Chinese Exports To U.S. Could Rise In 2007
March 11, 2009 Benefiting from lower average unit costs than other key suppliers, China is likely to retain the title it has earned as the largest supplier of cotton apparel to the U.S. In 2006, China was on track to increase shipments 5.6% (on a dollar basis).
The monthly Chinese cotton apparel import volume fluctuated wildly over the last two years, owing to shifts in quantity limits on certain apparel categories. After China joined the WTO (in late 2001), Chinese cotton apparel shipments became eligible for quota-free access to U.S. shores starting in 2005. Under the terms negotiated, the volume shipped was unfettered unless the U.S. government determined it to be “market distorting,” which could trigger a safeguard mechanism, which essentially is a re-imposition of quotas against products shipped from China. Over the first six months of 2005, Chinese shipments of cotton apparel to the U.S. climbed 197% over the same period in 2004, causing limits to be imposed on a number of products – particularly knit and woven shirts, pants and underwear. As a result, the volume of Chinese imports fell 36.3% from the first half to the second half of 2005. In late 2005, the U.S. and China negotiated a comprehensive agreement to replace the safeguard mechanism, allowing Chinese shipments to re-enter the U.S., but at a more measured pace than in early 2005.
Under the new agreement, the volume of cotton apparel imported from China is up 5.6% over the first nine months of 2006, and is poised to expand even faster in 2007. Import volumes of several key cotton-dominant apparel products showed a mixed picture year over year in 2006, as growth in woven shirts (17.3%), skirts and dresses (64.0%), and coats (30.3%) offset declines in knit shirts (off 0.3%), bottoms (off 24.6%), and sweaters (off 29.0%).
Chinese shipments may climb faster in 2007, for two key reasons. First, the terms of the comprehensive agreement will increase the quotas for certain key categories in 2007, and again in 2008. Second, Chinese shipments are running behind the pace necessary to fully utilize the 2006 quota. These facts suggest that there is room for faster growth, not only as a result of increased quotas, but also through increased quota utilization. But even if Chinese shipments increase only as fast as the quotas (12% to 15%), they are likely to outpace both rest-of-world shipments and growth in retail sales. This scenario – in which Chinese shipments (supply) have the opportunity to grow faster than retail sales (demand) – suggests a return to price pressure on imports and to retail price deflation in 2007.
Source: Cotton Incorporated’s Textile Consumer
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