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Hearing of the House Committee on Ways and Means - China's Trade and Industrial Policies


Location: Washington, DC

Chairman Levin, Ranking Member Camp, Members of the Committee:
Thank you for calling this hearing, and thank you for allowing me the opportunity to testify. My name is John Spratt and I am Chairman of the House Budget Committee and co-chair of the House Textile Caucus.

I want to focus today on the impact of China's trade policies on textiles and apparel, particularly since China's admission to the World Trade Organization (WTO) on December 11, 2001.

In 2009, imports to the United States from China totaled $296 billion. 1 According to the U.S. Office for Textiles and Apparel (OTEXA), $31 billion of those imports came in the form of textiles. This means that textile imports make up more than one dollar of every ten dollars in exports from China to the United States. If we want to redress the trade imbalance with China, we need sector by sector solutions as well as currency and other trade-distorting corrections.

Nine years ago, in 2001, Mexico was the largest importer of textiles and apparel to the United States, shipping us $8.9 billion in imports. At that time, China was importing $6.5 billion to us. Fast forward eight years to 2009, and China is now the largest importer to the U.S. with $31.7 billion in textile and apparel products. Vietnam is second with $5.3 billion. Meanwhile, Mexico has decreased from $8.9 billion in imports in 2001 to $4.1 billion in 2009.2
What about reciprocity? In 2009, the United States exported a mere $4.3 million (that's million) in textile and apparel products to China. So much for the win-win benefits of open trade. China, Vietnam, Bangladesh, and Cambodia have all experienced a dramatic increase in market share while taking business away from U.S. producers and our free trade agreement partners, and buying very little in return.

The question we need to ask is how did China accomplish such tremendous expansion in textile and apparel trade with the U.S. in such a short period of time since joining the WTO on December 11, 2001?

One answer, of course, is the end of import quotas. But a large part of the answer is China's use of subsidies, tax preferences and other trade-distorting measures in violation of its WTO commitments. These practices led to the closure of 500 textile plants and the loss of over 700,000 textile and apparel workers in the U.S. since 2000. In 2001, there were 1.1 million U.S. textile and apparel workers; today, there are less than half that number.

1 Data is courtesy of the United Nations Commodity Trade Statistics Database.
2 Textile data is courtesy of the U.S. Office of Textiles and Apparel (OTEXA).
3 Data is courtesy of the U.S. Bureau of Labor Statistics.

After ravaging our domestic textile industry, China has been moving rapidly from labor-intensive industries to more capital intensive sectors such as telecommunications, computers and automobiles. And there is no reason to believe the result will be any different in those sectors of our economy. That is one reason to examine what happened in textiles and apparel, because what's past may be prologue.

We all know the problem with regard to our domestic textile and apparel industry--but the question is how do we address the issue in earnest?
According to U.S. Immigration and Customs Enforcement (ICE) Deputy Assistant Secretary for Operations, Alonzo Pena, textile imports account for approximately 43% of all duties collected by Customs and Border Protection (CBP).4 In 2009, ICE and CBP officials became aware of various tactics to undervalue textile products from China, including falsified classifications, underreported quantities, and questionable entry documentation. As a result of these findings, ICE and CBP initiated Operation Mirage, which has resulted in the identification of the most egregious violations, but more must be done to this end.

The textile industry relies heavily on customs enforcement. During the last decade, the industry saw a disturbing and disheartening increase of fraudulent activity; from front companies posing as legitimate U.S. companies to undervalued goods, to illegal preferences.

Several weeks ago, I joined several other colleagues in introducing the Textile Enforcement and Security Act (TESA) of 2010, which seeks to address these issues and provide U.S. Customs with additional resources and expanded authority to better target these bad actors. The bill includes provisions to:

* Establish an electronic verification of textile and apparel imports;
* Allow the Department of Homeland Security to use fines and penalties to help pay for investigations and training;
* Increase staff at high volume ports for textiles and apparel imports;
* Establish a non-resident importer program to ensure that resident agents are held accountable for products imported under their name.

It is important to do all we can to protect the 400,000 Americans still working in the U.S. textile industry by doing all we can to crack down on customs fraud. While our industry has seen a huge hit just in the last decade or so, the U.S. textile industry is still the third largest exporter of textile products in the world, with over $13 billion in exports last year.

In the short term, beefing up Customs by enacting the TESA legislation will give a much-needed shot in the arm to an industry that has been hit hard. In the long term, however, we must address the widening trade deficit and the subsidies, tax preferences, and other trade-distorting measures that China employs to benefit their economy to the detriment of ours.

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