Washington, D.C. – NCTO President Cass Johnson testifies today before the U.S.-China Economic and Security Review Commission regarding the threat posed by China in textile and apparel manufacturing and how the removal of quotas on imports from China is likely to impact the U.S. textile and apparel sector. 

The hearing today is part of a two-day public hearing of the Commission to examine China ’s compliance with its World Trade Organization (WTO) obligations to date and the potential actions and strategies the U.S. government should pursue to address compliance shortfalls.  As a component of the two-day hearings, the Commission will also explore the use and effectiveness of the various import safeguards permitted under China ’s WTO accession agreement.

Johnson’s testimony highlights the fact that “for the past 15 years, China’s government has been aggressively implementing an ambitious plan to make its textile and apparel sector the dominant player in world trade.  In pursuit of this goal, the Chinese government has poured tens of billions of dollars into its textile and apparel sector in the form of free capital, direct and indirect subsidies and a host of other ‘incentives’ to drive competitors out of the markets and create an environment where no one, including the lowest cost-producing countries in the world, can compete with China in world markets”.   

The testimony goes on to say that “in every case where China has gone head to head with other producers, China has won by enormous margins.  Typically, China has ended up with a 75 percent share of the market with the next largest supplier getting five percent…This happens because of the pervasive and aggressive intervention of the Chinese government in its textile and apparel sector.  Because the Chinese government directly finances the sector – through currency manipulation, central bank loans, subsidies to state-owned enterprises, export subsidies, tax incentives, reduced electrical and freight costs 9among many others) – exporters in China are free to drop prices to whatever levels necessary to make the sale.”  Johnson went on to suggest that this behavior will take on an even greater intensity now that quotas have been removed. 

Evidence presented in Johnson’s testimony suggests that the U.S. textile and apparel sector – along with much of the world’s textile and apparel production – is on the cusp of a disaster if something is not done about China.  According to Johnson’s testimony, Chinese government reports show that “China produces more than 20 billion garments a year, ‘enabling China to offer four pieces of clothing to every person on earth’.  Its production base has increased by 50 percent in just the last four years.  And the Chinese government reports investments of $21 billion in its textile and apparel sector in just the last three years.”

The testimony further points out that “regardless of the investments, U.S. textile mills or Bangladeshi knitters or Turkish yarn spinners or Mexican trouser makers or African shirt manufacturers make in their businesses, they will lose to China.  This fact has borne out time and again in world markets where quotas have not been in place.  In Japan , for instance, China has taken an 83 percent share of the Japanese apparel market.  The next largest supplier is Italy with five percent.”

He also points out that “to their credit, producers around the world have tried, albeit unsuccessfully, to compete against China.  U.S. textile mills have one of the highest capital reinvestment rates of any industrial sector and, since the quota phase-out was agreed to in 1994, have invested more than $34 billion in new plants and equipment…Despite robust investment and tremendous gains in productivity and efficiency, it is impossible for U.S. manufacturers to compete against not just an industry, but a government, as is the case with China.”

In response to China ’s unfair trade practices and the threat it poses to textile and apparel producers around the world and especially those in the U.S. , Johnson calls on the U.S. government to do the following:

1)     The safeguard petitions must move ahead quickly or the U.S. government must self-initiate safeguard actions on its own.

2)     Push for a permanent safeguard mechanism in the Doha Round of trade talks.

3)     Impose punitive sanctions on China’s imports if China does not move quickly to float its currency, initiate WTO subsidy cases against China’s use of government banks to finance its export machine, clamping down on massive transshipments and illegal smuggling of textile and apparel products from China, and reverse the Commerce Department’s position against allowing industry to attack China’s subsidy schemes using countervailing duty laws.