: "U.S. Will End 'Zeroing' in Canada Lumber Dumping Case; Commerce Department Should End Same WTO-Illegal Practice in Shrimp Trade Case
WASHINGTON, Dec. 14 /PRNewswire/ -- The CITAC/ASDA Shrimp Task Force today
urged the U.S. Commerce Department to end its controversial, WTO-illegal
'zeroing' methodology in the anti-dumping case against imported shrimp now
that the U.S. government has agreed to end its use in a dumping case on
softwood lumber from Canada.
When calculating a dumping margin, the Commerce Department compares
foreign sales to U.S. sales. Commerce currently uses a 'zeroing' methodology:
When U.S. sales prices are higher than foreign market values, and no dumping
has taken place, rather than giving companies credit for these sales, the
Commerce Department eliminates, or 'zeroes' them out. This means that only
U.S. sales at prices lower than foreign values are counted in calculating
dumping. This automatically creates or inflates dumping margins.
The World Trade Organization (WTO) has twice found zeroing to violate the
WTO Agreement on Dumping and Subsidies, most recently in the Canadian lumber
case. The use of zeroing in that case is identical to that in the shrimp ase.
Last week, the U.S. and Canada announced an agreement that terminates
WTO arbitration proceedings initiated by Canada in the softwood lumber case in
return for the U.S. dropping its use of the "zeroing" methodology in that
case.
"By abandoning zeroing in the Canadian lumber case, the Commerce
Department is admitting it is wrong," said CITAC/ASDA Shrimp Task Force
Chairman Wally Stevens. "There is no longer any legal or economic
justification for applying zeroing to the shrimp case. The European Union and
Japan are now challenging the use of zeroing in 37 prior antidumping cases.
This practice is going to be rejected wholesale by the WTO very soon. The
United States is fighting a losing battle to keep applying a calculation that
is unfair and that violates the rules of international trade."
Continued Stevens, "Zeroing wrongly creates or inflates dumping margins.
The fact is that without applying the illegal zeroing methodology, nearly all
of the dumping margins found by the Commerce Department in the shrimp case
would disappear. Abandoning the practice now is the fair, WTO-consistent, and
right thing to do."
The Commerce Department will announce final dumping duties for Thailand,
India, Ecuador, and Brazil on December 20. In January 2005, the ITC will
determine whether the imports from the six countries are a true cause of
material injury to the domestic industry.
In response to the threat that these food taxes pose to consumers and the
consuming industries that serve them, the Consuming Industries Trade Action
Coalition (CITAC) and the American Seafood Distributors Association (ASDA)
formed the CITAC/ASDA Shrimp Task Force, joining concerned grocers,
restaurants, processors, distributors, business councils, and U.S. importers.
The Shrimp Task Force seeks to assure that the U.S. government considers all
the facts, applies the law, and exercises its discretion in the case fairly
and objectively, with a full understanding of the national ramifications of
any decision.
Thursday, December 30, 2004
Tuesday, December 14, 2004
Chaina to impose Export Duty on cetrain textile products
International Trade Law News: "China Announces Intention to Impose Export Duties on Certain Textile Products"
The Chinese Ministry of Commerce has announced that it will impose tariffs on certain textile exports in an effort to prevent a trade war with the U.S. and EU as a result of the elimination of textile quotas on January 1, 2005. As of this writing, the details of the export tariffs has not yet been released."
The Chinese Ministry of Commerce has announced that it will impose tariffs on certain textile exports in an effort to prevent a trade war with the U.S. and EU as a result of the elimination of textile quotas on January 1, 2005. As of this writing, the details of the export tariffs has not yet been released."
rnsa: [WTO] [India/U.S.] WTO empowers India to retaliate against US
rnsa: [WTO] [India/U.S.] WTO empowers India to retaliate against US
Trade row: WTO empowers India to retaliate against US
Navhind Times - Panjim,India
December 2, 2004
http://www.navhindtimes.com/stories.php?part=news&Story_ID=120223
UNI New Delhi Dec 1: The World Trade Organisation has authorised India, EU and five other countries to impose retaliatory measures against the United States in a trade dispute relating to a US anti-dumping law, popularly known as the Byrd amendment.
India, EU, Brazil, Canada, South Korea, Japan and Mexico had complained to the dispute settlement body (DSB) of the WTO against the Byrd amendment describing it illegal.
The US anti-dumping law allows the distribution of anti-dumping and countervailing duties to the US companies that brought or supported the complaints.
India and other complainants argued that the Byrd amendment created an undue incentive for US industries, especially in the steel sector, to seek the imposition of duties on imported goods, improving their competitive position and assisting them in the form of cash payments.
The DSB had ruled that the controversial law constituted a double penalty on non-US competitors and was illegal.
A total of $ 231 million was distributed in 2001 and around $330 million in 2002. It is estimated that distribution for 2003 would amount to about $ 240 million.
If the US does not bring its legislation into conformity with its international obligations, the complainant can impose retaliatory measures, according to WTO officials.
The seven complainants argued that the US still had not implemented the DSB recommendations after the expiry of the implementation time on December 27, 2003 and that sanctions were the only tool left to them to get the US to comply.
The level of suspension of concessions would be consistent with the arbitrator’ decisions issued on 31 August 2004.
The US reiterated its intention to comply with the DSB rulings and emphasised that it would not be necessary for complainants to exercise that authorisation.
The US also expressed its concerns regarding the arbitrator’s decisions on a varying level of suspension on an annual basis. It worried that these annual adjustments would suggest unpredictability.
“The DSB agreed to grant authorization to suspend the application to the us of tariff concessions and other obligations, as provided in the decisions of the arbitrator, in response to the requests by the seven countries in documents”, the WTO statement said.
Trade row: WTO empowers India to retaliate against US
Navhind Times - Panjim,India
December 2, 2004
http://www.navhindtimes.com/stories.php?part=news&Story_ID=120223
UNI New Delhi Dec 1: The World Trade Organisation has authorised India, EU and five other countries to impose retaliatory measures against the United States in a trade dispute relating to a US anti-dumping law, popularly known as the Byrd amendment.
India, EU, Brazil, Canada, South Korea, Japan and Mexico had complained to the dispute settlement body (DSB) of the WTO against the Byrd amendment describing it illegal.
The US anti-dumping law allows the distribution of anti-dumping and countervailing duties to the US companies that brought or supported the complaints.
India and other complainants argued that the Byrd amendment created an undue incentive for US industries, especially in the steel sector, to seek the imposition of duties on imported goods, improving their competitive position and assisting them in the form of cash payments.
The DSB had ruled that the controversial law constituted a double penalty on non-US competitors and was illegal.
A total of $ 231 million was distributed in 2001 and around $330 million in 2002. It is estimated that distribution for 2003 would amount to about $ 240 million.
If the US does not bring its legislation into conformity with its international obligations, the complainant can impose retaliatory measures, according to WTO officials.
The seven complainants argued that the US still had not implemented the DSB recommendations after the expiry of the implementation time on December 27, 2003 and that sanctions were the only tool left to them to get the US to comply.
The level of suspension of concessions would be consistent with the arbitrator’ decisions issued on 31 August 2004.
The US reiterated its intention to comply with the DSB rulings and emphasised that it would not be necessary for complainants to exercise that authorisation.
The US also expressed its concerns regarding the arbitrator’s decisions on a varying level of suspension on an annual basis. It worried that these annual adjustments would suggest unpredictability.
“The DSB agreed to grant authorization to suspend the application to the us of tariff concessions and other obligations, as provided in the decisions of the arbitrator, in response to the requests by the seven countries in documents”, the WTO statement said.
Friday, December 10, 2004
Antidumping: The Unfair, Unfair Trade Law
Antidumping: The Unfair, Unfair Trade Law: "Antidumping: The Unfair, Unfair Trade Law
by Daniel Ikenson
Since securing trade promotion authority from Congress last summer, the Bush administration has been on a pro-trade tear. Recently, free trade agreements with Singapore and Chile were concluded, and negotiations on several other fronts were started. But perhaps the most laudable initiative is a proposal, announced last month, to end all non-agricultural tariffs worldwide by 2015.
For a variety of reasons, though, this proposal has been met with skepticism around the world. A common concern is that it doesn’t matter how low tariffs are if the United States continues to hamper imports with antidumping measures. Products subject to zero tariffs will remain vulnerable to whimsical antidumping suits, which can result in triple-digit duties with the flimsiest of evidence.
The antidumping law, perhaps the most arbitrary and disruptive U.S. trade barrier, is defended as a means of ensuring “fair” trade and maintaining a “level playing field” for domestic producers. Tough antidumping rules, its defenders claim, facilitate freer trade by providing assurances that “unfair” trade will be punished and thus deterred.
