China's Tariff Plan Has Execs Struggling to Understand

New York — Home textiles sourcers spent last week in frequent contact with their offices and agents in China following an unexpected Dec. 12 announcement by China's Commerce Ministry that it will impose export tariffs on some textiles and apparel products as quotas disappear on Jan. 1.

China furnished no details, beyond indicating that the tariffs would apply to product volume rather than item price. The move is China's answer to widespread criticism from trade associations in other textiles-producing nations, including the United States. Many of those groups have been lobbying their home governments and the World Trade Organization to implement safeguards that would stem the tide of Chinese exports after quota elimination.

China said it intends to push its exporters in the direction of higher-priced, better goods and discourage low-end producers who many feared would inundate the market with cheap goods.

While that struck many home textiles executives as positive, the lack of detail left the industry in confusion — particularly with the elimination of quota less than 20 days away.

The U.S. Commerce Department expects more details to be forthcoming before the end of the year, according to Jim Leonard, deputy assistant secretary for the textiles, apparel and consumer goods industries. “But we just don't have a sense of the timing,” he added.

As the clock winds down on the quota system and the timing for implementing the new tariff system up in the air, home textiles importers are mining connections in China for information.

“It's creating uncertainty on top of uncertainty,” said Rick Darling, president of Li & Fung USA, the North American division of the Hong Kong-based trading agency. “The good news is that China has shown a willingness to get involved in this issue. On the other hand, the devil is always in the details.”

Darling said the Chinese government is forming export analysis teams to establish a floor price for certain types of goods, and that Li & Fung's home office has been told a team is being put together to examine cotton sheets. The Commerce Department's Leonard could not confirm that information. As of mid-day Dec. 17, China's Commerce Ministry had not published any information in English about the program.

The Ministry has posted a list of categories that will be subject to tariffs on the Chinese language version of its Web site, which at mid-week was confined to apparel products, according to Yanping Wang, president of Loftex Industries, one of China's largest towel manufacturers.

He was part of a closed-door meeting in Beijing earlier this month during which textiles and apparel manufacturers expressed their support for measures that would control China's rate of export growth.

Wang said he does not expect towels to be added to the list. However, if towel exports increase substantially, he believes China's government would then take action to slow them down.

“Managing the volume will, in the end, benefit the better manufacturers,” Wang said. “The government doesn't want to lose its leading industry companies” to competition from less stable, low-end producers.

In addition to protecting its larger, more export-oriented manufacturers — and showing other textiles-producing nations that it is aware of their concerns — the government can use the tariff to offset some of the estimated $1 billion to $3 billion in revenues it previously earned by selling quota for U.S.-bound goods.

“China has been doing a really good job of building its infrastructure, but they need money for it,” said Jeff Hollander, president and chief operating officer, Hollander Home Fashions, which owns five factories in China and operates five more under a joint venture.

Hollander considers the tariff program's encouragement of higher-end exports “admirable,” and said he expects that most textiles categories that were still under quota in 2004 will probably be placed under tariff — largely to replace quota revenue.

“It's essentially the same thing as quota, and I don't think its going to cost any more than that,” he added.

While importers await clarification on the tariff issue, the coalition of industry trade groups that has been filing pre-emptive safeguard petitions with the U.S. government plans to file some more. Thus far, the nine petitions filed and three others that are up for renewal cover apparel and fiber categories, but the coalition has identified sheets as a likely petition category.