With the textile and apparel quota system ending on December 31, 2004, a significant number of companies views Chinese manufactured apparel as the most serious competition they will face.
The Chinese textile industry is the world’s largest single country exporter of textiles and apparel (13% of global textile trade). Currently there is a shift in China from a planned economy to a market economy system and until recently, a major part of textile industry’s progress was made under the planned economy. This transitory process to market economy revealed a duplication of projects and many external unfavorable factors (price increase of raw materials, declining demand, weakened competitiveness etc.).
However, there are several competitive strengths of the Chinese textile industry: it becomes increasingly quality-oriented, it produces higher-valued goods in Hong Kong, it takes advantage of the abundance of skilled, law cost labor and has a vast market which is leading to greater profits.
In terms of international trade regulation, the Chinese exports under quotas account for only 27% of China’s textile sector exports. China’s accession to the WTO will result in long-term benefits for the textile industry, when China will start enjoy stable multilateral preferential trade policies in a rules-based market. Furthermore, the better access to global markets will help the textile industry upgrade its technology, management and trade system.
On the other hand, EU Companies will be able to export most products into any part of China three years after accession, i.e. 2005. Foreign enterprises will be able to engage in the full range of distribution service of a three year phase-in period for almost all products, incl. textile & apparel.
The future of the Chinese textile industry seems bright. The State Textile Industrial Bureau aims to update the industry through technological reform and strategic restructuring of textile companies. The industry itself also aims to substitute imported fabrics with local made ones. China aims to develop new chemical fiber raw materials, new textile process and technology and environment protection technology.
China has committed itself to reduce tariffs on textiles and apparel to 11.7% by January 1st, 2005. Although all quotas will be eliminated in 2005, a specific for textile safeguard system will be in place for WTO Members until the end of 2008. If a Member believes that Chinese-origin imports covered by the WTO Agreement on Textile and Clothing causes market disruption and threatens the orderly development of trade in such products may take action against such imports.
EU companies, however, must be aware of the general “Transitional China Product-Specific Safeguard Mechanism”. This mechanism allows a WTO member to retrain increasing imports from China that disrupt its market. It can be applied to any type of product (including textiles) and will be available for 12 years after accession. If a WTO Member requests consultation with China for this purpose, China can agree bilaterally to restrain its exports or the WTO Member can unilaterally decide to limit Chinese imports to the extent necessary to prevent or address the market disruption. If delay may cause damage that would be difficult to repair, a WTO Member may take provisional relief immediately based on a preliminary determination of market disruption or threat. Such action may precede bilateral consultation and last for up to 200 days.
However, China can retaliate to the use of the specific safeguard mechanism under special circumstances, i.e. if a safeguard measure based on a relative increase in imports has been in effect for more than two years, China may impose similar restrictions on the WTO Member applying the measure. If a measure based on an absolute increase in imports has been in effect for more than three years, China has same right as above.
Already, this mechanism has been invoked by US, Peru and Poland. On the 18th November 2003, US Dep. Commerce announced application of textile safeguards on three products: knit fabric, brassieres and dressing gowns, which account for less than 5% of total value of China’s textile and apparel product exports to the US.