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Editorial

Textiles and China

Thursday, December 16, 2004; Page A36

THE EXPIRATION of global textile quotas at the end of this month raises difficult issues for free-traders. The demise of the rules controlling how much each developing country can sell will allow the most efficient producers -- notably China, but also India and Pakistan -- to boost exports at the expense of less efficient rivals. The transition could be swift: The World Trade Organization has estimated that China's share of global textile and clothing production could jump from 17 percent in 2003 to more than 50 percent by 2007. That tripling implies a disruption far bigger than the usual adjustment pains from trade. And the losers are likely to include African producers whose need for economic opportunity is arguably larger than China's, as well as Latin American ones whose proximity to the United States makes the possibility of economic stress worrisome.

Despite these worries, the current pressure to muffle the impact of quota expiration is misguided. It's worth remembering that, although there will be winners and losers in the poor world, developing countries as a whole stand to benefit a lot -- there could be a gain of 27 million jobs, according to the International Monetary Fund. Moreover, going back on the commitment to abolish quotas, which was part of the multilateral trade round, concluded 10 years ago, would undermine the credibility of new commitments made in current negotiations. The excuse that the transition is going to be abrupt would be more powerful if it were not for the fact that rich countries have had 10 years to phase out quotas, but have chosen to keep nearly all of them until the last possible moment.

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Besides, it's one thing to acknowledge that the demise of the quotas may prove destabilizing. It's another to take protectionist action before this possibility has materialized. There are several reasons why the projected tripling of China's market share may not come to pass. The econometric model that yields this forecast does not anticipate a likely revaluation of China's currency, which would dull China's competitiveness. The forecast is based partly on data from 1997, which may have the effect of exaggerating China's room to expand, so economists are skeptical of its reliability. The forecast also does not take into account the clothing industry's tendency to spread its risks by buying from several countries; nor does it reflect the advantage of proximity to rich markets. Quite possibly, bulk orders for basic clothes will migrate to remote but efficient Asian producers, while the fashion industry, which demands fast response to changes in taste, will continue to favor nearby suppliers -- Turkey for the European Union, Latin America for the United States.

For all these reasons, the United States and Europe should resist pressure from domestic lobbies to erect preemptive barriers against China and other efficient producers. In particular, the Bush administration should throw out lobbyists' petitions for anti-China "safeguard" tariffs -- safeguards are supposed to be invoked only in response to an import surge, not in anticipation of one. Neither the administration nor the Europeans should celebrate China's recent decision to impose a tax on its own clothing exports, which was taken in order to assuage rich-world protectionism.

If the projected China surge does materialize, some form of response may be politically inevitable. Even then, it need not take the form of replacing quotas with new barriers. The smarter response will be to widen access to the U.S. market for Africans, Latin Americans and other affected countries, not to renege on promises to China.


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