Material world

China has been manufacturing textiles for a thousand years, but has only been exporting them without quotas for one. Clearly, the quota-less system instituted in January 2005, under the terms of the WTO’s Uruguay Round, has not gone off without a hitch. Indeed, both the US and the EU were quick to impose limits on a handful of major Chinese imports, citing disruptions in their internal markets. But they must be careful – as a market for luxury goods, China’s promise is as immense as its burgeoning population, some 250,000 of whom will be shopping up within the next five to seven years. As a producer of quality, low-cost textiles, the People’s Republic cannot be matched.

The trade-off between opening domestic markets up to imports while at the same time penetrating foreign markets poses a challenge in change management to business leaders and government officials everywhere. In some sectors, job losses; in others, job gains. Overall, efficiency increases as countries specialise, yet the conditions on the ground as industries are disrupted cannot be ignored. The problem facing the nation is complex, as those who lose are not necessarily those who gain, be they workers, consumers or investors.

This much is certain: trade brings change to all parties, and trade itself changes. What, then, are the opportunities before us, and what responsibilities do we bear? The advantages of outsourcing to China are obvious as the value for money of Chinese textiles soars. The return on investment is healthy and its future even healthier. Thus, countries with less competitive textile industries will inevitably be forced to adapt, and adaptation does not come without growing pains. Governments in those countries are allowed to offer some protection under the safeguard clause of the WTO agreement, which permits them to impose imports caps on China’s textile imports until 2008. At the negotiation table last Autumn, US negotiators won an additional year of caps.

It is interesting to note that although China’s imports to the EU have increased dramatically since the fall of the quota regime, overall imports have increased much less, with the upshot that other countries exporting textiles to the EU have lost out much more than the EU’s domestic producers. By the same token, China’s competition abroad – the countries of South and Southeast Asia, the Muslim world and Latin America – stand to win from the recent caps. As the business landscape at home and elsewhere responds to new Sino-European and Sino-American agreements, investors and manufacturers would be wise to keep their eyes on China’s competition in low-cost textiles. If indeed overall textile imports are little affected by the caps, the question arises: why practice this modest protectionism at all?

People concerned with the future of textiles should not ignore the larger picture. The degree of freedom China wins for its textile exports has geopolitical repercussions to boot. Countries like the US often tie trade and tariffs to diplomacy. However, with Chinese textiles beating out their competition in Latin America, the Middle East and Africa by a long shot, Washington will need to play a harder trade game if it’s going to provide incentives to its client states. Jordan, Morocco, Israel, Egypt and much of Latin America are facing a veritable earthquake in the textile sector, for their wages are high relative to China’s, and their management’s efficiency can be relatively low, particularly in the Americas. Clearly, the stability of such countries is important to both Brussels and Washington, and they will do what they can to assure a smooth transition as their allies and trading partners adapt. By the same token, textile negotiations with China are tied to negotiations on other fronts, and if the Chinese have acquiesced to these safeguard measures for textiles, they stand to gain elsewhere. With Chinese textile exports growing at nearly 20 percent per year, quotas or not, it’s hard to see how they can lose.