The Application of Textile Safeguards in the China WTO Accession Agreement: Fundamentals of the Raw Cotton Market

A NCC analysis shows that the U.S. application of the textile safeguards announced on November 18, 2003 has virtually no impact on the raw cotton supply/demand situation in China for the 2003 marketing year.

Published: February 27, 2002
Updated: November 26, 2003

The U.S. application of the textile safeguards announced on November 18, 2003 has virtually no impact on the raw cotton supply/demand situation in China for the 2003 marketing year.

The effect of the safeguard is to cap the growth in the product-specific imports for the next 12 months. Council economists estimate that the likely impact is to slow the growth of Chinese manufacturing of cotton products for import by the U.S. in the range of 30,000 to 50,000 bales during the 2004 calendar year. At one-tenth of one percent, this volume is essentially insignificant in the overall picture of Chinese consumption of 30 million bales this crop year. The application of the safeguards should have no impact on USDA’s forecast of 7 million bales of cotton imports by China.  China’s shortfall in cotton availability will continue.

The special textile safeguard provision is part of the China WTO accession agreement of 2002. The safeguards can only be applied to products no longer subject to quota and where market-disruptive surges of imports have been observed. The decision announced November 18 followed procedures developed and published in advance by the Department of Commerce, which provided for public comment by all affected parties. The safeguards apply to three products: knit fabric, brassieres, and dressing gowns, which account for less than five percent of the total annual value of China’s textile and apparel product exports to the U.S. China exported almost $9.0 billion in textile and apparel products to the U.S. in the first nine months of 2003. The U.S. trade deficit in textile and apparel products during that period was more than $50.0 billion.

The average increase in imports from China in knit fabric and nightgowns, the two most cotton-rich product categories, was more than 800 percent in 2002. If quotas are instituted under the safeguards, the levels would, if implemented, be based on 12 of the most recent 14 months trade levels. There would be a growth-rate of 7.5 percent during the one year period in which the safeguards would be effective. Therefore, the already high rate of imports is not retroactively reduced by the application of the safeguards and the growth rate exceeds the overall growth rate of the U.S. market. Under the published procedure the U.S. and China will begin consultations, which could result in an alternative to the imposition of quotas under the safeguard.

The U.S. textile industry continues to reel from the onslaught of Asian imports. U.S. mill use of cotton is just above 6 million bales annually, down from 11.5 million bales in 1997/98. The U.S. industry filed petitions in accordance with regulations promulgated by the Department of Commerce and the petitions were subject to public comment, including comment by importers and Chinese officials.

The safeguards can provide a time for the industry to continue its efforts encouraging the administration and Congress to deal with the important underlying factors of Chinese currency valuation and lending practices that are contributing to the devastating tidal wave of cotton textile and apparel imports.

The U.S. cotton industry has complimented the administration on its action to enforce an agreement and is committed to work with other commodity interests to continue to insist that China also honor her commitments under the accession agreement to open markets in a transparent and predictable manner.