The U.S. commerce secretary is visiting China this week to try to cool a brewing trade dispute on Chinese textile exports. The United States and the European Union accuse China of flooding their markets with cheap clothes, while Beijing counters that moves to cap the flow are protectionist.
|A Chinese seamstress puts together a garment at a clothing factory on the outskirts of Beijing|
Now, China's biggest trading partners - the United States and the European Union - are protesting loudly that the surge in Chinese exports hurts their domestic producers and other exporting nations.
The three-decade-old textile quotas were meant to protect the industries of developed nations from a flood of imports from low-cost developing nations. But they also had the effect of spreading clothing production to dozens of small, impoverished nations.
Now that the quotas are gone, textile retailers can buy as much as they like from any company, in any country. And they like China.
As a result, the United States says, Chinese exports in some textile categories more than quadrupled in the first quarter of the year, compared to the same period last year, while the European Union says exports of some products such as T-shirts jumped nearly 200 percent.
China says total textile exports rose 70 percent to the United States and 48 percent to the European Union in the first quarter.
That surge is prompting tough talk from Brussels and Washington. Peter Mandelson, the European Union trade commissioner, says, "Europe cannot stand by and simply watch these developments unfold. Time has come to take further action."
Last week, Mr. Mandelson opened a 15 day consultation period with Beijing to iron out differences, after which import restrictions could be imposed. The United States has slapped new import limits on a number of Chinese products.
Beijing retaliated against what it considers protectionist moves by canceling proposed increases to export tariffs that would have taken effect this week.
Commerce Secretary Carlos Gutierrez is meeting Chinese Commerce Minister Bo Xilai in Beijing this week to discuss the textile dispute. He is unlikely to find the talks easy.
Commerce Minister Bo says if the United States and Europe set limits on Chinese producers, China would have to adjust its policy. He adds that if the United States and Europe exert one kilogram of pressure on Chinese companies, the government would reduce pressure on Chinese producers by the same amount.
Professor Zhang Zhi-ming of the Textile Institute at the Hong Kong Polytechnic University says the surge in Chinese exports is hardly a surprise given China's production advantages. "Certainly for a country like China with tremendous comparative advantage and very competitive in the international market, its exports would increase rapidly," he says.
Those advantages include a vast pool of cheap labor and a relatively efficient transport system. And China produces its own cotton, silk and synthetic fibers - which many small countries must import.
Plus, a flood of Western investment has created large, modern, efficient factories in China.
Trade experts say that while the rhetoric has escalated, the problem is contained and the governments are working to resolve differences. They say China is too big a trading partner to be sidelined and punitive actions could backfire on the governments advocating them, by raising consumer prices and cutting profits.
At the same time, higher tariffs and new quotas will hurt China's textile industry - which employs 18-million workers. Analysts say massive job losses could threaten social stability - which Chinese authorities are keen to avoid.
Factory owners in China are watching how the dispute plays out. Benny Cheng is with Welltact Fashion and Garments, part of a Hong Kong group that supplies U.S. retailers from factories in China. He says quotas or tariffs could be painful for his business. "We have to discuss with our clients how to share that cost - if they can share the cost we can keep going but sometimes they can not and we have to reduce the quantity. Our clients may go to other countries like India, Malaysia, Bangladesh," he says.
The textile dispute comes as Brussels and Washington are pressuring China to revalue its currency, which they say make Chinese products artificially cheap and contributes to trade deficits.
China has pledged to make its foreign exchange system more flexible but has not indicated when that would happen.
Professor Zhang of the Hong Kong Polytechnic University says if the dispute is not settled soon it could undermine efforts to liberalize trade. He says the structure of the international textile trade has changed and the world must adapt. "If you look at the production numbers in the textile and apparel sector, you would notice that in the U.S. and European countries, the industry has been tremendously reduced because a big part of production has gone offshore. In the long, run unless the total structure worldwide is totally different, I believe the trend is that the developing countries will develop their textile and apparel industries," he says.
U.S. and EU officials say they are committed to free trade. But they say they must ensure that the transition in the textile trade must be orderly and avoid disrupting domestic businesses.