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 Attendance China Safeguard Quotas - Here they Come!Part of the global agreement that led to the elimination of quotas on textiles and apparel on January 1st, 2005 was the adoption of special provisions allowing for the imposition of safeguard measures should a large increase in imports from China occur causing market disruption in the U.S. The procedures for implementing such safeguard measures are initiated either by a request from an interested party or the government can self-initiate such proceedings. Both have now occurred. Specifically, on April 4, 2005, the Committee for the Implementation of Textile Agreements (CITA) issued a press release announcing its decision to initiate safeguard proceedings to determine whether imports of certain Chinese origin textile and apparel products are contributing to the disruption of the U.S. market. The press release states that the products subject to these proceedings are cotton knit shirts and blouses (categories 338/339), cotton trousers and shorts (categories 347/348) and cotton and man-made fiber underwear (categories 352/652). Preliminary data for the first quarter of 2005 indicates that imports from China in these categories have increased by approximately 1,250%, 1,500% and 300%, respectively, relative to the same quarter of last year. The decision to initiate the proceedings was based on the substantial increases in imports of these products from China over the first quarter of this year. According to the U.S. Secretary of Commerce, "this decision is the first step in a process to determine whether the U.S. market for these products is being disrupted and whether China is playing a role in that disruption." The Secretary added, "this Administration is committed to enforcing our trade agreements and to providing assistance to our domestic textile and apparel industry consistent with our international rights and obligations." The next step will be for CITA to publish a Federal Register notice that will launch a 30-day period during which interested parties and stakeholders may submit comments on each product subject to safeguard proceedings. The decision to self-initiate investigations was yet another unexpected turn of events in the situation involving China safeguards. It is now almost certain that safeguards will be invoked by the United States, essentially placing these categories under a quota type regime. The critical issue for many importers and manufacturers will be when will the safeguards actually enter into effect and when will goods in these categories be embargoed. We have conducted an analysis of the scenarios which could occur as a result of the government's announcement that it will self-initiate safeguard measures for categories 338/339, 347/348 and 352/652. Our analysis included a review of CITA procedures, discussions with CITA officials and a review of materials published by various trade groups and associations. Obviously the situation is very unsettled at this time. However, a reasonable and prudent timeline for events is as follows: April 4, 2005 - CITA issues a press release saying it intends to self-initiate safeguard investigations for certain categories. April 12, 2005 - Notice is published in the Federal Register announcing that investigations have been initiated and public can file comments for next 30 days. (If a domestic interest files a petition, CITA has two weeks to decide if it will accept or reject the petition before requesting comment. That period will not be required when the government self-initiates the investigation. The date of April 12 is simply an educated guess as to when the Federal Register notice will be published.) May 12, 2005 - Public comment period closes. CITA has a maximum of 60 days in which to make a decision regarding the imposition of safeguards. (Note — CITA can take 60 days to make the decision or it can be made in one day. It is unlikely that CITA will publish its decision immediately after public comment closes. The announcement of safeguards requires giving notice to the Chinese government and requesting consultations and preparing a Federal Register notice both of which take time. Furthermore, a quick decision suggests that CITA has not adequately reviewed public comments leaving them open to a lawsuit by importers. An educated guess is that CITA will take approximately 30 days to issue its decision. CITA will almost certainly impose safeguard restrictions.) June 13, 2005 - CITA announces safeguards are imposed and requests consultations with China. At this point safeguards will be in effect but this does not mean that there is an immediate embargo of garments from China. Safeguards are, in effect, quotas and the next part of the analysis is to determine how large the quota will be and how it will be administered. Safeguard quotas are based upon import figures for the first 12 of the previous 14 months before consultations are requested — not for the past calendar year. Thus, if safeguards are invoked on June 13, 2005, CITA will be required to use April 2004 through March 2005 as a basis for the safeguard quotas. Significantly, this figure will include the enormous surge of imports that occurred in January of 2005 and the