage is limited, however. The special safeguard provision, which China was forced to accept as the price for its WTO entry, expires at the end of 2008. China could also challenge the US action in the WTO by arguing that the US had failed to meet even the low standard of "market disruption" required by the provision. US retailers say that Chinese goods are simply displacing other Asian and Latin American suppliers and that US textile makers have not been hurt.