U.S. cotton shippers say the Chinese government is delivering far less than it promised when it agreed to open its markets to more foreign-grown cotton as a condition of its joining the World Trade Organization.
Representatives of the American Cotton Shippers Association (ACSA), Calcot Ltd., the National Cotton Council and Cotton Council International made the complaint at a meeting with J.B. Penn, undersecretary of agriculture for farm and foreign agricultural services and officials with the office of the U.S. Trade Representative (USTR).
They said China is also attempting to use the requirement of two new tests for short fiber content and neps as a way to limit additional imports and protect its domestic cotton industry.
In establishing the Tariff Rate Quota (TRQ) system required by the WTO accession agreement, the Chinese “in reality intended to limit imports of foreign cotton through a scheme that established a large TRQ level of 3.767 million bales or 820,000 metric tons, but in effect limits the actual amount of unrestricted or private sector free trade to only 230,000 bales,” said William B. Dunavant III, president of ACSA.
Dunavant, president of Memphis, Tenn.-based Dunavant Enterprises, and Tom Smith, president of Calcot, said the Chinese are doing this by allocating one third of the TRQs to the four state trading entities in China and the remaining two-thirds to the so-called “processing trade” and the private sector.
“The state trading entities have been allocated their TRQ's, but have been requested not to use them, while the processing trade can only import cotton if the end products will be re-exported,” said Dunavant.
“Otherwise, the goods will be considered ‘smuggled’ and a tax in excess of the value of the product will be applied,” said Smith. “That leaves the private sector's 230,000 bales as the only true free market quota open for export to China.”
Dunavant said the “Catch 22” for the private sector category is that mills will not be allowed to apply for an import allocation without a signed contract from a foreign exporter of raw cotton. No exporter will take the risk to enter into a contract with a mill without an import allocation so, “in effect, the Chinese TRQ system is a complete sham.”
The delegation also brought to USDA's and the USTR's attention the recent announcement by the Chinese that they will be employing a new classification standard that will limit imports to cotton that does not contain short fiber content or neps.
The Chinese filing with the WTO says: “In this revision, Short Fiber Content (SFC) and Nep Count are included into the quality requirements of the national standard GB1103-1999 Cotton Uplands Cotton. Test for SFC shall be conducted according to GB/T6098.1-1985 Test Method of Cotton Fiber Length using Roller Analyzer. Test of Neps shall be conducted according to GB/T6103-1985 Test Method for Raw Cotton Trash.”
The Chinese informed the WTO that the “national standard for cotton is revised in order to improve the quality of cotton, to satisfy the needs of textile enterprises for high quality cotton, to prevent fake and bad quality cotton from flowing into the market and to fight deceptive practices in trade.”
The proposed date of the adoption of this anti-competitive effort, which Dunavant and Smith said clearly violates WTO regulations, is Sept. 30, and the proposed effective date is April 1, 2003.
According to news reports an official at the State Fiber Inspection Center, under the General Administration of Quality Supervision, Inspection and Quarantine, said that foreign cotton suppliers will be required to submit certificates attesting the cotton cargoes have passed the two tests before being unloaded at the Chinese ports.
The unnamed State Fiber Inspection official said that “many textile mills have been asking us to add the two indicators to the inspection list for a long time, since the two have played a key role in affecting the cloth or yarn output during the ginning process. What we want to do is to protect the interests of the tumbling textile industry.”
“He failed to point out that the clear effect of the new requirement is to provide additional protection for Chinese cotton,” said Dunavant. “In point of fact, China is importing a relatively small amount of cotton from the United States, but it is exporting a massive amount of cotton textile products to it.”