U.S. and Chinese trade negotiators ended two days of talks Wednesday without resolving the dispute over increasing volumes of Chinese-made textiles reaching the United States, a key cause of friction between the two countries.
Sources briefed on the talks said the two sides made little if any progress, with both governments unwilling to yield. China has demanded that the Bush administration lift emergency caps it imposed in May on eight categories of clothing and textiles. The United States has signaled that it would do so only if China agrees to accept slightly looser limits that would apply to a broader range of products. The United States has pushed for a deal that would run through 2008, while China has called for a shorter agreement.
The failure to compromise ensures that textiles will remain a primary irritant between the two countries. It also ensures that trade groups in the United States will intensify their campaign to restrict Chinese imports, leaving the textile industry in confusion. Major U.S. retailers are reluctant to place too many clothing orders with Chinese factories lest their shipments be ensnared in trade politics.
"We'd like to see a quick resolution to this," Andrew Tsuei, managing director of global procurement for Wal-Mart Stores Inc., said in a telephone interview before the end of the talks. "The uncertainty is really challenging to our business. It just makes it hard to plan."
Before the talks, many analysts assumed that China was eager for a resolution and would compromise to get one, fearing that it would otherwise lose business to apparel producers in India and Mexico. That perception was fueled by the scheduled visit to the United States next week by China's president, Hu Jintao, who intends to assure Americans that his country's growing stature in the world economy poses no threat.
But trade experts in Beijing emphasized that the issue has swelled into an emblem of China's overall relationship with the United States, aggravating perceptions in China that the country is being bullied by the world's lone superpower.
"This is a test of the government's ability to stand up," said Mei Xinyu, an economist at the Chinese Academy of International Trade and Economic Cooperation, a Beijing-based research institute that is part of the Ministry of Commerce. "China cannot compromise because the government's legitimacy in global affairs is on the line."
The U.S.-China trade relationship has become increasingly volatile in recent months. Labor and trade groups in the United States blame factories here for putting Americans out of work. Members of Congress say China's $162 billion trade surplus with the United States is evidence that Beijing is manipulating its currency and making Chinese products unfairly cheap. China asserts that it is being made a scapegoat for the inevitable loss of U.S. manufacturing work to lower-cost countries.
The textile industry is a high-stakes venue for this conflict. It employs about 18 million people in China and is seen as a major source of jobs as millions of peasants move to cities in search of work.
When China joined the World Trade Organization four years ago, opening its previously protected domestic markets to foreign competitors, it banked on gaining access to the world's most lucrative textile markets. China poured money into new factories in anticipation of a milestone this year: the expiration of an old system of global quotas that for three decades limited how much clothing and textiles could enter the United States and Europe from any single country.
As part of the 2001 deal that brought China into the WTO, Beijing agreed to give the United States and Europe the right to impose "safeguard" quotas on some Chinese textiles and clothing in the first three years after the old system expired. Under the terms, Washington and the European Union have the right to limit to 7.5 percent the annual growth of any category of clothing or textiles if a surge of imports disrupts U.S or European markets.
The provision was crucial to gaining the blessing of the U.S. textile lobby for China's entry to the WTO. Bush administration officials have said it was always virtually certain that the limits would be imposed. During the first few months of this year, some volumes of Chinese goods reaching the United States such as cotton shirts and pants increased by more than 1,000 percent, prompting Washington to respond with safeguards.
But China argues that the United States is imposing the emergency quotas without proving a market disruption. In the months since, China has sought a negotiated compromise while denouncing the safeguard limits as a violation of the spirit of WTO. The talks here were the fourth round.
China's textile industry complains that it is losing orders.
"We just feel helpless," said Zhang Chao, manager of Zhejiang Zhongda International Trade Co., a major exporter of clothing based in the city of Hangzhou. "There is no way to predict this."
The U.S. textile lobby has seized the initiative with a flurry of petitions for new emergency limits. As the talks failed here on Wednesday, U.S. trade associations praised the Bush administration for maintaining a hard line.
"If China isn't moving, then the right thing to do is go home," said Augustine D. Tantillo, executive director of the American Manufacturing Trade Action Coalition.
Special correspondent Eva Woo contributed to this report.