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China May Tax Clothing Exports to Head off Trade Conflict with the U.S.

>From The New York Times

China Relents, and Promises Textile Tariffs
By KEITH BRADSHER

Published: December 13, 2004

HONG KONG, Monday, Dec. 13 - The Commerce Ministry in China announced Sunday
night that it would impose tariffs on some textile exports, a step that
could avert a trade war with the United States and the European Union over a
new influx of low-cost Chinese garments that had appeared likely to flood
Western markets starting Jan. 1.

The ministry's Web site, where the announcement was posted, did not specify
the level of these export taxes or what textiles would be taxed. If the
tariffs are not high enough to limit the competitiveness of Chinese exports,
then the Bush administration could still proceed with recent threats to
impose new limits on shipments by China.

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The Chinese decision nonetheless represents the first sign of compromise on
the contentious issue by China, and appears to represent a victory for the
Bush administration. The administration has been under strong pressure from
apparel manufacturers and their workers in Southern states, who had warned
of large-scale layoffs if nothing was done.

A complex system of quotas has limited international trade in textiles and
apparel for decades but will expire on Jan. 1 under an agreement worked out
in 1993 as part of the creation then of the World Trade Organization.
Chinese manufacturers have been expanding their factories in preparation to
increase exports once the quotas are lifted.

The Commerce Ministry said in its statement that the goal of the tariffs
would be to encourage Chinese producers to manufacture higher-end textiles
and apparel instead of selling a full range. A minimum tax will be set for
each garment regardless of what each garment costs. If the tax is $1 a
shirt, for example, it might discourage the production of T-shirts in China,
for which the wholesale price is much less than $1 a shirt, but not silk
blouses with much higher price tags.

"This is part of a string of measures China will take to ensure a smooth
transition for textile integration following the end of the quota system,"
Chong Quan, a ministry spokesman, told the official New China News Agency.

A Commerce Ministry aide declined to elaborate.

The Chinese decision to impose export tariffs under Western pressure will
mean that American and European shoppers are less likely to see lower price
tags on an influx of everything from underwear to Chinese-made Armani ties.
But for seamstresses in North Carolina and in dozens of developing countries
that compete with China, the decision announced Sunday could mean a reprieve
from fiercer competition and possible unemployment.

China is not the first country to impose voluntary restrictions on its
exports in the face of threatened retaliation by the United States. Japan
imposed quotas on its exports of cars to the United States through the
1980's to allay worries from Detroit that it would take over much of the
American automobile market.

Detroit repeatedly complained that the Japanese had set their quotas too
high. It is similarly possible that the Chinese export taxes will not be set
high enough to satisfy American textile and apparel producers or the Bush
administration.

The Commerce Ministry said only that the tariff rate would be set "by
considering the conditions of textile manufacturers." There was no immediate
reaction on Sunday from Washington to the Chinese decision.

Carl B. Weinberg, the chief economist of High Frequency Economics, a
consulting firm in Valhalla, N.Y., said tariffs would probably not leave
Chinese manufacturers selling any less than they do now but could prevent
them from reaping gains next year. "However, it is a setback to the W.T.O.
objective of reducing constraints on world trade," he said.

Before China was allowed to join the W.T.O. in 2001, Clinton administration
officials insisted on a special provision of the so-called Chinese accession
agreement that would allow the United States to impose new limits on Chinese
textile and clothing imports from 2005 through 2008. The provision allows
the United States to impose limits if Chinese exports disrupt American
garment markets or even threaten to do so.

The Bush administration has already ordered new limits on Chinese shipments
of four categories of clothing, and has threatened limits on a wide range of
additional categories. European officials had also signaled their strong
opposition to a new influx of inexpensive Chinese textiles.

W.T.O. rules now prohibit the kind of semi-voluntary export quotas that
Japan imposed on its car shipments in the 1980's. But Jim Leonard, the
United States deputy assistant secretary of commerce for textiles and
apparel, said at a recent news conference in Hong Kong that the United
States would welcome any Chinese effort to make the end of global textile
and apparel quotas a more harmonious process.

He said then that Chinese officials had refused to discuss export limits.

Willie Fung, the chairman of Hong Kong-based Top Form, the world's largest
maker of brassieres, with operations in China, Thailand and the Philippines,
said in a recent interview that Beijing had been nervous about facing
lawsuits alleging the export of garments below cost, a practice known as
dumping.

As a result, Beijing has been trying to discourage companies from quickly
moving factories that make T-shirts, socks and other inexpensive garments to
China from other developing countries while encouraging production of more
specialized clothing, for which antidumping lawsuits would be harder to
prove.

The Bush administration signaled again over the weekend its intention to
limit Chinese shipments if China did not do so, by announcing that shipments
this month in excess of quotas for 2004 would not be allowed into the United
States in January, and would only be allowed to trickle in thereafter.

Japanese automakers responded to export quotas by making Lexuses and Acuras
instead of compact cars, increasing the threat to Detroit. As Chinese
garment factories produce costlier goods, they may pose a new challenge to
American companies.