Download Analysis on Textile Trading Conflict between China and America

Analysis on Textile Trading Conflict between China and America –
Challenge and Opportunity when Post-Quota Era Comes
LIU Yuejun, CAI Haixia
School of management and economy
Zhongyuan University of Technology P.R.China, 450007
[email protected]
Abstract The coming of post-quota era brings China’s textile enterprises with great opportunities.
However, China’s textile enterprises have to face great amount of trade dispute from other countries,
especially America. The paper analyzes the reasons that cause disputes between China and America, and
then brings forward strategies that can be adopted by Chinese government, textile Industry association
and textile enterprises.
Key words post-quota era, textile trade conflict, Strategy
1 Introduction
There is a great revolution of international textile trade system happened on January 1, 2005, quota
controlling have been cancelled which had worked for 40 years. This revolution was expected to bring
great benefit to china’s textile export. But some other countries like America always make difficulties
over the textile export of China. That brings many textile product trade difficulties especially between
China and America. After China joining in WTO, many disadvantage terms of WTO and some deep
time reasons make China textile product trade have to face more bars which come from the United
States. In order to suggest some constructive proposes to reform above problem, there are great realism
significations to find the reasons of textile trade conflict between China and America and analyze the
influence of trade conflict.
2 The reasons of textile product trade conflict
2.1 Fundamental reasons
The cancel of quota makes textile trade which was separated form free trade system for a long
period time to follow the correct path, China has traditional textile industry comparison advantage, the
cancel of the textile product quota is undoubtless a rare development chance. Statistics according to the
American commerce department shows that, the total amount of textile exported to America from China
has increased 62% compared with last year. Among them, the whole cotton knit fabric underclothing
increase 1200%, the whole cotton pants are 1500%, underwear 300%. The importing growth like this
kind of well spray type by all means makes the United States to rethink the textile product trade conflict
between China. After all, importing so many high quality and inexpensive textile product from China
isn’t a good news for America’s textile industry, whose competition ability is declining day by day. In
fact, With the integration approaches the United States frequently quote 242 item of China’s accession
to WTO report to make an import restriction over China textile and garment product. On October 22,
2004 the Executive Committee of the United States textile agreement decided to carry out a special
restriction to China hosiery goods. April 4, 2005, American Commerce Department announced that
China's three major categories export textiles including cotton shirts and blouses, cotton trousers, cotton
and man-made fiber underwear will be taken into a special safeguard investigation. This gave rise to the
China-US textile trade friction has been gradually upgraded, also bring serious interference to China-US
textile trade and make China-US textile trade into chaos.
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2.2 Apparent reasons
2.2.1 Serious trade deficit appear in the United States
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At the end of last century, with the high speed of trade development between China and U.S, the
United States government notice that the trade deficit problem became more and more important
especially the trade deficit of textiles. The total trade amount between China-US is 262.68 billion dollars,
trade deficit is 144.26 billions, which has increase 26% compare with last year. Since 2001 china join in
the WTO, American’s trade deficit have increase furiously while China’s export increasing. The total
trade deficit of America has added up to more than 1000 billions from 1990-2006. In 2006 The
American custom statistics indicators that the amount of America import textile production from China
has added up to 27 billions. Compared with last year the amount has increase 20.81%. This number
takes up to 29.02% of American’s total textiles import and rank the first compared with the textiles
import from other country.
2.2.2 The district structure of Chinese textiles trade is out of balance
China textiles foreign trade grows quickly, but the growth resource is concentrated. The statistics
from the China industry association indicators that the export of China's textiles to the three largest
trading partners sum attains 76,396 billions in 2005 and take up 65% of Chinese all textile export.
Among them the United States takes up to 23.14%, EU is 23.75%, Japan is 18.1%, as showed in figure
1:
，
America
23%
Others
35%
Japan
18%
EU
24%
Figure 1 Chinese main textile export district in 2005
2.2.3 The structure of Chinese textiles export is too far from perfect
Among the textiles China exported to other nations, most of them is of intensive labor, lower
technology, and lower bulwark. The competitor’s advantage is how to cut down the cost in which the
labor cost plays a key role. Because of the low price of Chinese labor, China’s textiles have more
competition in the international market. After the quota canceled, there are more little textile companies
with low technology; most of them produce and export the same textile productions, this type of
companies are lack of cooperation and compete with each other. Therefore in the international textile
market the dump behavior of Chinese enterprise has became serious, the dump behavior not only hurt
ourselves but also give other countries a dump handle. The other country always wins in the law court
just because Chinese enterprisers are lack of law knowledge. From then on, more and more foreign
companies make difficulties over Chinese textiles export just excuse of dump and self guarding.
2.2.4 China’s fabric companies face serious problems such as society responsibility, environment,
technology etc.
After the abolition of quotas
China's textile trade disputes are on the rise, some non-tariff
barriers are increasing, such as anti-dumping, safeguards and restrictions and various technical barriers,
this non-tariff barriers will became more and more popular. Because of the inherent concealed, the
technical barriers have became the most useful barriers in the field of textiles trade. There are many
kinds of technical barriers in the United States refer to safeguard, health, environment etc. the technical
barriers take effects on the cost which is the key advantages of China’s textiles. So the technical barriers
will reduce the textiles export, in order to change this terrible situation Chinese fabric enterprisers
should pay more attention to the society responsibility, environment and technology.
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2.3 Hidden reasons
2.3.1 To prevent from the expanding market share of Chinese textiles in United States.
No country want their fabric industry which affect people’s livelihoods dependent much on one
certain country. Take American textile market for example, the more market share of Chinese textiles,
there will be more dangerous to their politic and economy. Therefore, the United States does not want to
see China become a monopoly supplier. That is why America always makes difficulties over Chinese
textiles export.
