November 11, 2005

How the Textile Industry Alone Won Quotas on Chinese Imports

An Obscure Beltway Agency
Can Dictate Terms of Trade;
Implications for Diplomacy
Mr. Leonard's Homecoming
November 10, 2005; Page A1

WASHINGTON -- In the past four years, U.S. industries from mattress-spring makers to wire-coat-hanger manufacturers have requested federal protection from surges in Chinese imports. Only one has received it: textiles.

To understand one reason why, peek inside the third floor of the Herbert Hoover building, a stone fortress around the corner from the White House and home to the Committee for the Implementation of Textile Agreements.

This obscure corner of the federal bureaucracy, known as CITA (pronounced SEE-ta), has in the past year imposed trade barriers on a range of Chinese goods from shirts to dressing gowns to man-made fiber underwear. The U.S. government is broadly worried about China, from the tight grip it maintains on its currency to the problem of piracy. But CITA is a notable example of the U.S. directly challenging its new rival. As such, it shows how a powerful industry lobby can have a big effect on foreign policy.

Few American industries enjoy such a dedicated bureaucratic focus in Washington -- and such a powerful one. CITA's founding charter gives it unilateral power to impose limits on textile imports. Its actions are final. Its deliberations are exempt from public disclosure on the grounds that they have foreign-policy implications. Until recently, CITA publicized its decisions only through filings in the Federal Register, the government's daily notice of administrative actions.

James C. Leonard III, CITA's chairman and a textile-company veteran, says the agency weighs all sides in making its decisions, but allows that it has a protectionist bent. CITA's core mission, as he describes it, is "trying to help maintain a domestic manufacturing industry."

The impact of CITA's decisions on U.S. consumers is considerable. Chinese manufacturers produce apparel at lower cost than their U.S. competitors because of their economies of scale and low-priced labor. Import limits therefore tend to lead to higher domestic prices as apparel companies scramble to hook up with new -- and often more expensive -- suppliers elsewhere in Asia and Central America.

CITA's power has grown in recent months. Mr. Leonard helped lead a team of U.S. government officials negotiating a textile trade pact with China. The talks were sparked by the agency's own imposition of sanctions. At a ceremony in London this week, the U.S. and China inked a pact that imposes controls on Chinese access to American markets through 2008. CITA will enforce the rules set under the agreement. Its main weapon is its ability to restrict imports.

Richard Nixon created CITA in the midst of his 1972 re-election campaign at a time when the U.S. textile industry was under pressure from Japan and Taiwan. The president was wooing Southern textile barons to make Republican inroads in the region, much as the current Republican administration is concerned about protecting those gains as it pursues its own trade policy. CITA is now buried within the Commerce Department's sprawling D.C. bureaucracy, where 20,000 workers consider patent requests, plot strategies to restore salmon stocks and catalogue statistics about life in America.

The five-member panel is charged with overseeing a regime of regulations governing global textile trade. It has wide discretion over how quotas should be enforced and whether new ones should be slapped on. Its members are drawn from the Labor, Treasury and State departments, as well as the Office of the U.S. Trade Representative, an arm of the White House.

The Treasury and State departments have opposed import curbs over the years, according to people familiar with the debates. The Treasury Department, which has long had a free-trade bent, even boycotted meetings in the 1990s in protest of the group's protectionist leanings, says a former CITA member.

But Commerce is the lead agency. With its mission to promote domestic industry, it has set a tone sympathetic to producers. By tradition, the Commerce Department's CITA seat has been filled by a political appointee with ties to the textile industry. That seat also brings with it the committee's chairmanship.

Dan Ikenson, a trade-policy specialist at the Cato Institute, a free-market think tank that opposes the use of import restrictions, likens CITA's proceedings to a "kangaroo court." Referring to its decisions, he says "to expect expecting something miraculous."

Mr. Leonard, 66 years old, is officially the deputy assistant secretary for textiles and apparel. He has a staff of more than 30 analysts who report to him and an office looking out on the Washington Monument.

His previous job was as an economist and trade advocate for North Carolina textile giant Burlington Industries Inc. In that post, he used the company's jet to fly Commerce staffers, including those from the office he now oversees, to tour company plants in the Carolinas. He also knows personally the pain of import competition. As Burlington slid into bankruptcy protection in 2001, Mr. Leonard was among the thousands of employees to lose their jobs.

He continues to wear American-stitched suits, though the last one he bought "was made of imported fabric," he says with a shrug.

Shortly after President Bush took office in 2001, a Commerce official recruited Mr. Leonard for the CITA chairmanship. Mr. Leonard jumped at the chance. His great uncle, Luther Hodges -- himself a long-time textile executive -- had been President Kennedy's commerce secretary. His portrait hangs in the halls of the Hoover building.

'A Balancing Act'

But Mr. Leonard's three decades in an industry wedded to protectionism met with ambivalence within the administration. A White House personnel officer grilled him about whether he'd be able to work for a president with a free-trade platform, Mr. Leonard recalls. "It's going to be a balancing act," Mr. Leonard says he responded. "I have to look at things from both sides now."

