Textile Industry Urges Obama Administration to Take Action against China

On September 22, the National Council of Textile Organizations (NCTO) submitted comments to the Office of the U.S. Trade Representative (USTR) regarding China’s compliance with its WTO commitments. The comments, which showcase NCTO’s current thinking on China, identify a range of protectionist and mercantilist policies allegedly being pursued by the Chinese government and seek to make a case for a more robust U.S. trade enforcement policy against imports from the mainland.

NCTO contends that China has adopted “a slew of mercantilist actions designed to increase its market share and exports to the U.S. textile sector” despite a pledge it made at the April G-20 summit in London not to take any protectionist actions through the end of 2010. For example, the Chinese government has allegedly provided some $10 billion in export subsidies to its textile sector by increasing value-added tax rebate rates provided to textile and apparel exports from 11 percent to 16 percent. NCTO claims that China continues to provide massive subsidies to domestic textile and apparel manufacturers in the form of research and technology grants, bank lending programs, tax exemptions and preferential tax programs, in addition to the already mentioned VAT rebates for exports. China’s subsidy structure also remains opaque and is plagued by a lack of transparency, which makes it difficult to determine the subsidies that are actually being provided to domestic producers.

NCTO highlights China’s adoption of a new textile revitalization plan in April 2009 which, among other things, increased various subsidies, reduced labor costs through forgiveness of payments to social insurance programs, extended new loans and credit guarantees to textile companies, and provided increased government aid for research and upgrading equipment.

NCTO is also troubled by the fact that the Chinese yuan has remained steady versus the U.S. dollar over the past fourteen months. The U.S. textile sector believes that the yuan is undervalued by as much as 40 percent, providing “enormous financial support” to Chinese exporters. Interestingly, textile interests also allege that the lack of enforcement of U.S. trade agreements, including allowing China to maintain a broad range of subsidies and to keep its currency undervalued, has resulted in an erosion of popular support for trade liberalization. NCTO believes that support for trade liberalizing policies will not recover “until meaningful action is taken to reverse the current imbalances.”

In light of this, NCTO is urging the Obama administration to take the following four steps.

1. Move quickly on a commitment made by President Obama during his presidential campaign to monitor textile and apparel imports from China.

2. Condemn recent Chinese actions on textiles and other industrial products that are mercantilist in nature.

3. Create a central public repository on Chinese government support for its industrial sector.

4. Acknowledge that China manipulates its currency in order to gain an unfair export advantage, and support legislation and other actions that will either compel China to begin appreciating its currency or allow U.S. manufacturers to defend themselves and their workers from this predatory practice.