But that dubious justification is a smokescreen, pure and simple. The fact is that the antidumping law is protectionist, contradictory and unfair. Its overzealous application routinely punishes U.S. importers and foreign exporters who transact fairly, and ultimately undermines the administration’s broader trade agenda.
The Import Administration (IA) is part of the U.S. Department of Commerce. According to its Web site, the IA “[e]nforces laws and agreements to prevent unfairly traded imports and to safeguard jobs and the competitive strength of American industry.” It is a classic case of the fox watching over the henhouse. The IA’s concern for American industry extends only to those industries seeking to squelch foreign competition. The consequences for downstream producers and U.S. exporters are systematically ignored.
The IA’s methods of determining dumping are rigged in favor of protectionist outcomes, but are insulated from popular scrutiny by arcane and highly technical procedures. Indeed, most defenders of the law have no idea how it works in practice, but are simply attracted to its appealing rhetoric of “fair trade” and “level playing fields.” If it sounds good, it must be good.
Dumping is said to occur when an exporter’s prices in the United States are lower than those it charges for similar merchandise in its home market. Procedures for determining these price differences are not straightforward. They are subject to curious conditions and indefensible calculations, which are strictly the domain of the Import Administration.
In virtually every case, all of the exporter’s U.S. sales are compared to only a higher-priced subset of its home-market sales (sales in its own country). Home-market sales priced below the average cost of production are simply disregarded. If an exporter sells five widgets in both the U.S. and the home-markets at prices of $1, $2, $3, $4, and $5, the average price in both markets is $3. No dumping, right? Wrong! If it costs $2.50 to produce these widgets, the home-market sales at $1 and $2 are dropped, causing the average home-market price to rise to $4 and generating a dumping margin of $1, or 33 percent. A tax of 33 percent would be slapped on future U.S. sales from that exporter. This procedure alone accounts for a significant portion of most dumping margins “calculated” by IA across industries, across countries, and over time. Yet, not a single antidumping defender could reasonably justify this so-called “cost test.”
When exporters sell multiple products in the U.S., the IA calculates dumping amounts for each unique product and then averages the positive results to generate an overall rate. Any negative results – where the U.S. price exceeds the home market price – are simply ignored! So, if an exporter sells a rubber widget and a plastic widget at $2 each in the U.S., and at $3 and $1, respectively, in the home market, a dumping margin of $1 exists on the rubber widget and a margin of $-1 exists on the plastic widget. Therefore, the average dumping margin is zero, right? Wrong! The negative dumping margin on the plastic widget is simply disregarded – actually set to 0 – and the total dumping margin is calculated as $1 (the total amount of positive dumping) divided by $4 (the total value of all U.S. sales), or 25 percent. The procedure, known as “zeroing,” also accounts for a significant portion of dumping margins across industries, across countries, and over time.
These two stealth procedures come from a much larger bag of tricks that the Import Administration routinely perpetrates on foreign exporters. Dozens of countries around the world employ similar scams with their own antidumping laws – frequently at the expense of U.S. exports. Unless these abuses are reined in, the bold U.S. proposal for a duty-free world is doomed to ring hollow.
Dan Ikenson is coauthor of two recent studies on antidumping calculation methodology and the need for reform: “Antidumping 101: The Devilish Details of ‘Unfair Trade’ Law” and “Reforming the Antidumping Agreement: A Road Map for WTO Negotiations.”
by Daniel Ikenson
Since securing trade promotion authority from Congress last summer, the Bush administration has been on a pro-trade tear. Recently, free trade agreements with Singapore and Chile were concluded, and negotiations on several other fronts were started. But perhaps the most laudable initiative is a proposal, announced last month, to end all non-agricultural tariffs worldwide by 2015.
For a variety of reasons, though, this proposal has been met with skepticism around the world. A common concern is that it doesn’t matter how low tariffs are if the United States continues to hamper imports with antidumping measures. Products subject to zero tariffs will remain vulnerable to whimsical antidumping suits, which can result in triple-digit duties with the flimsiest of evidence.
The antidumping law, perhaps the most arbitrary and disruptive U.S. trade barrier, is defended as a means of ensuring “fair” trade and maintaining a “level playing field” for domestic producers. Tough antidumping rules, its defenders claim, facilitate freer trade by providing assurances that “unfair” trade will be punished and thus deterred.
But that dubious justification is a smokescreen, pure and simple. The fact is that the antidumping law is protectionist, contradictory and unfair. Its overzealous application routinely punishes U.S. importers and foreign exporters who transact fairly, and ultimately undermines the administration’s broader trade agenda.
The Import Administration (IA) is part of the U.S. Department of Commerce. According to its Web site, the IA “[e]nforces laws and agreements to prevent unfairly traded imports and to safeguard jobs and the competitive strength of American industry.” It is a classic case of the fox watching over the henhouse. The IA’s concern for American industry extends only to those industries seeking to squelch foreign competition. The consequences for downstream producers and U.S. exporters are systematically ignored.
The IA’s methods of determining dumping are rigged in favor of protectionist outcomes, but are insulated from popular scrutiny by arcane and highly technical procedures. Indeed, most defenders of the law have no idea how it works in practice, but are simply attracted to its appealing rhetoric of “fair trade” and “level playing fields.” If it sounds good, it must be good.
Dumping is said to occur when an exporter’s prices in the United States are lower than those it charges for similar merchandise in its home market. Procedures for determining these price differences are not straightforward. They are subject to curious conditions and indefensible calculations, which are strictly the domain of the Import Administration.
In virtually every case, all of the exporter’s U.S. sales are compared to only a higher-priced subset of its home-market sales (sales in its own country). Home-market sales priced below the average cost of production are simply disregarded. If an exporter sells five widgets in both the U.S. and the home-markets at prices of $1, $2, $3, $4, and $5, the average price in both markets is $3. No dumping, right? Wrong! If it costs $2.50 to produce these widgets, the home-market sales at $1 and $2 are dropped, causing the average home-market price to rise to $4 and generating a dumping margin of $1, or 33 percent. A tax of 33 percent would be slapped on future U.S. sales from that exporter. This procedure alone accounts for a significant portion of most dumping margins “calculated” by IA across industries, across countries, and over time. Yet, not a single antidumping defender could reasonably justify this so-called “cost test.”
When exporters sell multiple products in the U.S., the IA calculates dumping amounts for each unique product and then averages the positive results to generate an overall rate. Any negative results – where the U.S. price exceeds the home market price – are simply ignored! So, if an exporter sells a rubber widget and a plastic widget at $2 each in the U.S., and at $3 and $1, respectively, in the home market, a dumping margin of $1 exists on the rubber widget and a margin of $-1 exists on the plastic widget. Therefore, the average dumping margin is zero, right? Wrong! The negative dumping margin on the plastic widget is simply disregarded – actually set to 0 – and the total dumping margin is calculated as $1 (the total amount of positive dumping) divided by $4 (the total value of all U.S. sales), or 25 percent. The procedure, known as “zeroing,” also accounts for a significant portion of dumping margins across industries, across countries, and over time.
These two stealth procedures come from a much larger bag of tricks that the Import Administration routinely perpetrates on foreign exporters. Dozens of countries around the world employ similar scams with their own antidumping laws – frequently at the expense of U.S. exports. Unless these abuses are reined in, the bold U.S. proposal for a duty-free world is doomed to ring hollow.
Dan Ikenson is coauthor of two recent studies on antidumping calculation methodology and the need for reform: “Antidumping 101: The Devilish Details of ‘Unfair Trade’ Law” and “Reforming the Antidumping Agreement: A Road Map for WTO Negotiations.”
Antidumping US--Byrd Amendment Sanctions against US
Ben Muse: "Byrd Amendment Sanctions
Byrd Amendment Sanctions
Last Friday, the World Trade Organization (WTO) gave the go-ahead to the EU countries, and six other countries, to impose punitive tariffs on exports from the U.S. USA Today has the story, "WTO approves sanctions over U.S. anti-dumping law"
What's at stake is one element of U.S. anti-dumping law. In 2000, Senator Byrd of West Virginia got a statute through Congress requiring that revenues from "anti-dumping" tariffs be turned over to the businesses that petitioned for the tariffs.
"Dumping" occurs when a foreign company sells a product in the U.S. for less than it does in its home country. Assuming that the price in the foreign country, and the price in the US, were both calculated fairly, so that it actually was true that a foreign company was selling for less in the U.S. than at home, there may be perfectly legitimate business reasons for this, having nothing to do with unfair competition. But U.S. law and regulation mandate the use of procedures that are likely to show that there was a price difference, even when there really wasn't.
