This report examines recent trade statistics to ascertain the initial effects of the end of quotas on U.S. clothing and textile trade with China and the rest of the world. Safeguard Measures

Second, the ATC's impact is mitigated because it does not prevent countries from utilizing "safeguard measures," as well as antidumping and countervailing duty cases, to block imports. Prognostications for Post-ATC Trade

Not surprisingly, there were a number of studies done to predict what would happen to the international trade in clothing and textiles after the elimination of quotas prior to the termination of the ATC on January 1, 2005. Analysts generally agreed that:
global trade in clothing and textiles would grow more quickly after the removal of quotas; China and India would increase their market shares for both clothing and textile exports, but there was no consensus on the amount of this increase, estimates for China varied from 3% to 10%; The United States would import more of its clothing and textiles from China, ranging from one-third two-thirds of its imports; U.S. clothing and textile manufacturers would reduce their operations, shut down factories and lay off workers due to increased competition from China, India and other suppliers; one study estimated up to 630,00 job losses due to Chinese imports; Preferential trade arrangements may buffer the impact of the quota removal for clothing and textile manufacturers in the Caribbean, South and Central America, the Middle East, and Africa; There is a possibility that the United States, the EU, and other WTO members may impose trade remedies in response to the increase in imports from China, India and other Asian suppliers. Table 5 also implies that the United States did not experience a major surge in clothing and textile imports as a consequence of the termination of the ATC quotas. For clothing, there was a sharp increase in clothing imports from China in 2005, seemingly at the expense of Mexico. First, U.S. clothing imports grew faster than textile imports over the last 10 years. Clothing and Textile Industry

Besides the potential effect on the U.S. international trade balance, any increase in clothing and textiles imports brought about by the termination of the ATC could have an impact on the U.S. clothing and textile industry. Anecdotal Evidence

While the international trade data and domestic industry data provide rather ambiguous results on the possible impact of quota elimination on the U.S. clothing and textile industry, there is a fairly extensive pool of anecdotal evidence that the recent increase in clothing and textile imports have had a deleterious effect on U.S. manufacturers. For example, while there has been the expected market growth, both in the global and U.S. market, the foreseen major shifts in production have not occurred. Similarly, U.S. clothing and trade data and industry figures for the U.S. clothing and textile industry present a mixed picture of the impact of the end of the ATC quotas on U.S. clothing and textile production and employment. One final prediction that proved to be comparatively accurate was the use of trade remedies by the United States. Implications for Congress

The termination of ATC quotas in 2005 and the ensuing growth of clothing and textile imports, regardless of any causal relationship between the two events, have added clothing and textile trade to growing list of bilateral trade issues between the United States and China. With several of these trade preference programs coming up for renewal—and a number of free trade agreements possibly coming up for ratification—Congress may wish to consider the case of the clothing and textile industry in the post-ATC era as part of their deliberations.
The elimination of the last set of quotas of the Agreement on Textiles and Clothing (ATC) on January 1, 2005, ostensibly brought about the end of decades of quantitative restrictions on the international exchange of clothing and textiles. Trade analysts around the world expected that the final lifting of import limits would foster increased growth in clothing and textile trade, as well as a restructuring of clothing and textile production. In particular, some market watchers predicted a dramatic shift of clothing and textile production to China at the expense of many other nations.
For the U.S. domestic market, the end of the ATC quotas was expected to bring about three major changes. First, there would be a sharp increase in U.S. clothing and textile imports. Second, there would be a major shift in sourcing clothing and textile imports to China. Third, the influx of clothing and textile imports was expected to have a deleterious effect on the U.S. clothing and textile industry. Fourth, because of the anticipated negative impact on the U.S. clothing and textile industry, there was a belief that the U.S. government would make use of various trade remedies to fend off the rising tide of clothing and textile imports.
The events of the first two years of post-ATC quotas—2005 and 2006—both confirmed and contradicted the experts' predictions. The global clothing and textile market did grow faster over the last two years than before, but there has not been the anticipated sharp shift in production to China. Similarly, while U.S. clothing and textile imports continued to grow in 2005 and 2006, it is unclear if the end of the ATC quotas was the main cause of that growth. In addition, while anecdotal evidence from the U.S. clothing and textile industry indicates greater competition from China, trade data and industry production levels do not reveal clear evidence that the termination of the ATC was a major contributing factor to the recent loss of employment in the U.S. clothing and textile industry.
One major factor complicating analysis of post-ATC clothing and textile trade was the decision by the United States (and the European Union) to utilize available trade remedies to forestall the impact of end of quantitative restrictions on clothing and textile trade. After the United States imposed safeguard measures in 2004 and 2005, China and the United States negotiated a "memorandum of understanding" that continued quotas on selected items until 2008.
For Congress, post-ATC clothing and textile trade has raised several issues it may choose to consider. First, Congress may consider modifying current trade remedy laws, particularly those dealing with safeguard measures and countervailing duties. Second, Congress may wish to examine in more detail the impact of the end of the ATC quotas on the U.S. clothing and textile industry. Third, Congress may also consider examining the effectiveness of various trade preference programs, especially as they relate to clothing and textiles.
This report will be updated as circumstances require.