Textiles and Apparel: Should the Quotas Expire?
October 4, 2004
We've all heard the word "quota" used, but maybe not in the context
of trade policy. Unlike border taxes or tariffs, which try to discourage trade
by raising the price of imported goods, a quota simply establishes a specific
number of items of a particular type that can be imported, usually within
a given calendar year.
The General Agreement on Tariffs and Trade (GATT) - the main international
treaty administered by the World Trade Organization (WTO) - generally prohibits
countries from 
imposing
import quotas or "quantitative restrictions," because these kinds
of trade barriers are particularly trade distorting and clearly harm consumers.
But for almost half a century, there has been one glaring exception -- trade
in wearing apparel, yarn and fabrics.
Since the 1960s worldwide trade in these industrial products have been controlled
by a pernicious and complex system of quotas that specifically restrict product
categories. There are literally hundreds of specific quotas on wearing apparel.
These quotas specifically limit, for example, the absolute number of cotton
T-shirts that can be imported from a given country. All of this is administered
by a little office in the Commerce Department. And it's been going on for
years.
The U.S. is not alone in having import quotas on clothing, fabric and yarn.
Virtually every industrialized nation has similar import restraints. They
are targeted mostly at developing nations, whose main manufactured export
just happens to be clothing.
Ten years ago, the nation-members of the WTO agreed to a treaty called the
Agreement on Clothing and Textiles (ATC) that laid out a schedule for ridding
the world of these trade distorting controls. The treaty calls for the ending
of virtually all import quotas on clothing and textiles on December 31, 2004.
The major exceptions would be for countries that are not members of the WTO,
like Viet Nam, and for China, which had to agree to a special quota regime
as part of its WTO accession.
The United States is the largest importer of textiles (towels, sheets, curtains,
fabrics and yarns) and apparel. We imported more than $77 billion of textile
and clothing products in 2003 alone.
With all that trade, it's easy to see how eliminating quotas will be good
for American consumers. The main reason is that quotas increase prices. If
apparel producers in Bangladesh, for example, can only send a limited number
of garments of a particular type - say women's cotton shirts - they will attempt
to maximize their profits by sending the most expensive shirts possible. In
addition, quotas limit product choice. If the quota limit for knitted shirts
is lower than for woven shirts, then the quota dictates fashion.
It's pretty clear that consumers can expect to see a drop in clothing prices
come next January. More important, they may see a wider variety of fabrics
and styles at prices that even working families can afford.
In fact, American brand-name apparel companies and retail stores have long
fought to see these quotas eliminated precisely so they can provide more choices
and better prices. Increasingly, U.S. apparel production has moved off-shore
and many brand name clothing companies rely on sources from outside the United
States. Retail companies have long sought low cost clothing suppliers and,
as a result, consumer prices for wearing apparel have trended much lower than
the Consumer Price Index nationally.
Lining up on the other side of this debate is American textile producers -
the companies that make fabrics and yarns and, to some degree, fiber producers.
These companies continue to fight against imports of finished wearing apparel
in a futile attempt to keep apparel production in the United States, and to
dictate sources of supply for apparel producers. Given the fact that apparel
wages in the United States are the lowest of all manufacturing wages--lower
even than many service industry wages-- and that U.S. citizens are less and
less interested in jobs that require them to sit behind a sewing machine all
day, a wiser course for textile makers would be to aggressively seek export
opportunities in Asia and other countries where apparel production is increasingly
centered.
Sadly, they have not done this, and while they have had 10 years to prepare
for the removal of quotas, they have done little but lobby the government
to keep them in place. The U.S. government should allow the quotas to expire
on schedule because:
1) U.S. quotas restricting textile and apparel imports force American consumers to subsidize foreign governments in countries like China. When the U.S. imposes limits on the quantity of textile and apparel products that a foreign country can sell in the United States, it is the responsibility of the government in that country to implement and manage that restriction, by allocating the quota among its local factories. These factories often have to pay their government for licenses to export. That cost is ultimately passed on to the American consumer when they buy clothing and home furnishings. Thus, American families pay millions of dollars to foreign governments merely for the privilege of buying T-shirts, underwear, jeans, sheets, and curtains from their local store. This system is one of the largest and most hidden forms of foreign aid from U.S. citizens to foreign governments.
2) The U.S. quota system and high protection taxes on textiles and apparel imports have failed to protect American manufacturing jobs. For decades, U.S. industry and policy makers have argued that maintaining restrictive quotas and some of the highest tariff rates in the U.S. system was necessary to protect U.S. textile and apparel manufacturing jobs from foreign competition. Despite its dubious distinction as the most protected manufacturing sector in the U.S. economy, industry job losses have continued to mount over the last thirty years without pause. What conclusion can we consumers draw? The system enriches a handful of U.S. textile magnates at the expense of American consumers while totally failing to achieve its professed goal - protecting U.S. manufacturing jobs.
3) Improved productivity from new machinery and technology is the biggest contributor to the loss of U.S. textile jobs, not imports. Many have been misled to believe that foreign trade has caused huge job losses in the U.S. textile industry. Yet, if you visit a modern textile mill, you will be struck by how few workers are needed to run it. Huge rooms with rows of machines to spin yarn and weave and knit fabric are largely empty of people. The fact is that the textile industry, like many other manufacturing sectors, has become capital-intensive rather than labor-intensive, and relies more on machinery and technology to operate than on the army of workers it once needed. Yet, in order to maintain a protectionist system that stifles competition in textiles and apparel and drives up prices (and profit) at the expense of American consumers, some in the U.S. textile sector blame trade for all the job losses in their industry. This is false. Several studies confirm that most job losses in the textile industry have been as a result of changes in technology and improvements in productivity. Although one still hears that the U.S. must continue to restrict imports to protect U.S. textile jobs, there is silence about the main reason jobs have been lost in the industry - improved productivity and technology.
4) Despite trade agreements to open markets and tear down trade barriers, the textile and apparel industries remain the most heavily protected manufacturing sectors in the U.S. economy. Many have heard the allegation that the textile industry has been sacrificed on the altar of free trade and that free trade agreements like NAFTA and the Uruguay Round Agreement of the World Trade Organization have decimated U.S. textile and apparel production. Close examination of this claim reveals that it is largely false. Textiles and apparel remain the only manufacturing sectors in the United States to be protected by restrictive quotas limiting the amount of foreign imports. Although these quotas are set to expire on January 1, 2005, most of the clothing and textile home products that American consumers buy will remain under tight quotas until then. Textiles and apparel are also protected through some of the highest tariffs on manufactured goods in the United States. While the average U.S. tariff is now under 3 percent, these protection taxes U.S. consumers pay on textile and apparel products average over 16 percent. Duties on some products such as wool sweaters can range in excess of 30 percent. The extent to which textiles and apparel remain highly protected from free trade is confirmed by the fact that these products account for only about 8 percent of U.S. imports but nearly one-half of all import duties the U.S. collects every year. Thus, far from being a sacrifice to free trade, textiles and apparel are the last holdouts to free trade and competition. Nearly every other industry sector in the United States bit the bullet a long time ago.
The U.S. system to limit
imports of textiles and apparel is designed specifically to stifle competition.
This has the adverse consequence of hindering innovation and productivity
in the U.S. textile industry, which is a drag on the economy and leads to
continued job loss in the industry. It also places the burden of the higher
costs created by these trade barriers on the U.S. consumer, particularly low-income
Americans, which depresses their standard of living. For these reasons, CWT
urges the U.S. Administration to allow the quota system to expire on schedule.
To do otherwise is a slap in the face to American consumers.