A U.S. company that wants to use anti-dumping rules files a petition with the Department of Commerce, and Commerce launches an investigation into the foreign pricing behavior. Commerce seeks to calculate a "dumping margin" (the difference between the foreign and U.S. prices). As described below, Commerce uses procedures that stack the deck against foreign companies.
If Commerce says dumping occurred, and the International Trade Commission (ITC) says that it injured U.S businesses, tariffs equal to the dumping margin can be imposed on the exporters. The Byrd amendment turns these tariffs over to the businesses that filed the initial petitions.
The WTO determined in 2002 that this provision violated trade agreements the U.S. has agreed to. The argument is that, in effect, the provision imposes a double penalty on exporters to the U.S. accused of dumping: their goods are subject to tariffs, and their U.S. competitors receive a subsidy equal to the tariff revenues. The decision was upheld on appeal in 2003. On Friday, the WTO authorized selected foreign nations to impose punitive tariffs on U.S. exports while the Byrd Amendment remains. The President has said he will work with Congress to bring the U.S. into compliance.
As mentioned above, the "anti-dumping" procedures are not written to give foreign companies a fair shake. Brink Lindsey and Dan Ikenson cite an example of procedural bias (and not just one) in their CATO Institute report, ""Antidumping 101. The Devilish Details of "Unfair Trade" Law":
"One of the most egregious methodological distortions in contemporary antidumping practice is the so-called cost test. The purpose of the cost test is to eliminate from consideration sales made in the home market [the "home market", that is the foreign company's home market - Ben] at prices lower than the full cost of production. When below-cost sales are eliminated in this way, the result is that all U.S. sales are compared with only the highest-priced (that is, above-cost)home-market sales.
What possible purpose could be served by excluding below-cost home-market sales from normal value? ["normal value" is the technical term for the price against which the U.S. price is to be compared - Ben] Remember that the main theory behind the antidumping law is that the foreign producer is enjoying an artificial advantage because of a sanctuary market at home. According to the theory, trade barriers or other restrictions on competition cause prices (and profits) in the home market to be artificially high, thus allowing the foreign producer to cross-subsidize unfairly cheap export sales. Consequently, price differences between the export market and the home market are supposedly probative of unfair trade because they might indicate the existence of a closed sanctuary market in the foreign producer’s home market. Whether those price differences exist, though, cannot be fairly determined if all the lowest home-market prices are excluded from the comparison.
Indeed, the existence of below-cost sales in the home market is actually affirmative evidence of the absence of a sanctuary market. A sanctuary market, after all, is supposed to be an island of artificially high prices and profits. If home-market sales at a loss are found in significant quantities, isn’t that a fairly compelling indication that there is no sanctuary market? But because of the cost test, it is precisely under these conditions that dumping margins are boosted significantly higher than they otherwise would be.
The cost test is thus fundamentally misconceived...
The effect of the cost test on the dumping calculation can be dramatic. For example, in Table 5, there are five sales of widget product Code 1 in the U.S. market at different prices ranging from $1.00 to $5.00. Likewise, in the home market there are five sales at the identical prices. Assuming the same volume is sold in each of the 10 transactions, the weighted-average price for Product 1 is $3.00 in both markets. The dumping margin for this comparison is zero. There is no price discrimination whatsoever. However, this is not how the calculation works.
The cost test imposes restrictions on the eligibility of home-market sales that factor into the average price. Sales made at prices below the full cost of production are eliminated from consideration. In Table 5, the two home-market sales at prices below $2.50 are excluded, causing the average home-market price of Product 1 to rise to $4.00 [in the hypothetical example in the table, all of the goods are produced for the same price, $2.50/unit, no matter what price they are sold for. Two goods sold in the foreign market, and two sold in the U.S. are sold for less than $2.50. Only the ones in the foreign market are deleted from the comparison. - Ben]. This generates a dumping margin of 33 percent despite the fact that there are no price differences between markets."
Lindsey and Ikenson were writing at the end of 2002; I assume this example is still relevant. The rules are not fair to foreign companies. They are not fair to U.S. consumers either. These are denied competition for their business, and are faced with higher prices.
Sebastian Mallaby describes the topsy-turvy moral world of U.S anti-dumping practice as it was implemented in the recent shrimp anti-dumping case: "Jumbo Shrimp Follies".
Lindsey and Ikenson apparently develop their argument at greater length in book form, in Antidumping Exposed: The Devilish Details of Unfair Trade Law".
Byrd Amendment Sanctions
Last Friday, the World Trade Organization (WTO) gave the go-ahead to the EU countries, and six other countries, to impose punitive tariffs on exports from the U.S. USA Today has the story, "WTO approves sanctions over U.S. anti-dumping law"
What's at stake is one element of U.S. anti-dumping law. In 2000, Senator Byrd of West Virginia got a statute through Congress requiring that revenues from "anti-dumping" tariffs be turned over to the businesses that petitioned for the tariffs.
"Dumping" occurs when a foreign company sells a product in the U.S. for less than it does in its home country. Assuming that the price in the foreign country, and the price in the US, were both calculated fairly, so that it actually was true that a foreign company was selling for less in the U.S. than at home, there may be perfectly legitimate business reasons for this, having nothing to do with unfair competition. But U.S. law and regulation mandate the use of procedures that are likely to show that there was a price difference, even when there really wasn't.
A U.S. company that wants to use anti-dumping rules files a petition with the Department of Commerce, and Commerce launches an investigation into the foreign pricing behavior. Commerce seeks to calculate a "dumping margin" (the difference between the foreign and U.S. prices). As described below, Commerce uses procedures that stack the deck against foreign companies.
If Commerce says dumping occurred, and the International Trade Commission (ITC) says that it injured U.S businesses, tariffs equal to the dumping margin can be imposed on the exporters. The Byrd amendment turns these tariffs over to the businesses that filed the initial petitions.
The WTO determined in 2002 that this provision violated trade agreements the U.S. has agreed to. The argument is that, in effect, the provision imposes a double penalty on exporters to the U.S. accused of dumping: their goods are subject to tariffs, and their U.S. competitors receive a subsidy equal to the tariff revenues. The decision was upheld on appeal in 2003. On Friday, the WTO authorized selected foreign nations to impose punitive tariffs on U.S. exports while the Byrd Amendment remains. The President has said he will work with Congress to bring the U.S. into compliance.
As mentioned above, the "anti-dumping" procedures are not written to give foreign companies a fair shake. Brink Lindsey and Dan Ikenson cite an example of procedural bias (and not just one) in their CATO Institute report, ""Antidumping 101. The Devilish Details of "Unfair Trade" Law":
"One of the most egregious methodological distortions in contemporary antidumping practice is the so-called cost test. The purpose of the cost test is to eliminate from consideration sales made in the home market [the "home market", that is the foreign company's home market - Ben] at prices lower than the full cost of production. When below-cost sales are eliminated in this way, the result is that all U.S. sales are compared with only the highest-priced (that is, above-cost)home-market sales.
What possible purpose could be served by excluding below-cost home-market sales from normal value? ["normal value" is the technical term for the price against which the U.S. price is to be compared - Ben] Remember that the main theory behind the antidumping law is that the foreign producer is enjoying an artificial advantage because of a sanctuary market at home. According to the theory, trade barriers or other restrictions on competition cause prices (and profits) in the home market to be artificially high, thus allowing the foreign producer to cross-subsidize unfairly cheap export sales. Consequently, price differences between the export market and the home market are supposedly probative of unfair trade because they might indicate the existence of a closed sanctuary market in the foreign producer’s home market. Whether those price differences exist, though, cannot be fairly determined if all the lowest home-market prices are excluded from the comparison.
Indeed, the existence of below-cost sales in the home market is actually affirmative evidence of the absence of a sanctuary market. A sanctuary market, after all, is supposed to be an island of artificially high prices and profits. If home-market sales at a loss are found in significant quantities, isn’t that a fairly compelling indication that there is no sanctuary market? But because of the cost test, it is precisely under these conditions that dumping margins are boosted significantly higher than they otherwise would be.
The cost test is thus fundamentally misconceived...
The effect of the cost test on the dumping calculation can be dramatic. For example, in Table 5, there are five sales of widget product Code 1 in the U.S. market at different prices ranging from $1.00 to $5.00. Likewise, in the home market there are five sales at the identical prices. Assuming the same volume is sold in each of the 10 transactions, the weighted-average price for Product 1 is $3.00 in both markets. The dumping margin for this comparison is zero. There is no price discrimination whatsoever. However, this is not how the calculation works.
