Truly guilty pleasures

China's unfettered entry into the WTO should make Nike, Liz Claiborne and the Gap awfully happy.


Alexandra Starr
May 25, 2000 9:24AM (UTC)

In its zealous campaign to convince wavering House members
to grant permanent normal trade relations (PNTR) status to
China, the Clinton administration has adopted a permanent
"message of the day." The mantra goes something like this:
The Chinese, not the United States, made all of the
concessions in the bilateral accord negotiated between the
two countries last year. The treaty was hammered out with an
eye to China's imminent entrance into the World Trade
Organization, and unless Congress grants China all of
the prerogatives that go along with membership (e.g.,
relinquishing the yearly ritual of deciding whether or not
to grant it most-favored-nation status), the United States
will be shut out of the treaty's largesse.

This suggests the Chinese were chumps. But while it may have
made concessions to the United States, China stands to gain
substantial economic benefits if it can swing WTO
membership. And it's enough to make fashion behemoths like
Nike, Liz Claiborne, the Gap and the Limited salivate, as
well.

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Experts believe that China, as a poor, labor-rich country grappling with an official
unemployment rate of 17 percent, will
probably launch a proliferation of sweatshops as a way of
pulling the country out of its economic malaise -- its
growth rate has declined every year for the past seven and
is expected to drop again this year. "In economic terms,"
says Nicholas Lardy, a senior fellow at the Brookings
Institution, gaining access to the world textile market
"would be the single greatest benefit."

Right now, China's lack of WTO credentials hems in its
potential as a textile powerhouse. Look closer at your
clothing: You won't find many with "Made in China"
tags. That's because textile trade has been governed by the
Multi Fiber Arrangement, a Byzantine bilateral quota
specifying which garments individual countries can export.

Ever wonder why you own a T-shirt bearing the label "Made in
the United Arab Emirates"? Some companies set up their manufacturing
in small countries not yet subject to quotas. Once found out,
they are subject to a quota, too. According to Marcus Nolan
of the Institute for International Economics, the down vests
that were all the rage about 15 years ago (and popularized
by Michael J. Fox in "Back to the Future") were the
handiwork of a Thai manufacturer who creatively circumvented
his country's quota on nylon jackets ... by cutting off the
sleeves.

In 1995, with the creation of the WTO, member countries
passed the agreement on textiles and clothing, which
stipulated that quotas would be phased out by 2005, although
there will still be tariffs on garments. Of course, without
WTO membership, China has been locked out of the deal
completely. And its outsider status was a distinct
disadvantage when the United States decided on China's
garment export quota.

"China is a very dominant supplier in our market," says an
official at the United States Trade Representative office.
"The quotas we negotiated with them were made with an eye to
that status."

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Translation: The Chinese were screwed, because as the United
States allowed WTO countries to ship more textiles into the
United States, it compensated for the influx of goods by
clamping down on the Chinese. Last year, according to the
official at USTR, WTO members saw their quota increase
by 9 percent. The Chinese allowance inched up a paltry 0.9
percent.

Not surprisingly, China was anxious to get in on the MFA as
soon as possible. While unions pressured U.S. negotiators
to insist that the Chinese have their quotas phased out over
10 years, the Chinese held firm.

"It's something else the U.S. caved in on," says Mark
Levinson, policy director of the Union of Needletrades,
Industrial and Textile Employees (UNITE). "Apparently, it
was a deal breaker for the Chinese." U.S. officials did
secure a provision, however, that would allow the United
States to impose quotas within four years of the phase out,
if there is a "surge" of Chinese garment exports.

There is every reason to think such a surge will occur, once
the Chinese officially join the WTO and are allowed to have
their quotas phased out. The International Trade Commission
predicted last year that China's share of the U.S. apparel
market would increase from 18 percent to 30 percent. Ann
Hoffman, legislative director at UNITE, calls that a
conservative estimate. "They always underestimate the
damage from trade agreements," she says.

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A good indicator of the growth potential for China in
textiles is the amount of toys and shoes it ships to the
United States every year. Neither of those products are
subject to quotas, and they are the country's two leading
exports to the United States. According to the Global
Exchange, the nonprofit organization that monitors trade and
human rights, about 80 percent of all toys in this country
come from China.

One result of China's potential growth in textiles will be
cheap T-shirts and Capri pants for American consumers.
Prices are already low -- apparel prices have fallen about 1
percent a year throughout most of the '90s, and last year the
drop was even steeper. Another consequence will be fewer
textile jobs in the United States -- UNITE is predicting a
loss of 15,000 jobs a year.

The specter of unemployment looms much larger in Southeast
Asian countries, however. Workers in countries like Sri
Lanka, Malaysia and the Philippines don't pull down hefty
paychecks, but they do earn more than Chinese laborers.

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Plus, with the authoritarian Chinese leadership,
businesses don't run the risks of strikes or demands for
health insurance. As a result, companies are expected to
relocate a chunk of their business from those other
countries to China.

So while American consumers will reap the benefits of
China's emergence as a major textile player in the form of
$4.99 T-shirts, garment workers in countries ranging from
Sri Lanka to the United States could pay a steep price.


Alexandra Starr

Alexandra Starr is a freelance writer based in Washington.

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