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Experts from China, the US and EU Mapped out the Textile and Clothing Trade in the Post Quota Era

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Mr. Andrew Leung
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Mr. John Tsang

With China's textile exports to the US and EU surging considerably in the first quarter of 2005, the beginning of the quota-free era, industry groups from these countries are pressing their governments to execute new safeguard protection, including anti-dumping (AD) investigation.

The issue was addressed earlier at a seminar organised by the Hong Kong Trade Development Council. Government officials from the US, EU, Hong Kong and the Chinese mainland, representatives from trade associations and law firms converged to share their opinions and insights.

The implication of the possible new safeguards against the mainland for Hong Kong was highlighted by John Tsang, Secretary for Commerce, Industry and Technology. Speaking at the luncheon between the morning and afternoon sessions of the seminar, he pointed out that even Hong Kong had not been a major target for AD actions, the local textile trade was overcast by the China-specific safeguard measures against products originated from the mainland.

"We are mindful that even a mere initiation of an investigation could result in significant trade-stifling effects and impact adversely on the business activities of our traders," said Tsang.

Tsang added that the Hong Kong government has adopted a robust approach in countering anti-dumping actions against Hong Kong products by keeping the trade fully in the picture, advising them on procedural matters relating to investigations and defend Hong Kong's trade interest on a government-to-government level.

Earlier this month, the Committee for the Implementation of Textile Agreements (CITA) announced its plan to investigate three categories of textile imports from the mainland, while the domestic industry in the EU has requested the European Commission to invoke safeguard measures on 12 categories of mainland textiles and clothing product.

With regards to the claim that China's textile imports posing threats to the US industry, President of China Chamber of Commerce for Import and Export of Textiles, Wong Sau Yang commented that a shrinking US textile industry is a natural progession of industry restructuring. This is a common phenomenon in any developed country, and is not a result from surging mainland imports.

He further explained that increase in exports to the US in the first quarter this year was attributed to the fact that during the ten-year transitional period (1995-2004) for the elimination of quota system, only 30% of the total quota categories were cancelled. Cancellation of the remaining 70% on the last day of 2004, and the fact that products manufactured in the mainland previously re-exported to meet quota requirement can now be shipped direct from the mainland, resulted in a sudden surge in the export figures. In fact, the genuine supply-and-demand picture was very much distorted by the quota system. In addition, prices of China's textile products would inevitably come down without the quota-related transaction and compliance cost.

Wong believed that the surge of China's textile exports would be temporary, and would stablise after two years, similarly to the situation when a certain quota category was cancelled before. He reiterated that the China government would work closely with the mainland enterprises and trade associations to strive for a fair and transparent environment for future trade.

On the speaking panel were also Janet Fox, representing the United States Association of Importers of Textiles Apparel, and Jacqueline Peltier, President of the Foreign Trade Association who, after outlining the pre and post quota environment in their respective countries, expressed their concern to the very likely implementation of safeguards and anti-dumping (AD) investigations. With the technical complication and tight timeline of the AD investigation process, they urged companies affected to seek legal counsel.

Most law firms shared the view that in front of a contemplated AD action, the affected exporters should participate in the investigation so as to reduce the adverse effects of the action.

Rick Johnson from Hunton & Williams LLP highlighted that companies engaging in outward processing agreement must also stay alert to investigations filed against any country in which some of their manufacturing operations were located.

"The Country of Origin is vital for two reasons: your product may or may not be covered by an anti-dumping investigation depending on what the Department of Commerce (DOC) considers to be the country of origin; the country of origin will determine which methodology (market economy or non-market economy) will be applied when measuring the level of dumping," said Johnson.

Neil Ellis from Sidley Austin Brown and Wood LLP advised companies to get prepared, adopting different strategies including selecting a few high-volume products exported to the US for product-specific dumping analysis. They can also consider increasing purchase of market economy inputs, and regularly evaluate the quality of company records and databases. It is also important for a company to assign a specific "team" responsible for AD matters, with knowledge in accounting, sales, production, IT, corporate structure, and more.

With possible AD investigation from the EU also on the way, Jean-Francois Bellis from Van Bael & Bellis brought out the issue that European Community currently only grants China market economy status (MET) case by case. It is thus essential for mainland exporters concerned to obtain the MET in order to be rewarded individual dumping margins based on their own domestic and export prices.

"To comply with the EC Anti-Dumping Regulation, exporters have to meet five criteria, and the most important three are: the freedom to take decisions without significant State interference; accounting records in line with international accounting standards; and production costs and financial situation unaffected by significant distortions which may result from the transition process from centrally planned economy to market economy," said Mr Bellis.

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