The cost test imposes restrictions on the eligibility of home-market sales that factor into the average price. Sales made at prices below the full cost of production are eliminated from consideration. In Table 5, the two home-market sales at prices below $2.50 are excluded, causing the average home-market price of Product 1 to rise to $4.00 [in the hypothetical example in the table, all of the goods are produced for the same price, $2.50/unit, no matter what price they are sold for. Two goods sold in the foreign market, and two sold in the U.S. are sold for less than $2.50. Only the ones in the foreign market are deleted from the comparison. - Ben]. This generates a dumping margin of 33 percent despite the fact that there are no price differences between markets."
Lindsey and Ikenson were writing at the end of 2002; I assume this example is still relevant. The rules are not fair to foreign companies. They are not fair to U.S. consumers either. These are denied competition for their business, and are faced with higher prices.
Sebastian Mallaby describes the topsy-turvy moral world of U.S anti-dumping practice as it was implemented in the recent shrimp anti-dumping case: "Jumbo Shrimp Follies".
Lindsey and Ikenson apparently develop their argument at greater length in book form, in Antidumping Exposed: The Devilish Details of Unfair Trade Law".
Thursday, December 09, 2004
WTO Approves sanction against US
JURIST - Paper Chase: "November 26
WTO approves sanctions on US over antidumping law
Brandon Smith at 10:03 AM
[JURIST] The World Trade Organization Friday approved sanctions against the US for failing to repeal the Byrd Amendment, federal legislation that directs US Customs to distribute duties collected as a result of 'antidumping' and countervailing duty orders to US goods producers found to have been injured by foreign dumping and subsidies. The sanctions were supposed to have been approved Wednesday, but US diplomats held last-minute discussions with European and Canadian diplomats in an unsuccessful effort to avoid them. The exports upon which sanctions were imposed range from ski jackets to almonds and could extend to mobile homes, glassware, textiles, and more. The Business Times has more."
WTO approves sanctions on US over antidumping law
Brandon Smith at 10:03 AM
[JURIST] The World Trade Organization Friday approved sanctions against the US for failing to repeal the Byrd Amendment, federal legislation that directs US Customs to distribute duties collected as a result of 'antidumping' and countervailing duty orders to US goods producers found to have been injured by foreign dumping and subsidies. The sanctions were supposed to have been approved Wednesday, but US diplomats held last-minute discussions with European and Canadian diplomats in an unsuccessful effort to avoid them. The exports upon which sanctions were imposed range from ski jackets to almonds and could extend to mobile homes, glassware, textiles, and more. The Business Times has more."
WTO confirms Retaliatory Measures against US
August 31, 2004
WTO Arbitrator Authorizes Level of Retaliatory Measures to be Imposed on U.S. for Failing to Repeal Byrd Amendment
Today a World Trade Organization (WTO) arbitration panel announced the level of retaliatory measures that Brazil, Canada, Chile, the European Communities, India, Japan, Korea, and Mexico may apply on U.S. products as a result of the U.S. failure to repeal the Continued Dumping and Subsidy Offset Act of 2000, commonly known as the Byrd Amendment.
Following a lengthy legal and economic analysis, the three-member arbitration panel stated that Brazil, Canada, Chile, the European Communities, India, Japan, Korea, Mexico were each authorized to impose additional import duties on a list of U.S.-origin products, on a yearly basis, as long as the total value of trade does not exceed, in US dollars, the amount resulting from the following equation:
Amount of disbursements under [the Byrd Amendment] for the most recent year for which data are available relating to anti-dumping or countervailing duties paid on imports from the [complaining country] at that time, as published by the United States' authorities multiplied by 0.72.
The WTO's DSB determined on January 27, 2003 that the Byrd Amendment, which provides cash payments to U.S. companies that are petitioners in antidumping and countervailing duty cases, was a non-permissible action that was contrary to several articles of the GATT 1994, the WTO Anti-Dumping Agreement and the WTO Agreement on Subsidies and Countervailing Measures. The DSB stated that the U.S. must implement the recommendations of the DSB within "a reasonable period of time."
On June 13, 2003, a WTO arbitrator ruled that the "reasonable period of time" for the U.S. to implement the recommendations and rulings of the WTO Dispute Settlement Body (DSB) in this case was 11 months from the date of adoption of the Panel and Appellate Body Reports by the DSB. The U.S. was given until December 27, 2003 to bring the Byrd Amendment into conformity with its WTO obligations. Because the U.S. failed to modify or repeal the Byrd Amendment, on January 16, 2004 the complaining countries requested the authority to impose retaliatory tariffs greater than or equal to the amount of Byrd Amendment payments. On January 26, 2004, the U.S. advised the WTO that it objected to the level of propose retaliatory duties and the matter was referred to arbitration.
To date, the U.S. Congress has failed to modify or repeal the Byrd Amendment. In response to today's ruling, the Office of the U.S. Trade Representative stated that "the United States remains committed to resolving this issue in a way that promotes the competitiveness of American workers."
The text of the arbitrator's decisions can be found at the following Web site: www.wto.org/english/news_e/news_e.htm.
WTO Arbitrator Authorizes Level of Retaliatory Measures to be Imposed on U.S. for Failing to Repeal Byrd Amendment
Today a World Trade Organization (WTO) arbitration panel announced the level of retaliatory measures that Brazil, Canada, Chile, the European Communities, India, Japan, Korea, and Mexico may apply on U.S. products as a result of the U.S. failure to repeal the Continued Dumping and Subsidy Offset Act of 2000, commonly known as the Byrd Amendment.
Following a lengthy legal and economic analysis, the three-member arbitration panel stated that Brazil, Canada, Chile, the European Communities, India, Japan, Korea, Mexico were each authorized to impose additional import duties on a list of U.S.-origin products, on a yearly basis, as long as the total value of trade does not exceed, in US dollars, the amount resulting from the following equation:
Amount of disbursements under [the Byrd Amendment] for the most recent year for which data are available relating to anti-dumping or countervailing duties paid on imports from the [complaining country] at that time, as published by the United States' authorities multiplied by 0.72.
The WTO's DSB determined on January 27, 2003 that the Byrd Amendment, which provides cash payments to U.S. companies that are petitioners in antidumping and countervailing duty cases, was a non-permissible action that was contrary to several articles of the GATT 1994, the WTO Anti-Dumping Agreement and the WTO Agreement on Subsidies and Countervailing Measures. The DSB stated that the U.S. must implement the recommendations of the DSB within "a reasonable period of time."
On June 13, 2003, a WTO arbitrator ruled that the "reasonable period of time" for the U.S. to implement the recommendations and rulings of the WTO Dispute Settlement Body (DSB) in this case was 11 months from the date of adoption of the Panel and Appellate Body Reports by the DSB. The U.S. was given until December 27, 2003 to bring the Byrd Amendment into conformity with its WTO obligations. Because the U.S. failed to modify or repeal the Byrd Amendment, on January 16, 2004 the complaining countries requested the authority to impose retaliatory tariffs greater than or equal to the amount of Byrd Amendment payments. On January 26, 2004, the U.S. advised the WTO that it objected to the level of propose retaliatory duties and the matter was referred to arbitration.
To date, the U.S. Congress has failed to modify or repeal the Byrd Amendment. In response to today's ruling, the Office of the U.S. Trade Representative stated that "the United States remains committed to resolving this issue in a way that promotes the competitiveness of American workers."
The text of the arbitrator's decisions can be found at the following Web site: www.wto.org/english/news_e/news_e.htm.
WTO confirms Retaliatory Measures against US
August 31, 2004
WTO Arbitrator Authorizes Level of Retaliatory Measures to be Imposed on U.S. for Failing to Repeal Byrd Amendment
Today a World Trade Organization (WTO) arbitration panel announced the level of retaliatory measures that Brazil, Canada, Chile, the European Communities, India, Japan, Korea, and Mexico may apply on U.S. products as a result of the U.S. failure to repeal the Continued Dumping and Subsidy Offset Act of 2000, commonly known as the Byrd Amendment.
Following a lengthy legal and economic analysis, the three-member arbitration panel stated that Brazil, Canada, Chile, the European Communities, India, Japan, Korea, Mexico were each authorized to impose additional import duties on a list of U.S.-origin products, on a yearly basis, as long as the total value of trade does not exceed, in US dollars, the amount resulting from the following equation:
Amount of disbursements under [the Byrd Amendment] for the most recent year for which data are available relating to anti-dumping or countervailing duties paid on imports from the [complaining country] at that time, as published by the United States' authorities multiplied by 0.72.
The WTO's DSB determined on January 27, 2003 that the Byrd Amendment, which provides cash payments to U.S. companies that are petitioners in antidumping and countervailing duty cases, was a non-permissible action that was contrary to several articles of the GATT 1994, the WTO Anti-Dumping Agreement and the WTO Agreement on Subsidies and Countervailing Measures. The DSB stated that the U.S. must implement the recommendations of the DSB within "a reasonable period of time."
