Under the Agreement on Textiles and Clothing of the WTO, from Jan. 1, 2005, quota management on global textiles trade was relinquished. However, quota cancellation does not mean that China's textiles will usher in a free trade era. In addition to quota, there are also other non-tariff factors affecting global textiles trade, for example, tariff and green barrier. So, the cancellation of quota will not result in fundamental and revolutionary changes to the global textiles market.

1. Textiles' export tariff

At present, the total volume of China's textiles export accounts for one fourth of the global textiles trade volume. According to the forecast made by the WTO, the trade volume of China's textiles in 2005 will account for a half of that for the whole world. As indicated by the data provided by China's customs offices, since the cancellation of quota on Jan. 1 2005, the export of some China's textiles export lifting quota management has sharply increased in volume, but decreased in price. The export of China's global textiles increased by a margin of about 30%, mainly to the EU and the USA. While export was increased, the price fell by 30% as a contrast.

The global textiles export quota management system that had lasted for 40 years finally came to an end. However, as the globally largest textiles exporter, China may face new forms of trade protectionism. Some developed and developing countries have joined forces, ready for setting up restriction on China's textiles export. Once these countries link hands to impose barriers for China's textiles export, China will suffer serious loss in its rights in textiles, while other related products will also be severely threatened, and even may have to exit from the international market as a whole. Therefore, the Chinese Government has adopted a series of measures such as imposing export tariff to encourage export of products of high added values, thus further improving the structure of textiles export, keeping improving the overall economic efficacy of the industry of textiles export, as well as its international competitiveness.

From Jan. 1 2005 to Dec. 31 2007, China will adopt transitional and interim measures of imposing export tariff on the basis of specific tax for 148 clothing duty paragraphs exported outside, for example, outer wear, skirts, shirts, trousers, pajamas, and underwear. For commodities taking suite as measuring unit with a comparatively higher price, the tax rate is 0.3 yuan per suite; for those with a lower price, the tax rate is 0.2 yuan per suite. For commodities with weight as measuring unit, the tax rate is 0.5 yuan/kg. According to measurement, the average tax burden is 1.3%.

After implementation of the textiles export tariff policy, in Jan. 2005, the export of the whole country's textile clothing based on customs statistics was US$3.736 billion, with a growth rate of 13.93%, and the taxation on textile clothing export went beyond RMB200 million yuan. The levy of export tariff on textile clothing has not produced evident impact on enterprises' exports. Similar to the previous year, the exports of various types of enterprises except for state-run ones have kept faster growth. In Jan., the export of state-run enterprises was US$260 million, a growth by 31.9%; the export of private enterprises was US$270 million, a growth by 95.3%; and the export of collective enterprises was US$600 million, a growth by 16.2%.

According to the data of Jan. and the analysis by experts of the Ministry of Commerce, although the export amount of the textile clothing involved in the 148 duty paragraphs levied with export tariff accounts for 83.5% of the export amount of all the textile clothing, the levied duty is only 1.7% of the total cost for the exported textile clothing, namely, the cost of duty is far less than the cost of enterprises in purchasing quota.

2. Textiles export license

After levying export of sensible textiles, the Ministry of Commerce has been continuously monitoring the quantity of textile exports. After Jan. 1 2005, there has been a serious increase in quantity and decrease in price for partial textiles' exports which have been lifted quota management. If this phenomenon continues, other countries may make use of the opportunity to implement trade protection. The measures employed by the Ministry of Commerce will greatly restrict the large volume of textiles exports, thus improving the textiles' international trade environment.

From Mar. 1 2005 on, the Interim Method for Automatic License of Textiles Export will be implemented, namely, an export license has to be applied for textiles export. The export license system employed by the Ministry of Commerce is to improve statistics, analysis and monitoring of textiles export, post precaution messages on fast-growing exported textiles to operators, and guide and standardize the orderly exports of the enterprises. At present, many developed countries have employed the method to achieve 24-hour monitoring of imported and exported commodities.

According to the system worked out by the Ministry of Commerce, export licenses are required for 216 textile products, shirts, underwear, trousers, and children's clothing are still a main part of the sensible textiles. To export the textiles in the catalog, an export license has to be applied for to the Ministry of Commerce.

The Ministry of Commerce authorizes the Quota License Bureau to manage and guide the various license issue organizations in issuing the licenses, and the Quota License Bureau shall be responsible to the Ministry of Commerce. The Quota License Bureau and the governing commercial departments of localities are responsible for issuing the licenses. The various governing departments are responsible for issuing licenses within the authorized scope of the Quota License Bureau. Altogether, there are 46 organizations in the whole country for issuing automatic export licenses for textiles. On Feb. 22 2005, the Quota License Bureau under the Ministry of Commerce posted the Notification on Applying for and Issuing Export Automatic Licenses for Textiles, which listed the name list of the license issuing organizations and their contacts.

The application for the export automatic licenses for textiles began on Feb. 25 2005, and interested enterprises shall apply for licenses to the authorized automatic license issuing departments under the local governing commercial departments. Exporters can apply for the license by means of written form or online form. For the written application for textiles export automatic license with correct contents and forms, the various license issuing organizations shall issue the textiles export automatic licenses within three workdays; for online application, they shall issue the licenses within two workdays since online application. If the licenses cannot be issued as scheduled, reasons shall be timely explained to the exporters. The longest duration shall not exceed ten workdays.