2.3.2 Textile trade dispute is the need for America to promote the rising value of RMB
The trade problems between China and America focus on two hot spots, firstly, America strongly
demand the appreciation of RMB; secondly, America will make many trade barriers At present there
is a huge fiscal deficit in United States, in America’s opinion. China is an important textile supplier and
during the trade China have a huge number of trade surplus and foreign exchange reserves. That is the
reason of the fiscal deficit. Therefore, the United States want to reduce imports of textiles from China by
means of forcing the RMB to appreciate, adding additional export quotas and boosting the tariffs.
2.3.3 The need for America to protect domestic industries
The United States did not fulfill the Uruguay commitments which signed ten years ago to cancel
the quota step by step. The United States retained the 90% quota to prevent the increasing import from
developing countries. The nation has successfully protected their fabric industry but this industry has
lost their completive advantages at the same time. This protecting industry can not bear the intense
competition from international market. Until the beginning of 2005 when China's textile exports begin
to increase they realized that they had missed a great opportunity to reform the textile industrial
structure.
，
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3 Strategies for China textile industry to face the China-US textile trade dispute
in the post-quota era
3.1 National level
3.1.1 Change the comparative advantages to competitive advantages By means of adjusting the
industrial structure actively
Although the comparative advantage remains the basis for China’s textile enterprises to participate
in the international division of labor, but take China's long-term economic development in account, a
new China's textile trade policy which is based on dynamic competitive advantage is an important
guarantee to change our country to be powerful in the international textiles trade. On the one hand,
dynamic competitive advantage is necessary during the process of readjusting our textile industry
structure and improving the situation of similar product. It is can reduce the trade conflicts from the
similar product. On the other hand, dynamic competitive advantage is good for our emerging market’s
comparative advantages. So that, China's textile exports will be in a reasonable and arranged scope in
the global market, level of diversification of distribution. It is also can share the trade risk of regional
focusing and reduce the trade conflicts with the developed country.
3.1.2 Develop diversification export market and separate trade risk
With the development of economy globalization, America and China depend more and more on
international market. Both of them hope that they can dominate the international market which causes
conflict of interest between two countries. If these conflicts cannot be solved by cooperation, it will be
undoubtedly upgraded into textile trade dispute. Therefore, it’s necessary for China to explore
diversification export market.
3.1.3 Enhance the dialogue and communication with America textile industry
International dispute not only harm the economy interest of America and China, but also has
negative influence on the two sides’ communication and cooperation in politics and culture field.
International communication and dialogue is an important measure to decrease conflict.
3.1.4 Make more efforts in improving RMB exchange rate system
RMB exchange rate problem is one of the key reason in sino-American trade dispute. The decrease
of exchange rate stimulates the fantastic speed of China’s trade development. It also leads to the increase
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of our Foreign Trade Dependency Ratio directly. Moderate exchange rate is in favor of the steadiness of
society and economy’s development.
3.2 Strategies that can be adopted by indusry
3.2.1 Strengthening industry self-regulation
As a labor-intensive industry, Chinese textile has a strong comparative advantage, some developed
countries have been closely monitoring China's textile export and called it "sensitive products" exports,
And many developing countries have also become competitors to us, but some China's textile
enterprises are short -sighted in the international process. Some enterprises often reduce their price with
great hostility, and the result is that other foreign enterprises gain final. Huge export volume and lower
prices easily lead to the importing country's anti-dumping and safeguard measures, all domestic and
foreign trade enterprises will be punished as Export restrictions, In view of the specific products
safeguard statute will not be cancelled until 2013, therefore, in order to protect the overall and long-term
interests of our textile industry, our country's textile industry associations should actively co-ordinate the
behavior of the textile enterprises and help them strengthen self-discipline.
3.2.2 Industry associations should be more active in resolve the trade conflict
Under the framework of the WTO, industry associations represent their interests, and they can take
many international trade activities which is not appropriate for government and enterprises. They should
expand their intermediary function to all of the international market; they should pay a buffering
function in the international trade dispute, and help enterprises and the national use of the WTO rules to
safeguard the interests of the state and enterprises.
3.3 Strategies that can be adopted by enterprise
3.3.1Reinforce private brand construction
China is one of the biggest textile export country in the world and has great comparison advantage.
It wins great market shares because of it’s low price. However, the cheesy quality is the biggest obstacle
in China textile’s long term development. As the development of textile industry in some other
developing countries, China will lose it’s low cost comparison advantage gradually. Therefore, China’s
enterprise should find another way to keep the international market, and constructing private brand is an
effective way.
3.3.2Improving enterprises’ law awareness
Many of China's export enterprises are lack of law awareness in the international trade especially
when they were accused by foreign countries because of dumping and anti-dumping sanctions, this
situation have persisted for a long time and the foreign enterprisers have become unscrupulous. Because
of the demonstration effect, other countries always provoked anti-dumping and safeguard measures on
China trade friction.
4 Conclusions
In a word, china’s textile industry will face both challenge and opportunities in the open world.
Reasons mentioned above suggest that textile foreign trade dispute is unavoidable in the near future.
However, we should recognize the situation of the international environment in post-quota era, build up
the competitive advantage of textile enterprises, enhance the ability of dealing with foreign trade dispute
and make china’s textile industry more prosperous.
References
[1] Li Dandan, Zhuo Ou. Reasons and strategies of textile conflict between China and USA. Guangdong
Technology, 2005: 12-15(in chinese)
[2] Fritz Breuss. WTO Dispute settlement: An Economic Analysis of Four EU-US Mini Trade Wars---A Survey.
Journal of Industry, 2004:275-315
[3] D.Peter Stonehouse. A Review of WTO and Environmental Issues. Journal of Agricultural and Environmental
Ethics, 2000:121-144
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