On June 13, 2003, a WTO arbitrator ruled that the "reasonable period of time" for the U.S. to implement the recommendations and rulings of the WTO Dispute Settlement Body (DSB) in this case was 11 months from the date of adoption of the Panel and Appellate Body Reports by the DSB. The U.S. was given until December 27, 2003 to bring the Byrd Amendment into conformity with its WTO obligations. Because the U.S. failed to modify or repeal the Byrd Amendment, on January 16, 2004 the complaining countries requested the authority to impose retaliatory tariffs greater than or equal to the amount of Byrd Amendment payments. On January 26, 2004, the U.S. advised the WTO that it objected to the level of propose retaliatory duties and the matter was referred to arbitration.
To date, the U.S. Congress has failed to modify or repeal the Byrd Amendment. In response to today's ruling, the Office of the U.S. Trade Representative stated that "the United States remains committed to resolving this issue in a way that promotes the competitiveness of American workers."
The text of the arbitrator's decisions can be found at the following Web site: www.wto.org/english/news_e/news_e.htm.
WTO Arbitrator Authorizes Level of Retaliatory Measures to be Imposed on U.S. for Failing to Repeal Byrd Amendment
Today a World Trade Organization (WTO) arbitration panel announced the level of retaliatory measures that Brazil, Canada, Chile, the European Communities, India, Japan, Korea, and Mexico may apply on U.S. products as a result of the U.S. failure to repeal the Continued Dumping and Subsidy Offset Act of 2000, commonly known as the Byrd Amendment.
Following a lengthy legal and economic analysis, the three-member arbitration panel stated that Brazil, Canada, Chile, the European Communities, India, Japan, Korea, Mexico were each authorized to impose additional import duties on a list of U.S.-origin products, on a yearly basis, as long as the total value of trade does not exceed, in US dollars, the amount resulting from the following equation:
Amount of disbursements under [the Byrd Amendment] for the most recent year for which data are available relating to anti-dumping or countervailing duties paid on imports from the [complaining country] at that time, as published by the United States' authorities multiplied by 0.72.
The WTO's DSB determined on January 27, 2003 that the Byrd Amendment, which provides cash payments to U.S. companies that are petitioners in antidumping and countervailing duty cases, was a non-permissible action that was contrary to several articles of the GATT 1994, the WTO Anti-Dumping Agreement and the WTO Agreement on Subsidies and Countervailing Measures. The DSB stated that the U.S. must implement the recommendations of the DSB within "a reasonable period of time."
On June 13, 2003, a WTO arbitrator ruled that the "reasonable period of time" for the U.S. to implement the recommendations and rulings of the WTO Dispute Settlement Body (DSB) in this case was 11 months from the date of adoption of the Panel and Appellate Body Reports by the DSB. The U.S. was given until December 27, 2003 to bring the Byrd Amendment into conformity with its WTO obligations. Because the U.S. failed to modify or repeal the Byrd Amendment, on January 16, 2004 the complaining countries requested the authority to impose retaliatory tariffs greater than or equal to the amount of Byrd Amendment payments. On January 26, 2004, the U.S. advised the WTO that it objected to the level of propose retaliatory duties and the matter was referred to arbitration.
To date, the U.S. Congress has failed to modify or repeal the Byrd Amendment. In response to today's ruling, the Office of the U.S. Trade Representative stated that "the United States remains committed to resolving this issue in a way that promotes the competitiveness of American workers."
The text of the arbitrator's decisions can be found at the following Web site: www.wto.org/english/news_e/news_e.htm.
Antidumping Investigation on PET Resin against India
International Trade Law News: "International Trade Law News
October 22, 2004
DOC Announces Preliminary Determinations in Antidumping Investigations on PET Resin
On October 21, 2004, the U.S. Department of Commerce (DOC) announced its preliminary determinations in the antidumping duty investigations on imports of bottle-grade polyethylene terephthalate (BG PET) resin from India, Indonesia, Taiwan and Thailand. DOC preliminarily found that Indian, Indonesian and Thai producers/exporters have sold subject merchandise from in the U.S. market at less than fair value, with margins ranging from 21.23 to 52.54% for India, 0.74 to 27.61% for Indonesia, and 26.03 to 41.28% for Thailand. DOC preliminarily found that Taiwanese producers/exporters have not sold subject merchandise in the U.S. market at less than fair value, as the preliminary margin for the sole respondent is de minimis.
The final determination in the investigation on Indonesian imports is scheduled to be announced in January 2005 and the final determinations the investigations on imports from India, Taiwan and Thailand will be announced in March 2005.
The merchandise covered by each of these investigations is BG PET resin. BG PET resin is commonly used to manufacture bottles, sheet, and strapping, whose applications include packaging for consumer goods such as soft drinks, water, juice, fresh fruit, as well as cosmetics and household cleaners. The merchandise subject to these investigations is classified under subheading 3907.60.0010 of the Harmonized Tariff Schedule of the United States (HTSUS). However, merchandise classified under HTSUS subheading 3907.60.0050 that otherwise meets the written description of the scope is also subject to these investigations.
The petition requesting these investigations was filed on March 2"
October 22, 2004
DOC Announces Preliminary Determinations in Antidumping Investigations on PET Resin
On October 21, 2004, the U.S. Department of Commerce (DOC) announced its preliminary determinations in the antidumping duty investigations on imports of bottle-grade polyethylene terephthalate (BG PET) resin from India, Indonesia, Taiwan and Thailand. DOC preliminarily found that Indian, Indonesian and Thai producers/exporters have sold subject merchandise from in the U.S. market at less than fair value, with margins ranging from 21.23 to 52.54% for India, 0.74 to 27.61% for Indonesia, and 26.03 to 41.28% for Thailand. DOC preliminarily found that Taiwanese producers/exporters have not sold subject merchandise in the U.S. market at less than fair value, as the preliminary margin for the sole respondent is de minimis.
The final determination in the investigation on Indonesian imports is scheduled to be announced in January 2005 and the final determinations the investigations on imports from India, Taiwan and Thailand will be announced in March 2005.
The merchandise covered by each of these investigations is BG PET resin. BG PET resin is commonly used to manufacture bottles, sheet, and strapping, whose applications include packaging for consumer goods such as soft drinks, water, juice, fresh fruit, as well as cosmetics and household cleaners. The merchandise subject to these investigations is classified under subheading 3907.60.0010 of the Harmonized Tariff Schedule of the United States (HTSUS). However, merchandise classified under HTSUS subheading 3907.60.0050 that otherwise meets the written description of the scope is also subject to these investigations.
The petition requesting these investigations was filed on March 2"
Thursday, December 02, 2004
Economist.com | The textile industry
Economist.com | The textile industry: "The textile industry
The textile industry
The looming revolution
Nov 11th 2004
From The Economist print edition
ImagineChina
China, the world's workshop, is poised to become its tailor. What will happen to textile industries elsewhere, especially in South Asia?
THE shirt on your back probably had an exotic life before it reached you. Say you bought it in America and the label said it was “Made in Sri Lanka”. It may well have been made from Chinese fabric, woven from Chinese yarn, spun from Chinese cotton or man-made fibre. Why, you may wonder, was your shirt not actually cut and sewn in China? We know they have scissors and sewing machines there and millions of nimble-fingered operators. After all, many of the other shirts on the shop hangers were indeed made in China.
China, India
Globalisation
China's economy
The World Trade Organisation
Fashion and textiles
The EU’s trade department has information on textiles. See also the US Trade Representative and the WTO (on textiles). KSA Technopak is a textile and retail consultancy.
The question is being asked with increasing urgency in China, too, as well as in Sri Lanka, Bangladesh, Nepal, Cambodia, El Salvador, Honduras and more than 40 other countries with thriving clothing industries based on exports. They are bracing for the scheduled elimination, at the end of this year, of quotas that have governed their exports to the world's two biggest markets: America and the European Union. The quotas have restrained some countries' exports, but in others have created an export industry that might not otherwise have existed.
China is definitely in the first category—its sales in America and Europe will surely grow once quotas are lifted. The questions are: by how much? And what will be done to impede their growth? The American government is under pressure from its own manufacturers to stem a potential flood of Chinese imports. Mechanisms to do this, so-called “safeguards”, were built into the agreement that America signed with China in November 1999 as part of China's accession to the World Trade Organisation (WTO).
A big trade row seems inevitable. American manufacturers want their government to maintain 15 of the 91 quotas that expire at the end of the year—including those for trousers, shirts, sheets and underwear. They also want to keep limits on imports of three products—bras, dressing gowns and knitted fabrics—for which quotas were lifted in 2002 and the “safeguards” subsequently invoked.
