CHINA SAFEGUARD UPDATE

Effective September 14, 2005 

Our last update was issued at the end of May. Developments since then have been so fast and furious that each time we thought about issuing another edition, something else changed. Now that things have stabilized somewhat, we can provide a meaningful report as to where the various China safeguard actions stand. 

We begin with the situation in Europe. Whether meant as a face-saving explanation or not, the Europeans were startled to see the mountains of garments which stockpiled in the first month while implementation of the resolution between the EU and China was put into place. Some estimates placed the value of those stockpiled goods as high as US$973 million. Whatever their value, there were millions of garments (perhaps as many as 87 million units) not making their way to retail store shelves. The EU invoked its safeguard provisions and within a matter of weeks, the EU and China reached a deal. Apparently half the goods will be released by a unilateral increase in the agreed upon quota levels. The other half will be charged against next year’s quotas. The implementing regulations were adopted on September 12, 2005 and took effect today. They include authority for member states to issue import licenses for goods shipped before July 20th, but importers must apply by September 20th.  

Further, it appears the European Commission has placed ten (10) categories of products, including t-shirts, sweaters and bed linens, on a watch list. Investigations into the dumping of Chinese CDs and DVDs have also been opened. In addition, claims that India and China are dumping shoes has led to the opening of another investigation.  

In the U.S., the situation is quite different. There have been several rounds of negotiations between representatives of the two countries. Reports suggest the parties could not be farther apart. USTR announced earlier this week the hope to restart those negotiations the week of September 26th. Word has it that so far the U.S. has tabled more and more restrictive proposals, suggesting the U.S. aim may be to delay a resolution. The Chinese, on the other hand, look to the solution reached with the EU as the model to follow.  

In the meantime, quotas have again been imposed on brassieres (349/649) and synthetic filament fabric (620). At the same time, CITA has also extended the date, now to October 1, 2005, by which decisions will be made regarding categories 222 (knit fabric), 345/645/646 (cotton and mmf sweaters), 350/650 (dressing gowns and robes) and 447 (men’s and boy’s wool pants). Also pending is the renewal petition regarding socks (332/432/632), the period for public comments for which closed on September 2nd.  Safeguards are already in place for socks and have been for almost two (2) years, so unless an overall resolution is reached with the Chinese in short order, there is no reason to think these quotas will not continue in place. The comment period also recently closed for nightwear (351/651), women’s and girls’ blouses (341/641), skirts (342/642) and swimsuits (359-S/659-S). Can quotas on these items be far behind? 

If you are looking for resources from which to monitor the situation, we suggest you visit the OTEXA website at http://otexa.ita.doc.gov/Safeguard05.htm, and the U.S. Customs web page at

http://www.cbp.gov/xp/cgov/import/textiles_and_quotas/china/ 

Of course, since our last report, the Chinese imposed an export tax and then removed it. They also implemented a system of export licenses, but only apply them on exports to Europe, not the U.S. In the meantime, for good measure, the Chinese have also begun an  effort (some would say a too meager one) to float their currency. In the past, the yuan was tied to the U.S. dollar at a fixed rate of 8 to the $1. Following the Singapore and Israel model, the yuan will now be allowed to float, but at an increase of no more than 3%. One of the more closely guarded secrets was the identity of the currencies in the basket against which the yuan would float. One reliable report has that basket consisting of the currencies of Europe, U.S., Japan, Hong Kong, South Korea, Taiwan, Germany, Singapore, Malaysia and the Netherlands. 

Interestingly, the issue of textiles and China seems to have captured the imagination of the general press and so information may also be available in your favorite newspaper.