China Repeals Textile Tax, Threatens WTO Grievance

By Peter S. Goodman
Washington Post Foreign Service
Tuesday, May 31, 2005

SHANGHAI, May 30 -- China on Monday threatened to take the United States to a dispute proceeding at the World Trade Organization if the Bush administration persists in restricting imports of Chinese-made textiles.

China also rescinded tariffs on its own textile exports, asserting that it will do nothing to limit its shipments as it offered to do last week so long as the United States and Europe impose their own restrictions.

At a news conference in Beijing, China's commerce minister, Bo Xilai, unleashed the latest rhetorical volley in an intensifying trade conflict, warning that his government might formally accuse the United States of foul play if the Bush administration does not lift quotas on its textiles.

"This is a legitimate right that China is entitled to, and we will resort to this mechanism when it is time to do so," Bo told reporters, according to Bloomberg News.

That threat came only days before Bo was scheduled to receive his American counterpart, Commerce Secretary Carlos M. Gutierrez, who is due in Beijing on Thursday for meetings on the textile conflict and the larger issue of how to lessen China's $160 billion trade surplus with the United States.

The growing intensity of the dispute underscores the degree to which domestic pressures appear to be leading both sides to push hard, lest they face accusations of appeasement. Analysts emphasized that Beijing and Washington both appear to be engaged in a show of toughness aimed at assuaging their domestic industries and not at a genuine escalation.

'This is entirely about domestic politics in both countries," said Andrew Rothman, China strategist at CLSA Asia-Pacific Markets in Shanghai. "They're doing the dance that they always do. I don't see this turning into a trade war."

The textile dispute stems from the expiration of an old system of global quotas that for four decades limited how much clothing any single country could ship to the United States and Europe. Since the lifting of those limits at the beginning of the year, shipments of Chinese-made clothes into the United States have grown by more than half, according to the U.S. Commerce Department. Volumes of some goods, such as cotton pants and shirts, have soared by more than 1,000 percent.

That surge has increased pressure on the Bush administration to choke the flow. Domestic textile manufacturers and a vocal contingent in Congress have accused the administration of being soft on China, allowing a renegade trade power to inundate the market with cheap goods at the expense of American workers.

The Bush administration earlier this month slapped new quotas on several categories of Chinese clothes and textiles, limiting their growth to 7.5 percent this year. The administration has the right to impose such "safeguard" quotas under the agreement that brought China into the World Trade Organization three years ago.

China reacted by accusing the United States of violating the spirit of free trade. Officials in Beijing maintain that China is simply using its advantages -- an abundance of cheap labor and natural resources -- to produce high-quality goods at a lower price. China asserts that it is being made a scapegoat for the inevitable decline of American manufacturing.

In a bid to persuade the Bush administration to drop the safeguard quotas, China last week said it would quadruple the tariffs it imposes on its textile exports. But on Monday, China said it would withdraw those tariffs altogether so long as the safeguard limits remain.

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