The deadline for a government decision on whether to accept the first of these petitions (cotton trousers) fell on November 1st, the eve of the presidential election. The manufacturers had milked as hard as they could the political implications of their bid for protection, saying that China will “destroy” the American textile industry. Trade unions also weighed in, saying that 350,000 jobs have been lost in America's textile sector in the past three years, and that, if nothing is done, many of the remaining 695,000 will likewise soon be on a fast boat to southern China. Sure enough, the petition was granted. America is now looking into whether it will impose safeguards on five other categories of clothing, and will decide by next February. If imposed, these new quotas will limit China's export growth to 7.5% in each category.
China has responded robustly, arguing the “safeguards” were designed to correct actual import surges, not threats yet to materialise. American textile importers and buyers accuse their compatriot manufacturers of trying to achieve through government intervention what they have failed to manage through investment, planning and improving productivity: becoming internationally competitive.
It is not just the rich world's garment-makers that are alarmed. Trade associations from more than 50 countries have signed the “Istanbul declaration”, asking the WTO to keep the quotas for a further three years. They include groups from poor and middle-income places such as Bangladesh, Sri Lanka, Indonesia, Morocco, Tunisia and Turkey.
The declaration argues that circumstances have changed dramatically since the phasing out of quotas was agreed. It claims that the admission of China to the WTO at the beginning of 2002 was not contemplated at the time. (In fact, China had tried hard to become a WTO founder member in 1995.) More to the point, it accuses China of keeping its currency at an artificially low level, and of other dirty tricks such as “state subsidies and the proliferation of non-performing loans and rebate schemes”. Of course, if they are right, this applies to almost all Chinese exports, not just textiles.
The signatories to “Istanbul” fear the end of quotas will mean the loss of important inflows of foreign exchange, the closure of some businesses and the loss of as many as 30m jobs to China's allegedly encroaching global monopoly. The worry is that, having no natural comparative advantage beyond abundant cheap labour, they will lose market share to countries with vertically-integrated supply chains—ie, those that produce their own fibre, yarn, fabric and clothes.
Above all, that means China. But Chinese manufacturers are not the only ones expecting a bonanza. In India and Pakistan, too, many see a moment of great opportunity. For South Asia as a whole, the impact of the end of the quota regime is potentially enormous. In poor countries with small manufacturing bases and a vast rural majority, garmentmaking offers a labour-intensive way of lifting people out of poverty. Sudhir Dhingra, boss of Orient Craft, India's largest apparel exporter, which employs about 18,000 people, says that each machine he buys creates four jobs in his factories and another four outside. In a typical factory, he says, four-fifths of the workers will have started life as poor villagers. Few will have had more than an elementary education.
I wouldn't start from here
Clothing is one of the most basic of human needs, and its international trade one of the oldest. Along with food, it is also most subject to artificial distortions. The demise of the biggest such distortion, the quota regime, was agreed a decade ago. The Agreement on Textiles and Clothing (ATC) came into force, along with the WTO itself, in 1995. It covered the staged elimination of quotas in America, Canada and the EU (as well as Norway, which removed its last quotas in 2001). It was intended as a bridge between the old Multi-Fibre Arrangement, which had covered textile trade since 1974, and the full integration of the trade into the multilateral system.
By 2002, imports to the ATC countries, not counting internal EU imports, accounted for 43.5% of a global textile and clothing trade estimated at $360 billion. Under the ATC, quotas were to be lifted in four stages. But nearly half—49% of import volume—was to be left to the last moment: January 1st 2005. In practice, America chose to “integrate” low value-added items and many that were covered by under-used quotas. As a result, some two-thirds of American textile imports, including 80% of clothing imports, or $61 billion, are subject to quotas until the end of this year. In a survey by Goldman Sachs, an investment bank, 71% of American and European manufacturers, wholesalers and retailers said they at present base more than 20% of their sourcing decisions on quotas. Hence the panic.
There is an historic irony that poor countries should be quaking at the prospect of textile-trade liberalisation. They have long demanded the dismantling of rich-country protection in an industry where they should have most to gain. Quotas that expanded before eventually vanishing were supposed to allow them to take advantage of their low-paid workforces. It seems a long time ago now, but in the early 1980s they witnessed the emergence of three Asian producers—Hong Kong, South Korea and Taiwan—as big exporters of cheap clothes. At their peak, these three accounted for nearly a third of world clothing exports. In 20 years, that share has fallen to 8%, as lower-cost countries have taken away their markets.
Quotas have worked, up to a point, in bringing business to poor countries. But they have had some perverse effects. Firstly, the manufacturing process has become ludicrously cosmopolitan—the Sri Lankan shirt described above had had a sheltered life. “The textile supply chain”, says Arvind Singhal, of KSA Technopak, a Delhi-based textile and retail consultancy, “looks like a Dali painting.” Fine Indian cotton might be turned into fabric in Italy, cut in America, sewn in Honduras and sold back to America.
Second, some countries that had no mechanised textile industries at all until a few years ago have become dependent on them. For example, as Cambodia emerged in the 1990s from three decades of isolation, horror, civil war and Vietnamese occupation, quotas brought foreign investment, especially from Hong Kong and Taiwan, in clothing factories. Their products now make up more than 70% of the country's merchandise exports. The proportions are even higher in Bangladesh and Macau. In Pakistan, Mauritius and Sri Lanka it is also above 50%.
The Indian hope trick
D.K. Nair, of the Indian Cotton Mills Federation (ICMF), an industry lobby, argues that American quotas turned China's textile industries into a Frankenstein's monster. As many Indians see it, China's quotas were set generously in the 1980s for political reasons. This explains the Chinese industry's hectic expansion. By contrast, India's growth was artificially stunted. The entire Sri Lankan and Bangladeshi garment industries were, he argues, “an offshoot of our quota problems”.
So Mr Nair sees the recent tear-jerking appeals on behalf of countries such as Bangladesh as hypocritical. By portraying China as the only beneficiary of the liberalisation, American industry is hoping to garner international backing for its protectionist impulses.
“Welcome”, read the digital display at the entrance to one of the huge exhibition halls in Delhi that made up the Indian Handicrafts and Gifts Fair in October, “to the next best”. It is a fitting, if presumably unintended, slogan for India's textile industry. The refrain repeated time and again by post-quota bulls is not that India is a world-beater. More an egg-beater: “nobody,” the bulls say, “wants to put all theirs in China's basket.”
Mr Dhingra is one such optimist, arguing that India is a “very good second option.” He is adding 30% to Orient Craft's capacity, opening three new factories this year and two in 2005. He candidly accepts that in many products, China offers buyers a “more attractive and cheaper option.” For example, he says, it is “now impossible to make money out of children's clothing.” China's prices—45 US cents an item—are simply unbeatable.
Many buyers, however, still need to hedge their bets. KSA Technopak's Mr Singhal agrees. China will not swamp the global market because prudent supply management demands diversification. Even if one ignores the political risks of dependence on China, recent disasters around the world have been diverse enough to reinforce the message: terrorist attacks, hurricanes, earthquakes, SARS—all can disrupt supply lines. Wal-Mart, the world's biggest retailer and buyer of about one-tenth, or $15 billion-worth, of China's annual exports to America, stresses its desire for a steady and geographically diverse supply of product.
India recommends itself as what Mr Singhal calls a “secondary base”. It is an English-speaking democracy. It is, after China and America, the world's third-largest cotton producer. Reliance, an Indian firm, is the world's biggest polyester maker. With 34m spindles, India is, next to China, the world's biggest yarn-spinner. It has huge clothing and carpet industries with centuries of history behind them. Wajahat Habibullah, the government's textiles secretary, points out that the wealth of the Mughal empire, which gave way to the British Raj, was founded on carpets and textiles.
A very fine yarn
The ICMF, the Indian manufacturers' lobby, has forecast that Indian textile exports can grow at 18% a year to reach $40 billion by 2010, making up more than a third of the country's merchandise exports, compared with a quarter at present. In the process, 5m jobs would be created, so that the industry, already India's second-biggest employer after agriculture, will have 40m workers.
A WTO study backs the optimism. It expects India's share of the American market to increase from 4% to 15%, as against a jump from 16% to 50% for China. The losers would be Mexico, South America, the EU, Africa and the Middle East. But there are doubters. India's industry is still dominated by thousands of small family-owned firms. Many lack the marketing skill to take advantage of the new freedoms. Nor is the industry universally admired. In neighbouring Sri Lanka, some garmentmakers say that Chinese fabric suppliers are cheaper, faster and more reliable.
In March, a report by McKinsey, a consultancy, commissioned by DHL, a shipping and logistics firm, suggested that, in the absence of further reforms, the growth rate of India's textile exports would be no more than 8% a year. It reported a study comparing the number of men's shirts produced per hour and found that India's productivity was at 35% of American levels. China scores a much more impressive 55%. The overall productivity of India's textile industry was only 16% of America's.
