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U.S.-China Economic and Security Review Commission

Field Investigation on China’s Impact on the US Manufacturing Base

Friday, January 30, 2004

Columbia, South Carolina

written_testimonies of U.S. Rep. John M. Spratt, Jr. (D-SC)

Mr. Chairman, thank you for the opportunity to testify on behalf of the people of South Carolina. I represent the Fifth Congressional District of South Carolina, which lies well within the textile belt. Since 1997, 51,000 textile workers have lost their jobs in South Carolina and 66 textile plants have closed. The surge of imports from China is a significant cause of the problem, and unless something is done, the problem will only get worse.

Since China joined the World Trade Organization (WTO) on January 1, 2002, its exports of textile and apparel products to the United States have more than doubled. China’s exports grew by 117% in 2002 and by an additional 114% by September 2003. We have been accustomed to import competition in textiles and apparel, but this surge represents the largest single increase in our history. Almost all of these imports (96%) are in categories that were released from quota control on January 1, 2002. China’s increase has been so great—2.8 billion square meters---that it has surpassed the combined increases in textile and apparel imports coming from every other country in the world.

As things stand, I see four significant barriers to fair trade between the United States and China:

(1) China pegs the yuan at an artificially high value to the dollar, making Chinese imports cheaper than ever.

(2) China has no sense of balance and has caused enormous market disruption by flooding the United States with cheap imports.

(3) China uses legal access to our markets to the maximum and then flouts the rules of fair trade by illegally transshipping textiles and apparel to the United States in huge quantities.

(4) China has no sense of reciprocity and has failed to open its markets to our exports, even though it has substantial dollar reserves.

China’s surge has been significantly abetted by pegging the yuan to the U.S. dollar. Currency manipulation has allowed China to gain a 38% unfair price advantage, on top of the advantage it already enjoys due to cheap labor. I introduced H.R. 3364 with Rep. Sue Myrick (R-NC) to impose a 27.5% duty on any Chinese imports unless China halts the manipulation of its currency within 180 days of enactment of our bill. H.R. 3364 was referred to the Committee on Ways and Means where it awaits consideration.

To limit the surge of Chinese textile imports, I and 144 of my colleagues in the House wrote the President asking him to invoke the Chinese textile safeguard. The safeguard was designed to protect U.S. textile and apparel products from disruption by large volumes of Chinese imports. This safeguard was included as key provision in the Chinese/U.S. textile bilateral in 1997 and reaffirmed as part of China’s WTO accession agreement in 2001. It should be used and used aggressively, and having agreed to the safeguard twice, China should not be heard to complain when it is used fairly.

Although this safeguard was first agreed to six years ago, the Committee for the Implementation of Textile Agreements (CITA) did not publish procedures for implementing the measure until May, 2003. This delay caused considerable damage to the U.S. textile industry. While China’s exports to the U.S. grew by 117% last year, the domestic industry lost nearly 300,000 jobs nationwide since January 2001. China is the single largest exporter of textile and apparel products to the U.S. for 12 straight months, increasing at an annual rate of over 100%. As soon as the procedures were published, the industry began the process of getting the safeguard triggered.

On July 24^th, the domestic textile and fiber industry petitioned President Bush to invoke the China safeguard in four categories: knit fabric; cotton and man‑made fiber gloves; cotton and man‑made fiber dressing gowns and robes; and, cotton and man‑made fiber brasseries. The petitions for knit fabric, brasseries, and dressing gowns were accepted. The petition for gloves was rejected because the China safeguard is not applicable to a product under quota. Although knit cotton and man-made fiber gloves are no longer under quota, imports of woven cotton and man-made fiber gloves remain under quota until January 1, 2005. The industry will file a new petition on knit cotton and man-made fiber gloves early this fall.

CITA announced its approval of the first safeguard petitions on November 18, 2003. The United States will now begin a consultation process with China to limit growth of these imports. Once the Chinese are notified of the consultation, shipments from China will be limited to 7.5% above the amount that entered the country during the first 12-month period of the most recent 14 months preceding the request for such consultations. During the consultation process, which can last no more than 90 days, the United States may reach an agreement with the Chinese that will resolve this issue. If we do not reach agreement, the safeguard will remain in effect for the remainder of the year. I emphatically support use of the China safeguard in as many product categories as may be necessary to restore some measure of fairness to our trading relationship.

I adamantly oppose the Bush Administration’s proposal to eliminate all tariffs by 2015. Textile tariffs are our last line of protection, and modest protection at that. I have written U.S. Trade Representative Robert Zoellick asking him to drop the proposal during the round of WTO negotiations in Cancun, Mexico, and I urge again that we take tariff reduction totally off the table.

The United States should establish stronger enforcement methods and more punitive measures against countries like China that illegally transship textile and apparel products into the United States. The Government Accounting Office (GAO), in a report released on January 23, 2004, found that the Customs and Border Protection Service targeted less than .01% of textiles shipments for inspection in 2002. According GAO’s report, under CBP’s in-bond system, foreign textiles and apparel can transit through the US before formally entering U.S. commerce or being exported to a foreign country. The report further found that ineffective controls often enable cargo to be illegally diverted from its supposed destination, and ultimately circumvent quotas and duties. CBP’s penalties are set lower than the value of the cargo, so violators do not view the low payments as a deterrent against diverting their cargo. GAO also noted, after global textile quotas end in 2005, CBP will lose its authority to conduct foreign factory visits in former quota countries, and this will weaken its ability to curb illegal transshipment, mislabeling, and false declarations.

One of the most significant pieces missing from our trade relationship with China is a sense of reciprocity on their part. When we agreed to open our markets to China, we did so with the understanding that China would import American-made goods. In November 2003, the United States imported $4.3 billion in textiles from China, and only exported $192.5 million to China. When China entered the WTO, the textile industry was assured that many of the trade barriers preventing our exports from accessing China would be removed. Trade figures do not bear this out. The United States must press China to remove all of its trade barriers, visible and invisible, in order for our two countries to remain trading partners.

Mr. Chairman, thank you for accepting my written_testimonies today. With textile quotas scheduled to be eliminated at the end of 2004 and the Bush Administration proposing to eliminate all textile and apparel tariffs by 2015, it is crucial that the four points I have laid out be implemented to protect the textile industry from China’s heavily subsidized industry through 2008. The United States cannot afford further erosion of its manufacturing base, and protecting our textile industry is a strong step toward stopping the erosion.