The threat of additional new safeguard quotas is making US buyers wary of sourcing all their clothing from China, according to the latest issue of Textile Outlook International. This is despite the fact that Chinese prices are among the lowest in the world, and most US imports from China are no longer controlled by quotas.

Quotas restricting international textile and clothing trade between member countries of the World Trade Organisation (WTO) were eliminated on December 31, 2004, in accordance with the 1995-2004 Agreement on Textiles and Clothing (ATC).

However, one exception among the WTO rules is that quotas can still be used to restrict imports from China under the special textile safeguard -- which was included in China’s WTO accession agreement.

Any WTO member can use the special textile safeguard provision to restrict imports from China of specific categories of textiles and apparel that “are, due to market disruption, threatening to impede the orderly development of trade in those items”.

Because the special textile safeguard provision conflicts with normal WTO rules, it has been given a fixed lifespan: it can not be used after 2008.

The USA, faced with a surge in imports from China, has lost no time in making significant use of the textile special safeguard provision. In 2003 safeguard quotas were imposed by the US Committee for the Implementation of Textile Agreements (CITA) on imports from China of knitted fabric, brassières, and robes and dressing gowns.

In October 2004 a safeguard quota was imposed on US imports of cotton, wool and man-made fibre socks from China. Since then, CITA has received at least 12 further petitions from the US industry to have safeguard quotas imposed on other categories of US imports from China.

Interestingly, the petitions are based on the threat of market disruption rather than on actual disruption.

It is not known how many of these petitions will be translated into actual quotas. In late 2004 the US Department of Commerce was served with an injunction, preventing it from introducing further restrictions. The injunction was issued in response to a lawsuit brought by the US Association of Importers of Textiles and Apparel (USA-ITA), representing a number of clothing importers and retailers -- including JC Penney and Liz Claiborne.

As far as the EU is concerned, there is no evidence that the European Commission plans to follow the US example and impose safeguard quotas. The Commission says that it will certainly monitor textile and clothing imports from China. But rather than actually restrict imports from China, it would prefer to assist other developing countries by offering them customs duty concessions.

That said, the EU may harden its stance. The outgoing trade commissioner, Pascal Lamy, warned that the EU authorities would not rule out the use of the textile safeguard if there were a surge in China’s shipments to the EU market as a result of excessive trade diversion stemming from US restrictions.

Such a view has since been reiterated by the EU’s new trade commissioner, Peter Mandelson, who has remarked: “We will use all the instruments at our disposal if action is needed”.

The EU may be spurred into action if use of the textile safeguard were to extend significantly beyond the USA. Already, two other countries, Turkey and Argentina, have decided to impose quotas on imports from China under the textile safeguard and it seems likely that more will follow.

Moreover, the European Commission may come under pressure to use the safeguard from the ten new member states which joined the EU in May 2004. Most of these countries have important, but vulnerable, textile and clothing industries.

In the meantime, the injunction preventing CITA from imposing further quotas to protect the US market from Chinese imports is likely to be only temporary. Faced with the threat that further quotas may be imposed, US importers will want to maintain a diversity of sourcing options rather than risk having empty shelves as a result of US embargoes on Chinese goods.

In the short to medium term, therefore, many buyers are looking at alternative sources in Asia -- including India, Sri Lanka and Vietnam. However, most commentators predict that, in the longer term, buyers will eventually consolidate and focus their purchasing on Chinese suppliers.