Many reforms are promised by the Congress-led government that took power in May. On some—such as a sweeping tax reform—it is optimistic it can deliver. Others, however, especially labour-law reform, will be difficult for a party that relies for its parliamentary majority on the votes of communist parties. Kamal Nath, the commerce minister, says a manufacturer told him he had declined an order for 50,000 shirts because he could not risk taking on workers he could not let go. “We have to move from protection of employment to promotion of employment,” says Mr Nath, more in hope than expectation.
One other likely winner in the new regime is Pakistan. Its strengths are low labour costs, a raw-material base in both cotton and man-made fibres, and an estimated $4 billion in investment in the past four years. Because of its importance as an American ally, Pakistan has benefited from enlarged quotas in recent years. But in some market segments—such as bed linen and towels—it is seen as a good global competitor.
But what about the expected losers? Like athletes forced on to performance-enhancing substances who now struggle to compete on their own merits, they will suffer painful after-effects from quotas. In South Asia, Bangladesh, Nepal and Sri Lanka are all vulnerable. In Bangladesh, for example, the industry has grown from 400,000 people and 800 factories in 1990 to nearly 2m people and 4,000 factories now. Nine-tenths of the workers are women. Zaidi Sattar, an economist at the World Bank in Dhaka, estimates that 10m-12m people depend on the industry.
An IMF report published in June puts the potential loss to Bangladesh's exports from quota elimination at 25%. That, says Mr Sattar, is “on the pessimistic side”. But there are real worries. There is a debate about the garment industry's lack of “backward linkages”—its raw materials are all imported, putting a premium on labour costs, productivity and transport. Some want the government to help by subsidising the production of man-made fibres and fabrics. Upstream, textiles are a capital-intensive industry and capital is in short supply and expensive in Bangladesh, so taxpayer's money might be better spent on, say, roads.
Threads of life
You would have to be a very hard-hearted free-trader not to feel a pang for the threatened Bangladeshi garment worker. Like her counterparts in Sri Lanka and Nepal—and elsewhere—she already suffers from living in a country beset by political instability, and has to bear the additional burden of frequent cyclones and floods.
The effect of the quota eliminations may not, however, turn out to be as bad as some fear. The Goldman Sachs survey found that 86% of European buyers and all the American ones were already negotiating price cuts. Yet Bangladesh was second only to India among countries where buyers expected to increase procurement in 2005. It must be doing something right.
The survey also found that most buyers expect to buy from fewer countries than before. The trade is ever more dominated by a few giant retailers—such as Wal-Mart and J.C. Penney—whose purchasing decisions will help dictate the shape of the global industry. That is grim news for many of the less productive garment-manufacturing locations.
Yet Wal-Mart says that its global garment procurement in 2005 will be much the same as in 2004. There are a number of reasons to think that it may be some time before the full impact of the year-end cut-off is felt. First, countries have found their niches—Sri Lanka, for example, is strong in lingerie; it is one of Victoria's Secrets. Second, safeguards against surges of Chinese imports are likely to be invoked in both the EU and America for some products, leading to arguments at the WTO. That will extend the transition period. Change may not come as fast, or as brutally, as the pessimists fear. But remorselessly, the loose threads of the global textile industry are being tied up.
The textile industry
The looming revolution
Nov 11th 2004
From The Economist print edition
ImagineChina
China, the world's workshop, is poised to become its tailor. What will happen to textile industries elsewhere, especially in South Asia?
THE shirt on your back probably had an exotic life before it reached you. Say you bought it in America and the label said it was “Made in Sri Lanka”. It may well have been made from Chinese fabric, woven from Chinese yarn, spun from Chinese cotton or man-made fibre. Why, you may wonder, was your shirt not actually cut and sewn in China? We know they have scissors and sewing machines there and millions of nimble-fingered operators. After all, many of the other shirts on the shop hangers were indeed made in China.
China, India
Globalisation
China's economy
The World Trade Organisation
Fashion and textiles
The EU’s trade department has information on textiles. See also the US Trade Representative and the WTO (on textiles). KSA Technopak is a textile and retail consultancy.
The question is being asked with increasing urgency in China, too, as well as in Sri Lanka, Bangladesh, Nepal, Cambodia, El Salvador, Honduras and more than 40 other countries with thriving clothing industries based on exports. They are bracing for the scheduled elimination, at the end of this year, of quotas that have governed their exports to the world's two biggest markets: America and the European Union. The quotas have restrained some countries' exports, but in others have created an export industry that might not otherwise have existed.
China is definitely in the first category—its sales in America and Europe will surely grow once quotas are lifted. The questions are: by how much? And what will be done to impede their growth? The American government is under pressure from its own manufacturers to stem a potential flood of Chinese imports. Mechanisms to do this, so-called “safeguards”, were built into the agreement that America signed with China in November 1999 as part of China's accession to the World Trade Organisation (WTO).
A big trade row seems inevitable. American manufacturers want their government to maintain 15 of the 91 quotas that expire at the end of the year—including those for trousers, shirts, sheets and underwear. They also want to keep limits on imports of three products—bras, dressing gowns and knitted fabrics—for which quotas were lifted in 2002 and the “safeguards” subsequently invoked.
The deadline for a government decision on whether to accept the first of these petitions (cotton trousers) fell on November 1st, the eve of the presidential election. The manufacturers had milked as hard as they could the political implications of their bid for protection, saying that China will “destroy” the American textile industry. Trade unions also weighed in, saying that 350,000 jobs have been lost in America's textile sector in the past three years, and that, if nothing is done, many of the remaining 695,000 will likewise soon be on a fast boat to southern China. Sure enough, the petition was granted. America is now looking into whether it will impose safeguards on five other categories of clothing, and will decide by next February. If imposed, these new quotas will limit China's export growth to 7.5% in each category.
China has responded robustly, arguing the “safeguards” were designed to correct actual import surges, not threats yet to materialise. American textile importers and buyers accuse their compatriot manufacturers of trying to achieve through government intervention what they have failed to manage through investment, planning and improving productivity: becoming internationally competitive.
It is not just the rich world's garment-makers that are alarmed. Trade associations from more than 50 countries have signed the “Istanbul declaration”, asking the WTO to keep the quotas for a further three years. They include groups from poor and middle-income places such as Bangladesh, Sri Lanka, Indonesia, Morocco, Tunisia and Turkey.
The declaration argues that circumstances have changed dramatically since the phasing out of quotas was agreed. It claims that the admission of China to the WTO at the beginning of 2002 was not contemplated at the time. (In fact, China had tried hard to become a WTO founder member in 1995.) More to the point, it accuses China of keeping its currency at an artificially low level, and of other dirty tricks such as “state subsidies and the proliferation of non-performing loans and rebate schemes”. Of course, if they are right, this applies to almost all Chinese exports, not just textiles.
The signatories to “Istanbul” fear the end of quotas will mean the loss of important inflows of foreign exchange, the closure of some businesses and the loss of as many as 30m jobs to China's allegedly encroaching global monopoly. The worry is that, having no natural comparative advantage beyond abundant cheap labour, they will lose market share to countries with vertically-integrated supply chains—ie, those that produce their own fibre, yarn, fabric and clothes.
Above all, that means China. But Chinese manufacturers are not the only ones expecting a bonanza. In India and Pakistan, too, many see a moment of great opportunity. For South Asia as a whole, the impact of the end of the quota regime is potentially enormous. In poor countries with small manufacturing bases and a vast rural majority, garmentmaking offers a labour-intensive way of lifting people out of poverty. Sudhir Dhingra, boss of Orient Craft, India's largest apparel exporter, which employs about 18,000 people, says that each machine he buys creates four jobs in his factories and another four outside. In a typical factory, he says, four-fifths of the workers will have started life as poor villagers. Few will have had more than an elementary education.
I wouldn't start from here
Clothing is one of the most basic of human needs, and its international trade one of the oldest. Along with food, it is also most subject to artificial distortions. The demise of the biggest such distortion, the quota regime, was agreed a decade ago. The Agreement on Textiles and Clothing (ATC) came into force, along with the WTO itself, in 1995. It covered the staged elimination of quotas in America, Canada and the EU (as well as Norway, which removed its last quotas in 2001). It was intended as a bridge between the old Multi-Fibre Arrangement, which had covered textile trade since 1974, and the full integration of the trade into the multilateral system.