following months. Take for example categories 347/348. In 2004 the total imports from China for these categories were 2.1 million dozen pieces. However, for the twelve month period of March 2004 through February 2005, imports from China of these categories totaled 6.4 million dozen pieces. Thus the total safeguard quota will be significantly larger than the import figures for 2004 and the longer the comment and investigation process extends before the safeguards are announced, the larger the safeguard quota will be. The next issue to analyze is how the quotas will be counted. Safeguard quotas are prorated for each calendar year. Thus, if safeguard quotas are applied on July 1, 2005, importers will be entitled to import only approximately 50% 1 of the total safeguard quota for the remainder of 2005. Assuming that safeguard quotas are invoked on May 31, 2005, the remaining amount of safeguard quota is calculated to be approximately 4,051,000 dozen pieces. That is the amount that can be imported for the rest of the year under categories 347/348. From the import figures for the first three months of 2005, it appears that approximately 2,100,000 dozen pieces are being imported each month. Assuming that this level continues, the remaining quota for categories 347/348 would be filled in just under two months or roughly the end of July. Of course if the level of imports rises, this period may be shorter. More likely, the level of imports will decline slightly since seasonal shipments will be completed. This would extend the possible embargo date into August. Based upon the amounts of goods already imported into the U.S. in 2005 and the amounts arriving monthly, it is estimated that safeguard quotas for the following categories may be filled by the following dates:
These dates are only hypothetical estimates, which assume 1) that safeguards will in fact be invoked and 2) that the rate of imports of these categories from China will continue at their present pace. In addition to the safeguard measures self-initiated by the government, on April 6, 2005 the National Council of Textile Organizations (NCTO) announced that it had filed seven safeguard petitions for the following textiles and apparel from China. Petitions covered the following categories: 340/640 cotton and/or man-made fiber (MMF) woven men's and boys' shirts The trade associations stated that they filed these petitions because of the "extreme disruption in the American textile industry caused by an unprecedented flood of imports from China." Domestic trade associations had previously filed China safeguard petitions for categories 340/640, 349/649, 350/650, 620, 638/639 and 647/648. NCTO has previously stated that the petitions for cats 340/640, 620, 638/639, and 647/648 were "threat based" and the petitions for cats 349/649 and 350/650 were for the reapplication of the China safeguard quotas that were implemented for the period December 24, 2003 through December 23, 2004. Again, we have conducted an analysis of the scenarios which could occur as a result of the petitions to invoke safeguard measures for categories 340/640, 345/645/646, 349/649, 350/650, 620, 638/639 and 647/648. A reasonable and prudent timeline for events is as follows: April 6, 2005 - Beginning of a 15-day period for CITA to decide whether to accept or reject the petitions. April 28, 2005 - If the petition are accepted, a Notice is published in the Federal Register announcing that investigations have been initiated and public can file comments for next 30 days. (The date of April 28 is simply an educated guess as to when the Federal Register notice will be published.) May 30, 2005 - Public comment period closes. CITA has a maximum of 60 days in which to make a decision regarding the imposition of safeguards. (Note — CITA can take 60 days to make the decision or it can be made in one day or at anytime in between. An educated guess is that CITA will take approximately 30 days to issue its decision. CITA will almost certainly impose safeguard restrictions.) June 29, 2005 - CITA announces safeguards are imposed and requests consultations with China. Based upon the amounts of goods already imported into the U.S. in 2005 and the amounts arriving monthly, it is estimated that safeguard quotas for the following categories may be filled by the following dates:
Again, we emphasize that these dates are only hypothetical estimates, which assume 1) that safeguards will in fact be invoked and 2) that the rate of imports of these categories from China will continue at their present pace. In conclusion, it appears that if the level of imports from China remains stable, May, June and probably July shipments will be permitted entry into the United States. August shipments are far more problematic and will depend in large part on how quickly CITA makes its decision whether or not to invoke the safeguards. September shipments from China for most categories will almost certainly be embargoed. Should you have any questions or require additional information with regard to China safeguard quotas or any other Customs and International Trade law or International Business Transactions matters, please do not hesitate to contact our office. Endnotes
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