NCTO Statement to USTR re China’s Compliance with WTO Commitments

Imports fr China and U.S. Textile/Apparel JobsWashington DC. Oct 5, 2011. The issue of China and its adherence to both the spirit and law of its WTO obligations, and the U.S. government’s response, is central to the profound economic strains the U.S. manufacturing sector has undergone over the last ten years. There is little argument that China’s rapid rise to become the world’s greatest manufacturing exporter and producer has come, in significant part, at the expense of the U.S. manufacturing sector. A recent study estimates that 2.8 million U.S. jobs, or two percent of U.S. employment, have been lost over the last decade due to unfair trade practices by the Chinese government1. Most of these job losses have been in manufacturing.

“Over the last ten years, Chinese textile and apparel imports into the US have increased by 489% or nearly $ 32bn, while imports from the rest of the world have fallen 10%. Chinese market share increased from ten to 40%,” said NCTO president Cass Johnson.

There are 30 different policy initiatives that Chinese central and provincial governments have undertaken to support the Chinese textile sector. These subsidies confer a benefit of between 35 and 75 percent for Chinese textile producers.

In terms of specific subsidies in the context of China’s WTO compliance, using standard countervailing duty methodologies, Chinese textile and apparel companies derive a benefit of between 5 and 30 percent ad valorem from Chinese government subsidies.

The most significant subsidies are being offered in terms of preferential lending, preferential land use rights and reduced costs for cotton and man‐made fibers. Smaller but still significant subsidies include income tax reductions, indirect tax programs, discounted electricity and grant programs.

It is important to note that the estimates for these policy initiatives, that provide benefits to Chinese textile mills, do not include the use of export tax rebates and currency manipulation by the GOC. Because the government does not recognize those as WTO issues, these two issues are reviewed in a second section. These two subsidies are clearly larger than any one of other 28 policy initiatives and add another 25 to 45 percent benefit to NCTO’s estimates.

The U.S. government needs to confront the reality that its response to China (vis‐à‐vis China’s industrial policies) has largely failed.

As China continues to provide massive support to its export industry, those exports will continue to drain the U.S. economy of badly needed jobs, wealth, and tax revenue. To date, U.S. manufacturing has shown no sign that it can become the powerful driver that the U.S. economy needs while it is being forced to compete with the Chinese government on a sustained unequal playing field. Unfortunately, the U.S. government (and Congress) continues, to a significant extent, to be unwilling to confront this essential fact.

In regard to textiles, the cumulative impact of these subsidies is undoubtedly the major driver in the domination of the U.S. market by the Chinese textile and apparel sector. Textile and apparel trade is intensely competitive, often operating at profit margins of three to five percent. As a result of the Chinese subsidies, it is clear that U.S. textile companies and our trading partners throughout the Western Hemisphere have lost billions of dollars in production and exports, as well as hundreds of thousands of jobs.

The U.S. textile industry is one of the most export dependent sectors in the U.S. manufacturing spectrum with more than $ 15 billion in exports in 2010. The U.S. industry’s survival and growth depends on strong export markets and fair and unfettered access to world markets. Nearly two‐thirds of these exports go to our Free Trade Agreement (FTA) partner countries in the Western Hemisphere.

Unfortunately, textiles have long been singled out by China for special government benefits and support. Each of the past eleven Five Year Plans by the Chinese government have include specific Five Year Plans for Textiles. In addition, at least seven Chinese provinces (Fujian, Guangdong, Henan, Jiangsu, Jiangxi, Shandong and Zhejiang) produce their own Five Year Plans that target textiles with special provincial and municipal benefits.

The trade data concerning China and textiles is revealing. As measured in square meter equivalents (SMEs), China’s market share of U.S. apparel imports has risen from 5.8 percent in 2000 to 41 percent for year‐ending July 2011. In the textile sector, the growth has been just as dramatic with China increasing from 14 to 51 percent of the U.S. import market during the same time period.

This enormous growth has taken place since China joined the WTO and quotas were phased out on its textile and apparel exports.In return for the quota phase‐out, the U.S. textile industry was assured that WTO membership would force China to embrace free market principles, stop supporting its state‐owned textile sector, only offer loans and financial support from its banks based on commercial standards, reduce and eventually eliminate subsidies to its industrial sectors and halt the manipulation of its currency, among others.

To date, none of these actions have happened. Instead, China has boosted support for its textile sector, increased the subsidization of the yuan to almost incomprehensible levels (now averaging almost one billion dollars a day), privatized its state‐owned companies on decidedly non‐commercial terms, introduced many new measures to get around WTO rules and has regularly rescued major portions of its textile sector through loan extensions and/or debt wipeouts.

U.S. trade statistics continue to demonstrate that China’s growth has come at the expense of U.S. textile production and regional apparel production. Apparel imports from the Western Hemisphere (including NAFTA, CAFTA, CBI, and Andean) accounted for 41percent of the U.S. import market in 2000. As of July 2011, U.S. apparel imports from the Western Hemisphere have been reduced to just 19 percent of the U.S. market.

In dollar terms, the Chinese growth has been even more stunning. Since its entry into the WTO, China has increased its textile and apparel exports to the United States by 489 percent or by $ 32 billion. With $ 39 billion in exports to the U.S. in textiles and apparel, China today is six times larger than its next largest competitor ‐ Vietnam. In 2000, China ranked second among textile and apparel suppliers to the U.S. market, two‐thirds the size of the largest supplier, Mexico. In 2010, Mexico was the fifth largest supplier with textile and apparel exports to the U.S. totaling $ 4.4 billion, down 54% since 2000.

U.S. textile job losses, not surprisingly, have been severe. From China’s entry into the WTO to today, the U.S. textile industry has lost 379,000 workers, 63 percent of its workforce, and more than one thousand textile mills have closed across the country. These closures have devastated many rural communities in the U.S. with dozens of towns and localities essentially bankrupted as their major employers have been eliminated.

Read more …

Statement to the Hearing Record: U.S. Trade Representative: China’s Compliance with WTO Commitments, Submission by Mr. Cass Johnson, President, National Council of Textile Organizations (NCTO). Oct 5, 2011.

U.S. Trade Representative Press Release: United States Details China and India Subsidy Programs in Submission to WTO, Oct 6, 2011