By 2002, imports to the ATC countries, not counting internal EU imports, accounted for 43.5% of a global textile and clothing trade estimated at $360 billion. Under the ATC, quotas were to be lifted in four stages. But nearly half—49% of import volume—was to be left to the last moment: January 1st 2005. In practice, America chose to “integrate” low value-added items and many that were covered by under-used quotas. As a result, some two-thirds of American textile imports, including 80% of clothing imports, or $61 billion, are subject to quotas until the end of this year. In a survey by Goldman Sachs, an investment bank, 71% of American and European manufacturers, wholesalers and retailers said they at present base more than 20% of their sourcing decisions on quotas. Hence the panic.
There is an historic irony that poor countries should be quaking at the prospect of textile-trade liberalisation. They have long demanded the dismantling of rich-country protection in an industry where they should have most to gain. Quotas that expanded before eventually vanishing were supposed to allow them to take advantage of their low-paid workforces. It seems a long time ago now, but in the early 1980s they witnessed the emergence of three Asian producers—Hong Kong, South Korea and Taiwan—as big exporters of cheap clothes. At their peak, these three accounted for nearly a third of world clothing exports. In 20 years, that share has fallen to 8%, as lower-cost countries have taken away their markets.
Quotas have worked, up to a point, in bringing business to poor countries. But they have had some perverse effects. Firstly, the manufacturing process has become ludicrously cosmopolitan—the Sri Lankan shirt described above had had a sheltered life. “The textile supply chain”, says Arvind Singhal, of KSA Technopak, a Delhi-based textile and retail consultancy, “looks like a Dali painting.” Fine Indian cotton might be turned into fabric in Italy, cut in America, sewn in Honduras and sold back to America.
Second, some countries that had no mechanised textile industries at all until a few years ago have become dependent on them. For example, as Cambodia emerged in the 1990s from three decades of isolation, horror, civil war and Vietnamese occupation, quotas brought foreign investment, especially from Hong Kong and Taiwan, in clothing factories. Their products now make up more than 70% of the country's merchandise exports. The proportions are even higher in Bangladesh and Macau. In Pakistan, Mauritius and Sri Lanka it is also above 50%.
The Indian hope trick
D.K. Nair, of the Indian Cotton Mills Federation (ICMF), an industry lobby, argues that American quotas turned China's textile industries into a Frankenstein's monster. As many Indians see it, China's quotas were set generously in the 1980s for political reasons. This explains the Chinese industry's hectic expansion. By contrast, India's growth was artificially stunted. The entire Sri Lankan and Bangladeshi garment industries were, he argues, “an offshoot of our quota problems”.
So Mr Nair sees the recent tear-jerking appeals on behalf of countries such as Bangladesh as hypocritical. By portraying China as the only beneficiary of the liberalisation, American industry is hoping to garner international backing for its protectionist impulses.
“Welcome”, read the digital display at the entrance to one of the huge exhibition halls in Delhi that made up the Indian Handicrafts and Gifts Fair in October, “to the next best”. It is a fitting, if presumably unintended, slogan for India's textile industry. The refrain repeated time and again by post-quota bulls is not that India is a world-beater. More an egg-beater: “nobody,” the bulls say, “wants to put all theirs in China's basket.”
Mr Dhingra is one such optimist, arguing that India is a “very good second option.” He is adding 30% to Orient Craft's capacity, opening three new factories this year and two in 2005. He candidly accepts that in many products, China offers buyers a “more attractive and cheaper option.” For example, he says, it is “now impossible to make money out of children's clothing.” China's prices—45 US cents an item—are simply unbeatable.
Many buyers, however, still need to hedge their bets. KSA Technopak's Mr Singhal agrees. China will not swamp the global market because prudent supply management demands diversification. Even if one ignores the political risks of dependence on China, recent disasters around the world have been diverse enough to reinforce the message: terrorist attacks, hurricanes, earthquakes, SARS—all can disrupt supply lines. Wal-Mart, the world's biggest retailer and buyer of about one-tenth, or $15 billion-worth, of China's annual exports to America, stresses its desire for a steady and geographically diverse supply of product.
India recommends itself as what Mr Singhal calls a “secondary base”. It is an English-speaking democracy. It is, after China and America, the world's third-largest cotton producer. Reliance, an Indian firm, is the world's biggest polyester maker. With 34m spindles, India is, next to China, the world's biggest yarn-spinner. It has huge clothing and carpet industries with centuries of history behind them. Wajahat Habibullah, the government's textiles secretary, points out that the wealth of the Mughal empire, which gave way to the British Raj, was founded on carpets and textiles.
A very fine yarn
The ICMF, the Indian manufacturers' lobby, has forecast that Indian textile exports can grow at 18% a year to reach $40 billion by 2010, making up more than a third of the country's merchandise exports, compared with a quarter at present. In the process, 5m jobs would be created, so that the industry, already India's second-biggest employer after agriculture, will have 40m workers.
A WTO study backs the optimism. It expects India's share of the American market to increase from 4% to 15%, as against a jump from 16% to 50% for China. The losers would be Mexico, South America, the EU, Africa and the Middle East. But there are doubters. India's industry is still dominated by thousands of small family-owned firms. Many lack the marketing skill to take advantage of the new freedoms. Nor is the industry universally admired. In neighbouring Sri Lanka, some garmentmakers say that Chinese fabric suppliers are cheaper, faster and more reliable.
In March, a report by McKinsey, a consultancy, commissioned by DHL, a shipping and logistics firm, suggested that, in the absence of further reforms, the growth rate of India's textile exports would be no more than 8% a year. It reported a study comparing the number of men's shirts produced per hour and found that India's productivity was at 35% of American levels. China scores a much more impressive 55%. The overall productivity of India's textile industry was only 16% of America's.
Many reforms are promised by the Congress-led government that took power in May. On some—such as a sweeping tax reform—it is optimistic it can deliver. Others, however, especially labour-law reform, will be difficult for a party that relies for its parliamentary majority on the votes of communist parties. Kamal Nath, the commerce minister, says a manufacturer told him he had declined an order for 50,000 shirts because he could not risk taking on workers he could not let go. “We have to move from protection of employment to promotion of employment,” says Mr Nath, more in hope than expectation.
One other likely winner in the new regime is Pakistan. Its strengths are low labour costs, a raw-material base in both cotton and man-made fibres, and an estimated $4 billion in investment in the past four years. Because of its importance as an American ally, Pakistan has benefited from enlarged quotas in recent years. But in some market segments—such as bed linen and towels—it is seen as a good global competitor.
But what about the expected losers? Like athletes forced on to performance-enhancing substances who now struggle to compete on their own merits, they will suffer painful after-effects from quotas. In South Asia, Bangladesh, Nepal and Sri Lanka are all vulnerable. In Bangladesh, for example, the industry has grown from 400,000 people and 800 factories in 1990 to nearly 2m people and 4,000 factories now. Nine-tenths of the workers are women. Zaidi Sattar, an economist at the World Bank in Dhaka, estimates that 10m-12m people depend on the industry.
An IMF report published in June puts the potential loss to Bangladesh's exports from quota elimination at 25%. That, says Mr Sattar, is “on the pessimistic side”. But there are real worries. There is a debate about the garment industry's lack of “backward linkages”—its raw materials are all imported, putting a premium on labour costs, productivity and transport. Some want the government to help by subsidising the production of man-made fibres and fabrics. Upstream, textiles are a capital-intensive industry and capital is in short supply and expensive in Bangladesh, so taxpayer's money might be better spent on, say, roads.
Threads of life
You would have to be a very hard-hearted free-trader not to feel a pang for the threatened Bangladeshi garment worker. Like her counterparts in Sri Lanka and Nepal—and elsewhere—she already suffers from living in a country beset by political instability, and has to bear the additional burden of frequent cyclones and floods.
The effect of the quota eliminations may not, however, turn out to be as bad as some fear. The Goldman Sachs survey found that 86% of European buyers and all the American ones were already negotiating price cuts. Yet Bangladesh was second only to India among countries where buyers expected to increase procurement in 2005. It must be doing something right.
The survey also found that most buyers expect to buy from fewer countries than before. The trade is ever more dominated by a few giant retailers—such as Wal-Mart and J.C. Penney—whose purchasing decisions will help dictate the shape of the global industry. That is grim news for many of the less productive garment-manufacturing locations.
Yet Wal-Mart says that its global garment procurement in 2005 will be much the same as in 2004. There are a number of reasons to think that it may be some time before the full impact of the year-end cut-off is felt. First, countries have found their niches—Sri Lanka, for example, is strong in lingerie; it is one of Victoria's Secrets. Second, safeguards against surges of Chinese imports are likely to be invoked in both the EU and America for some products, leading to arguments at the WTO. That will extend the transition period. Change may not come as fast, or as brutally, as the pessimists fear. But remorselessly, the loose threads of the global textile industry are being tied up.
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