WORLD ECONOMY China's power may explode as trade rules change

U.S. manufacturers, fearing more job losses, ask Washington for protection against imports.
SHANGHAI, China (AP) -- Readying to host the 2008 Olympics, stretching beyond Asia to acquire coveted resources and icons of corporate might, China is steadily accelerating its ascent as a global economic power.
That rise will likely gain further momentum when a change in global trade rules unleashes China's full competitive muscle on an industry that supplies the world with everything from bathrobes to T-shirts to bedclothes to evening gowns.
New Year's Day sees the end of the arrangement that for 30 years has governed, country by country, who can sell how much to whom in the $353 billion world trade in textiles and garments. Many in the industry fear that factories from Milan to Micronesia will be vanquished by China's potent formula of cheap, trade-union-free labor and rising productivity.
The World Trade Organization, which makes the rules, estimates that in two years China will have half the U.S. market, up from 22 percent last year.
And yet 48-year-old Shen Guihua, mother of one and 17-year veteran of the Shanghai No. 9 Knitting Mill, exemplifies the ironies underlying the historic change, and the earth-shaking changes China has undergone in its march from Mao to the marketplace.
More business for China ought to be good news for Shen, whose monthly salary is a modest 680 yuan ($82). But the plant is a state-owned relic of the communist command economy, and is being privatized in May. She has already seen colleagues laid off from what used to be jobs for life, and doesn't expect to be spared in the great downsizing under way.
"I can stay at most for two more years." she says.
Fighting back
Since the mid-1990s, in Shanghai alone, hundreds of thousands of textile workers have been laid off as factories closed down or moved to other parts of China where land and labor are cheaper. Meanwhile, Chinese textile factories have been retooling and expanding capacity.
But the new tariff-free world won't blossom overnight.
Anxious to be seen as a responsible market player, China recently announced plans to impose duties on some textiles to help limit surges in exports that could wipe out foreign competitors. It seems reluctant to fan trade tensions at a time when its companies are venturing overseas, acquiring trophies like IBM's computer business.
The new duties would push prices higher, acting as a competitive "handicap." But China's manufacturers, who already make a third of all the world's textiles and clothing exports, seem certain to gain nonetheless.
American manufacturers, reluctant to give up market shares that have been dwindling for decades, are petitioning Washington to take action against surges in imports of at least 10 categories of made-in-China garments.
In a counter-push, dozens of U.S. retailers, including J.C. Penney Co. and Liz Claiborne Inc., have filed suit to prevent the Bush administration imposing any new restrictions to imports from China after the quotas expire.
"Textile and apparel quotas have imposed a high cost on American families for decades while failing to protect American jobs," said Erik Autor, vice president of the U.S. National Retail Federation.
Expiring deals
India, another rising power, is expected to almost quadruple its 4 percent share to 15 percent, and, like China, will see exports to the European Union rise, the WTO says. Big exporters like Mexico and Turkey could fare relatively well thanks to their proximity to the U.S. and European markets.
But elsewhere, the outlook is bleaker.
Export bases like Hong Kong, kept competitive by a system that forced buyers to import from outside China and India after quotas were filled, will lack that edge once importers can shop where they please in unlimited quantity.
Also expiring at year's end in the leveling of the global playing field are trade deals that gave developing countries like Sri Lanka and Cambodia privileged access to Western markets.
An arrangement with Cambodia that linked improved labor conditions to low U.S. tariffs attracted giants like Nike, Gap and Adidas, eager to protect their brand names from sweatshop scandals. It created jobs that paid up to $100 a month -- a handsome sum by Cambodian standards -- to young women like Sophoeun Paon.
Six months ago, Sophoeun was fretting that she might lose her job at a T-shirt factory once the tariff deal expired. Weeks ago, that nightmare became reality when the factory stopped work amid a drop in orders. About a dozen Cambodian factories have already suspended operations, leaving 25,000 newly unemployed.
"I am very worried about the future. I have no other skills and no money," said Sophoeun, 21, sitting in her small room in Bak Kheng, a village near the almost deserted factory.
Competitive market
The garment industry has become Cambodia's industrial mainstay, providing some 250,000 jobs and 98 percent, or $1.4 billion, of its export earnings in 2003. Now buyers are demanding steep price cuts, says Ken Loo, secretary general of the Garment Manufacturers' Association in Cambodia.
If you can't oblige, orders go elsewhere, says Loo, "or you die trying to meet the price."
It's the same story in Bangladesh, whose 4,000 garment factories employ 2 million people, mostly poor village women, and turn out $5 billion in exports a year, about three-quarters of the country's total.
"I hear people in our factory saying we may lose jobs. I don't really know why. But my family will starve to death if I don't work," says Fatema Begum, a 20-year-old divorcee, who supports her daughter and parents with her $33 monthly wage sewing at a factory in Dhaka, the capital.
Though disastrous for many, the changes have built-in safeguards to cushion the blow. China's decision to impose export duties was voluntary, but if they so wish, WTO member countries can impose "anti-surge" quotas until 2008. They can demand anti-dumping duties. Until 2013, they can ask for specific exports to rise a rate of no more than 7.5 percent a year.
Weak vs. strong
"We don't see a disaster immediately after Jan. 1," said Mohammad Hatem, a knitwear factory owner in Narayanganj, an industrial town near Dhaka. "What will happen in 2007 is a different matter."
"That China is so strong is because the other countries are very weak," says Ulrich Maeder, chairman of Polymax Group, a silk and cashmere garment maker with a factory in the east China port of Ningbo.
"Vietnam definitely can do the business much cheaper, even 35 percent cheaper," said Maeder, a German with 30 years in the Chinese textile business. "But these countries must become reliable, punctual and get the infrastructure."
China's competitors are not yet conceding defeat. They're looking for niche markets for high-quality goods with a "not-made-in-sweatshops" guarantee.
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