He took office at a time of mounting worries about China. The Nixon-era quotas that had regulated global textile sales were being slowly phased out and would expire entirely at the end of 2004. China had just won entry to the World Trade Organization, which allowed it for the first time to take advantage of international free-trade rules.

In addition to these economic issues, the U.S. government, in particular the Pentagon, was starting to view China and its growing military sophistication with increasing suspicion. Sino-U.S. relations were rapidly moving to the top of the diplomatic agenda.

To avoid a sudden, disruptive flood of Chinese products into the American market, the U.S. negotiated with Beijing special provisions allowing for the possibility of "safeguard" trade barriers in the event of an import "surge." The safeguards would be permitted through 2008 for textiles, 2013 for other goods.

For most products, complaints were routed through the International Trade Commission, a government body that investigates and makes recommendations to the White House, which makes the final decision. For textiles, the decision was left to Mr. Leonard and CITA.

True to his promise to skeptics in the Bush administration, Mr. Leonard was not an automatic rubber-stamp for industry demands. Through 2002, he rebuffed textile makers' calls to use the newly negotiated agreement to place limits on imports whose quotas had expired. He insisted first on codifying CITA's historically opaque procedures.

Mr. Leonard set guidelines and timetables as part of the process of imposing restraints. Companies would need hard import and production data to back up their contentions. Mr. Leonard says it was important to add transparency to a process that could have big implications for U.S. foreign policy. "We'd never done anything like this before," he says, referring to his revamp of CITA.

The delay in considering new limits infuriated Mr. Leonard's old textile colleagues. "We got very annoyed," says National Textile Association President Karl Spilhaus, who knows Mr. Leonard well. "We were pounding on him." Industry lobbyists met repeatedly in private with Mr. Leonard in the first half of 2003. They wanted to pressure him to take action and also explain the new rules for filing protection requests.

By the end of 2003, having set up the new CITA system, Mr. Leonard was ready to respond. He proposed that CITA impose new limits on certain Chinese imports.

In early discussions, the State and Treasury departments opposed the move. Labor and Commerce were supportive, while USTR was undecided, according to current and former administration and industry officials.

Public-Relations Campaign

Mr. Leonard's hand was strengthened by a public-relations campaign launched by an old friend, Augustine Tantillo, executive director of the American Manufacturing Trade Action Coalition, a lobbying group formed by more than a dozen industry executives. Mr. Tantillo is also a former CITA chairman.

Mr. Tantillo and other lobbyists issued a widely distributed report asserting that China was poised to gain control of up to 75% of the U.S. apparel market. "What we did in the industry was say, 'let's build pressure to such a massive extent' " that CITA is forced to impose new limits, Mr. Tantillo says.

That helped steer the holdouts on CITA toward Mr. Leonard's proposal. An administration official says the government worried about getting "killed" politically by the textile industry's congressional allies if CITA rejected the petitions. In December 2003, Mr. Leonard won unanimous approval for 12-month import limits on Chinese-made bras, dressing gowns and knit fabric. CITA cited a big jump in shipments including a 1,484% increase in dressing gowns between 2000 and 2003.

Top Chinese officials objected strongly and called in the U.S. ambassador in Beijing for emergency meetings to protest the actions.

For the textile industry, that was just the beginning. Facing the Dec. 31, 2004, expiration of the last of the world-wide quotas, textile-makers began pushing for pre-emptive action. Instead of asking for protection from actual increases in imports, they wanted CITA to impose limits before such a rise, based merely on the anticipation of one. A lawsuit from importers and retailers blocked that line of attack.

After that rebuff, the industry turned to CITA, contending it was already being hurt by cheap imports. Under Mr. Leonard's new rules, it would take more than six months for any new restrictions to kick in. That was too long for Mr. Tantillo. "Rome is burning," he says he warned Mr. Leonard.

Mr. Tantillo began urging Mr. Leonard to install an early-warning system highlighting increases in imports. But there were hurdles. Computers at the Customs Bureau had to be specially programmed to spit out the requested numbers. The Census Bureau, which massages data for public consumption, didn't want to release data it hadn't properly studied. Yet Mr. Tantillo knew from his own Commerce Department days that the data could be retrieved. "This is what they do for a living, they collect numbers and put them in a chart," he says.

Mr. Leonard and his staff started crafting a new set of numbers from the raw shipping data collected by Customs. They developed a computer program to cross-check the figures, looking for anomalies that might point to reporting errors, for example.

By March, the Commerce Department announced the creation of the new reporting system that accelerated the release of import data by weeks. The special data set showed that Chinese imports in the first quarter of 2005, compared with the year-earlier period, had risen more than 1,000% for cotton knit shirts, blouses and cotton trousers; and more than 300% for man-made fiber underwear.

On May 13, almost three months ahead of its regular schedule, CITA announced a plan to impose limits.

The Chinese bristled at CITA's actions, as did U.S. retailers and importers who were counting on buying products from China. Mr. Leonard, however, is unapologetic, citing the growth in imports. "We felt completely justified," he says.

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