U.S.-China Trade: Textile Safeguard Procedures Should Be Improved
(04-APR-05, GAO-05-296).					 
                                                                 
U.S. textile and apparel imports from China have more than	 
doubled in value since China became a World Trade Organization	 
(WTO) member. When joining the WTO, China agreed to a special	 
textile safeguard mechanism applicable only to that country. In  
this report, GAO (1) describes the mechanism, (2) describes	 
requests for safeguard action filed by U.S. producers and the	 
results of these requests, and (3) evaluates U.S. agency	 
procedures for transparency and accessibility.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-296 					        
    ACCNO:   A20757						        
  TITLE:     U.S.-China Trade: Textile Safeguard Procedures Should Be 
Improved							 
     DATE:   04/04/2005 
  SUBJECT:   Federal law					 
	     International trade				 
	     International trade regulation			 
	     International trade restriction			 
	     International organizations			 
	     Clothing industry					 
	     Economic analysis					 
	     Import regulation					 
	     Foreign trade policies				 
	     Strategic planning 				 
	     Textile industry					 
	     China						 

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GAO-05-296

                 United States Government Accountability Office

                     GAO Report to Congressional Committees

April 2005

U.S.-CHINA TRADE

                Textile Safeguard Procedures Should Be Improved

                                       a

GAO-05-296

Highlights of GAO-05-296, a report to congressional committees

U.S. textile and apparel imports from China have more than doubled in
value since China became a World Trade Organization (WTO) member. When
joining the WTO, China agreed to a special textile safeguard mechanism
applicable only to that country. In this report, GAO (1) describes the
mechanism, (2) describes requests for safeguard action filed by U.S.
producers and the results of these requests, and (3) evaluates U.S. agency
procedures for transparency and accessibility.

If the courts rule that CITA may process threat-based cases, GAO
recommends that CITA clarify its procedures for such cases.

GAO also recommends that the Commerce Department take actions to make
production data more available for industry sectors that are at risk of
experiencing disruptive import surges.

Agency officials did not comment on the first recommendation due to
ongoing litigation but had concerns about the descriptions of CITA
procedures. Agency officials disagreed with the second recommendation,
stating that such actions would not be productive. GAO made some revisions
in response, but continues to believe that the recommendations would make
the textile safeguard more transparent and accessible.

www.gao.gov/cgi-bin/getrpt?GAO-05-296.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Loren Yager at (202)
512-4347 or [email protected].

April 2005

U.S.-CHINA TRADE

Textile Safeguard Procedures Should Be Improved

The WTO China textile safeguard is a transitional mechanism that allows
the United States and other WTO members to temporarily restrict growth in
specific textile and apparel imports from China through the end of 2008
even though textile and apparel quotas in general were eliminated on
January 1, 2005. The U.S. government's interagency Committee for the
Implementation of Textile Agreements (CITA) has established procedures
that explain to the public how it will consider safeguard action requests.
These procedures stipulate that when requesting safeguard actions,
producers must submit data on imports, market share, U.S. production, and
additional information showing how imports from China have adversely
affected U.S. industry or any other data deemed pertinent.

CITA has applied safeguard quotas on specific products in response to 4
out of 5 U.S. industry requests that were based primarily on evidence of
actual market disruption. Twelve threat-based requests remain unresolved.

Procedural shortcomings have impaired effective application of the China
textile safeguard. First, CITA's procedures created uncertainty about
when, how, and under what circumstances it would consider threat-based
requests. Seventeen months elapsed before CITA issued any procedures about
the China textile safeguard, and the procedures did not clearly indicate
how CITA would proceed in threat-based cases. Also, a court-ordered
injunction prevents further government consideration of threat-based cases
until litigation is resolved. GAO does not take any position on the legal
issues involved. Regardless of the result, this situation will affect the
speed, scope, and duration of potential relief available to U.S. producers
who made these requests. Second, the unavailability of production data on
about 20 percent of textile and apparel product categories-data that is
necessary to fulfill CITA filing requirements-inhibits equal access to the
safeguard. Beyond these issues, uncertainty about future developments in
global textile trade makes the future impact of the safeguard unclear.

Share of $12 Billion in U.S. Imports from China Subject to Safeguards or
Requests

Contents

  Letter

Results in Brief
Background
China Textile Safeguard Permits Control over Surging Imports
CITA Has Applied Market-Disruption-Based Safeguards but

Threat-Based Requests Remain Unresolved Procedural Shortcomings Have
Impaired Application of China

Textile Safeguard Conclusions Recommendations for Executive Action Agency
Comments and Our Evaluation

                                                                     1 3 5 10

16

19 35 36 37

Appendixes

Appendix I:

Appendix II:

Appendix III:

Appendix IV:

Appendix V:

Appendix VI:

Appendix VII:

Objectives, Scope, and Methodology

Paragraph 242 of the Working Party Report on China's Accession to the WTO

Summary of CITA Determinations on Market-Disruption-Based Requests to Date

Textile and Apparel Products Imported from China for Which U.S. Production
Data Are Unavailable

Threat-Based Requests for Safeguard Action Filed by U.S. Producer Groups,
2004

Comments from the Committee for the Implementation of Textile Agreements

GAO Comments

GAO Contacts and Staff Acknowledgments

GAO Contacts
Staff Acknowledgments

                                       39

                                       41

                                       43

                                       45

                                       48

                                     49 52

54 54 54

Tables       Table 1: Summary of Import Data for Product Categories for 
                                                                     Which 
                        U.S. Production Data Are Unavailable               31 
             Table 2: Import Data for Product Categories for Which U.S.    
                           Production Data Are Unavailable                 45 
Figures  Figure 1: U.S. Production (Shipments) in Textile and Apparel      
                                 Sectors, 1995-2004                         6

