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Strategic Options for the Textile and Clothing Export Administration in Post-quota Era
2004-12-13
Zhang Xiaoji & Zhang Qi
The integration of the textile and clothing trade with GATT creates good opportunities for China’s textile and clothing industry to release its huge production capacity and export potential. However, the possibility that importers may practice new trade protection and restrictions increases uncertainty in the future external environment. To cope with the new change of international market, taking into account of the possible external conditions, China should formulate export administration goals and strategies for re-establishing the management system, accelerate the reform of industrial intermediate organizations and export entities, regulate competitive activities, so as to create a favorable environment for China’s textiles export to develop its potential.
I. China’s Textiles Industry Shows Great Production Capacity and Export Potential
1. China tops production and export of textiles and clothing in the world
China ranks above any other countries in production of fibre raw material. Its production of cotton, linen, silk and chemical fibre ranks first and wool production is next only to Australia. In 2002, China’s fibre supply hit 17,500,000 tons[1], occupying more than one third of that in the world. China also achieved the first place in terms of producing yarn, cloth and clothing. China has formed a sound textile and clothing production system and its competitiveness is rising in the world market[2]. As total value of the global textile trade has decreased, China’s textile and clothing export continues to grow robustly. In 2003, China’s textile and clothing exports stood at US$ 73,350,000,000, representing 20% of the total of the world. China has ranked first in the world for eight consecutive years.
2. Textile and clothing export plays a critical role in China’s national economic development
First, export is an important access to development of the textile and clothing industry in China. China’s textile and clothing production and processing capability is already far beyond the domestic market needs. Since the 1990’s, China’s textiles and clothing import has seen a relatively steady growth. But its export has been showing a rapid growth. Presumably, in 2003, China’s total textile production was RMB 1,337 billion yuan and the sales revenue reached RMB 1,305 billion yuan. In the same year, the exports reached RMB 607 billion yuan. The dependence on export of the textiles and clothing was approximately 40%.
Second, textile and clothing export plays a critical role in China’s employment. It is estimated that in 2003 China’s textile enterprises absorbed more than 18 million persons[3]. Nearly 100 million farmers engaged in raw material production of textile fibre or similar industries[4].
Third, textile and clothing export contributes greatly to China’s trade balance. In 2003, textile and clothing exports represented nearly 16.7% of the total of goods exported in China. In the same year, the trade surplus of textiles and clothing was US$ 54 billion over double that of the China’s total trade surplus. Without the contribution of textiles and clothing, China’s foreign trade and current account would see an unfavorable balance.
3. China’s textile and clothing export has huge growth potential
With its comparative advantages in labor, processing and production capability, China has exerted considerable influence in the global textile and clothing trade. Europe, US and Japan are the three main importers of textiles and clothing in the world, respectively representing 39%, 22% and 7% of the world total imports. Among them, Japan is a no quota-restriction importer. In 2002, China’s textiles and clothing respectively accounted for 45% and 77% of Japan’s import market and only represented 4% / 11% and 12% / 14% of that in Europe and US market where China’s export potential had not been effectively developed. As is viewed unanimously by every country in the world, the elimination of quota restrictions in 2005 will facilitate China’s textile and clothing exports to Europe and the US, and then China’s export proportion in the total of global exports could possibly rise remarkably. Generally, there is a possibility that China’s textile and clothing export will account for about 30% of the world total export. An extreme estimate of China’s market share is 50%.
Complete release of China’s textile export potential can greatly promote its economic growth. China’s current total production is US$ 160 billion or so, including export and domestic consumption of respectively US$ 70 billion and more than US$ 80 billion. If China wants to account for 50% of the world total exports, its production needs to increase by over US$ 100 billion, i.e. a 60% growth. If so, China’s GDP may increase by 3%, and the textile and clothing employment may increase from 15 million to nearly 30 million and people engaging in agriculture and animal husbandry industries may also grow rapidly.
II. Possible International Market Environment after ATC
According to the ATC, on January 1, 2005 all quota restrictions will be eliminated. Sharing ATC results will give China’s textiles industry great opportunities to realize development and export growth. There are wide spaces to release the export potential in countries that have practiced restriction, for example Europe and US. Since quotas on certain parts of textiles and clothing were eliminated in 2002, China’s exports have seen a notable increase in volume and value. Meanwhile, quota rents transfer caused average unit prices of exports to decrease drastically. However, limited growth of import market consumption and increasing fierceness of export competition lead to changes in the textile and clothing market environment and patterns. Importers’ policy preferences will also increase uncertainty of China’s exports.
1. Importers can possibly restrict China’s textile and clothing exports through various measures during the transitional period.
According to related provisions of China’s Protocol of Accession, China’s textiles and clothing export will face unfair competition in at least 15 years. In this period, importers can adopt the following three kinds of measures as the main restraints. First, in 2005~2008, they can individually set restrictions to limit China’s export growth according to provisions on special restrictions of textiles (paragraph 242, Report of the Working Group on the Accession of China) [5]. Second, in 12 years since China’s entry, importers can, at discretion, take protection actions against China’s specific products according to Section 16 of China’s Protocol of Accession. Main trade partners have completed related legislation process. Third, importers can continue to practice discriminated anti-dumping measures to China for as long as 15 years according to Section 15 of China’s Protocol of Accession.
Textile provision is an administrative measure without the need of going through legal process, so it is the simplest way to practice. But due to the short application time and small limitation effect of these provisions, restricted products export can still maintain a certain growth and the impact on China’s exports will be relatively small. The application time of discriminated anti-dumping measure is longer than that of any other related provisions. Importers have a large range of alternatives in referring to the anti-dumping provision, so they will have the most serious impact on China’s export. However, because anti-dumping investigation needs to go through legal process and complicated formalities and takes too much time, it is difficult to be widely used in the textile trade. Comparably, the Transitional Product-specific Safeguard Mechanism is an administrative measure and the restriction can be conducted in two ways, i.e. quantitative limitation and placing tariffs. Due to no precedent for reference, these provisions application effect is not certain. Once implemented, it will extend to other products or be emulated by other countries. The consequence is far-reaching. After the textile provision terminate in 2008, the Transitional Product-specific Safeguard Mechanism may become the first main threat to China’s textile export.
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[1] Domestic fibre production and fibre imports.
[2] In 1980, China’s textiles and clothing production was US$ 4,410,000,000, representing 4.62% of the total of the world and ranking the 9th in the world.
[3] Estimate of employment of medium and small non state-owned enterprises in China. Large enterprises (non state-owned enterprises with annual sales revenue of RMB 5 millions and state-owned enterprises) absorbed 7,890,000 people.
[4] According to estimate of China National Textiles Industry Council.
[5] Exports of one or more categories of textile and clothing shall not grow at a speed of more than 7.5% each, compared with those 12 months before the negotiations.