The automatic license system for textiles export will certainly impact OPA enterprises, however, OPA enterprises still have to be included in the system. To be faster in application for the license, enterprises can use electronic keys to apply for it online. Enterprises without the electronic key can consult the local governing commercial departments for the key that will generally cost about RMB350 yuan.

3. Problems encountered in implementation of the export automatic license

According to our investigation, a majority of enterprises acknowledge the Interim Method for Automatic License of Textiles Export. While expecting the Interim Method for Automatic License of Textiles Export to play a positive role in advancing orderly export, they are also suspicious to some extent its practical effect.

Although it has explicitly stipulated that the license shall be issued within two to three days, the inland automatic license system for textiles export still has influence on a majority of Hong Kong's OPA textile enterprises. Specially, many OPA textiles will go to and from Hong Kong for several times, which means that the automatic license has to be applied for every time they are exported out of Guangdong Province, thus tampering with the flexibility of OPA enterprises. In addition, the automatic license system for textiles export implemented by the Hong Kong Government since this Jan. 1 has not included OPA enterprises in the scope.

Secondly, there are only three automatic license issuing organizations for the textiles export in Guangdong Province, namely, Guangdong Provincial Department of Foreign Trade and Economic Cooperation, Guangzhou Municipal Economic and Trade Bureau, and Shenzhen Municipal Trade and Industrial Bureau. It is universally worried that whether the organizations have the capacity in issuing licenses for there are a large number of textiles of Hong Kong enterprises shuffling between Guangdong Province and Hong Kong every day. At the same time, no quota was imposed on some Chinese textile enterprises to export cargos to regions such as Southeast Asia, and they suggest that no automatic licenses for textiles export be involved in exporting non-sensible textiles to non-sensible regions.

It is very difficult to achieve the goal of standardizing enterprises' export by only resorting to export licenses for monitoring and precaution, unless the quantity of issued licenses is restricted as the quota system. OEach license has to be approvedO, OOne license for one customsO and other requirements have undoubtedly complicated the procedures for enterprises in dealing with export. In addition, licenses have to be applied for in advance, however, enterprisers are often very urgent in export, and they often have to delivery goods after only a few days of reception of P.O., and many contents such as export contract data cannot be acquired in advance during application, for example, enterprises have to inspect cargos at delivery, and unqualified ones will be returned, which means change in data.

As can be seen above, the Interim Method for Automatic License of Textiles Export is very timely and effective in promulgation, however, it will still take time and practice for check whether it is operable and conducive to alleviating enterprises' burden.

4. Industry self discipline

China is actively adopting effective measures to avoid trade friction that may be triggered by quota cancellation and sharp increase in textiles export. According to the requirement by the Ministry of Commerce in enhancing industry coordination and self discipline, China Chamber of Commerce for Import and Export of Textiles has set up a coordinative commission for export of trousers, knitting shirts, men' tatting shirts and underwear. At present, the management of the commission is under discussion. The commission will play an active role in coordinating the export of these sensible textiles, and prevent certain textiles export from growing too fast. The various coordinative commissions will work out detailed rules such as qualifications of export enterprises, and the lower limitation of export.

The industry self discipline agreement covers the following four aspects.

First, determine the categories of sensible textiles. List textiles that easily trigger trade friction and protectionism of importing countries as sensible products, and put emphasis on monitoring the export of these products.

Second, set up a coordinative system for the lowest price. It requires that the enterprises involved in the self discipline agreement do not go lower than this price when exporting such commodities.

Third, an industry access system will be set up for the self discipline agreement. Enterprises running counter to trade laws and regulations and disturbing the export order will be reported, or, their import and export rights will be suspended.

Fourth, set up a precaution system. If a red light is on for a certain type of textile, it means that a certain country has started to limit the import of the product; if a yellow light is on, it means that the export of a certain type of textile is on tremendous increase and has caught attention of importing countries, and they may employ certain measures to restrict import of the commodity.

After China Chamber of Commerce for Import and Export of Textiles posted its intention of setting up an industry self discipline system on the website, extensive attention has been aroused. Within one day, 415 textile enterprises expressed their willingness in joining the agreement. The export of the 415 enterprises accounts for over 50% of the total export volume to the U.S.A. and the EU.

The author, Ms. Lian Lian, is Principal Consultant at Odin Professional Services Co, Ltd. She is a qualified lawyer in China and holds a masters in Law. With more than 10 yearsa hands-on experience in the sectors of import/export, Customs and regulated logistics in China, Lian's expertise has been called upon by major international corporations doing business in China.In 2003, she collaborated with the Chinese Manufacturers' Association (CMA) of Hong Kong on the publication China Processing Trade All-in-One Guide ( 中国加工贸易完全手册 )". The book has been published also in Japanese and Korean, and re-printed by China Customs Department in 2004. Odin Professional Services Company Ltd. (OPS) are specialists in educational and consulting services related to import/export and Customs clearance practice, for China operations of HK-based multinational companies. Odin has had collaborations since 2001 with trade organisations like the HKSC, CMA, HKPC, and also the City University of Hong Kong. OPS trains staff and assists major enterprises in improving or revamping their import/export logistics.