U.S. — China Comprehensive Safeguard Agreement

Imports of Chinese textiles and apparel into the United States are limited, effective January 1, 2006, by a comprehensive textile safeguard agreement concluded between the United States and China on November 8, 2005, and memorialized in the "Memorandum of Understanding Between the Governments of the United States of America and the People's Republic of China Concerning Trade in Textiles and Apparel Products."

Background

China's accession agreement to the World Trade Organization (WTO) allows WTO members to impose quantitative restrictions, or "safeguards," on imports of any Chinese textile or apparel product if its imports cause or threaten to cause market disruption. After U.S. textile and apparel imports from China reportedly increased 50 percent to nearly $18 million in the first eight months of 2005 following the end of the global textile quota system on January 1, 2005, the United States continued to impose safeguards on a wide variety of textile and apparel items. The United States also appeared willing to renew these safeguards as they expired and to impose new safeguards in response to almost any credible request from U.S. domestic producers.

The increasing number of safeguard actions presented great disadvantages for Chinese producers and U.S. importers. Moreover, because these safeguards were imposed on a category-by-category basis, and because they could not be effective for more than one year without renewal, the safeguards created a complicated mix of restrictions that were often confusing and unpredictable. Thus, support grew in both the United States and China for a longer-term, more comprehensive agreement.

Details of the Agreement

Unlike earlier category-specific safeguards, the 2005 comprehensive agreement established import limits through 2008, when the WTO safeguard provision expires. The limits affect 34 categories, including many that were not previously the subject of safeguards. The covered categories are:

Overall, the comprehensive agreement's limits were designed to allow average annual growth in excess of the 7.5 percent growth rate permitted under individual safeguards. However, according to the Office of the United States Trade Representative, the 2006 limits for the largest and most sensitive categories-cotton knit shirts, man-made fiber knit shirts, woven shirts, cotton trousers, man-made fiber trousers, brassieres, and underwear-were actually lower than the 7.5 percent limit that would have resulted under individual safeguards. But even the limits for these core categories were set to increase to growth rates of about 7.5 percent in 2007 and to growth rates of slightly more than 7.5 percent in 2008. The agreement also included a provision for 2 percent "carryover," which allows unused limits from the previous year to be carried over into the present year. There is likewise an option for 3 percent "carryforward," which allows imports in a current year to count toward the limit for a succeeding year. U.S. Customs and Border Protection posts the fill rates for these quotas on its website, at http://www.customs.gov/.

The United States and China monitor quota utilization with a visa system. Electronic visa filing is required for all imports of Chinese goods subject to safeguards. Chinese exporters must obtain the visas from the Chinese government, either based on past performance or in an open bidding process. China allocates 70 percent of the visas to companies with an export history and the other 30 percent to high bidders in an online auction. The transfer of quota between factories is permitted. The EU and China also have a safeguard agreement, and China allocates visas for exports to the EU according to the same system.

As part of the comprehensive agreement, the United States agreed to "exercise restraint" concerning the application of new safeguards to categories not covered by the agreement.