Contents

Figure 2: U.S. Domestic Textile and Apparel Employment, 1995-2004 7 Figure
3: U.S. Textile and Apparel Imports from All Countries,

1995-2004 8 Figure 4: U.S. Textile and Apparel Imports from China,
1995-2004 9 Figure 5: CITA Timeline for Taking Action on Textile Safeguard

Requests 14 Figure 6: Share of U.S. Imports from China Subject to
Safeguards or Requests 17 Figure 7: Monthly Brassiere Imports from China,
January 1999 to December 2004 21

Figure 8:	Comparison of Timelines for Actual Threat-Based Request with
Possible Market-Disruption-Based Request 27

Figure 9: Sock Imports from China, January 1999 to December 2004 33 Figure
10: U.S. Imports of Textile and Apparel from India, Pakistan, and Vietnam,
1995-2004 34

Abbreviations

CITA Committee for the Implementation of Textile Agreements
OTEXA Office of Textiles and Apparel
WTO World Trade Organization

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
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separately.

A

United States Government Accountability Office Washington, D.C. 20548

April 4, 2005

The Honorable Frank R. Wolf

Chairman

The Honorable Alan B. Mollohan

Ranking Minority Member

Subcommittee on Science, State, Justice and Commerce, and Related Agencies
Committee on Appropriations House of Representatives

The Honorable Richard C. Shelby
Chairman
The Honorable Barbara A. Mikulski
Ranking Minority Member
Subcommittee on Commerce, Justice, and Science
Committee on Appropriations
United States Senate

Concern about textile and apparel imports from China has increased over
the last several years as the 50-year-old global quota system that
regulated
trade in this industry was phased out and finally terminated on January 1,
2005. Since China joined the World Trade Organization1 (WTO), U.S.
imports of textile and apparel products from that country have grown
rapidly in value from about $7 billion in 2001 to about $15 billion in
20042
and may increase further now that all remaining quotas have been
removed.

In anticipation of China's joining the WTO, the United States sought and
obtained that country's agreement to a textile safeguard that allows WTO
members to impose temporary quotas on Chinese-origin textile and apparel
imports-thus permitting the United States to limit disruptive import
surges in ways consistent with long-standing U.S.-China bilateral
arrangements. The United States and China originally agreed on the
safeguard language in the negotiations that led to Congress granting China
permanent normal trade relations status and cleared the way for that

1China became a member of this organization in December 2001.

2In this report, import values for years prior to 2004 have been adjusted
for inflation and are reported in constant 2004 U.S. dollars (see app. I).

country to become a member of the WTO. Relevant U.S. government agencies
have received requests for relief from U.S. industry and have applied
safeguard measures. However, domestic producers and importers of textile
and apparel products have expressed some concerns about the procedures the
United States has employed for China textile safeguard cases.

In May 2003, the House Appropriations Committee's Subcommittee on
Commerce, Justice, and State, the Judiciary, and Related Agencies held
hearings regarding U.S. government efforts to support American businesses
adversely affected by imports from China. In light of concerns expressed
at this hearing, the House-Senate conference report on fiscal year 2004
appropriations legislation3 requested that GAO monitor the efforts of U.S.
government agencies responsible for ensuring free and fair trade with
China. In subsequent discussions with your staff, we agreed to respond by
providing a number of reports on relief mechanisms available to U.S.
producers that are adversely affected by unfair or surging imports, and
the manner in which they have been applied to China.4 In this report, we

o  describe the China textile safeguard,

o 	describe the requests for safeguard action filed by domestic industry
and the results of these requests, and

o 	evaluate agency procedures for transparency and access to safeguard
measures and identify additional issues that may affect application of
such measures in the future.

To address the first objective, we reviewed U.S. laws and procedures as
well as relevant WTO agreements. We interviewed officials from the five
member agencies of the U.S. government's Committee for the Implementation
of Textile Agreements (CITA), as well as WTO officials and other experts
on trade law.

3H.R. Rep. No. 108-401, at 574 (2003).

4Forthcoming reports will focus on countervailing duties, other safeguard
measures, and antidumping duties.

To address the second and third objectives, we obtained and analyzed
relevant information from both governmental and private sector sources. We
reviewed the official record on each of the safeguard requests that CITA
had considered as of the end of 2004. To clarify the views of those
favoring and opposing application of safeguard measures, we spoke with
officials from trade associations representing U.S. textile and apparel
producers, as well as importers and retailers. We interviewed Chinese
government officials and, to obtain a broader perspective on global
textile trade in a postquota environment, spoke with representatives of
additional textile and apparel exporting and importing countries. Finally,
we conducted extensive analyses of textile and apparel trade and economic
data. We performed our work from January 2004 to January 2005 in
accordance with generally accepted government auditing standards. Appendix
I contains a more detailed description of our scope and methodology.

Results in Brief	The China textile safeguard allows WTO members to place
defined limits on particular textile and apparel imports from China
through the end of 2008, despite the general elimination of most textile
quotas on January 1, 2005. When a member finds that certain Chinese-origin
imports are "due to market disruption, threatening to impede the orderly
development of trade" in these products, it may request consultations with
China and, at the same time, impose specific quota limits.5 When
requesting consultations, the importing member provides China with a
statement showing the existence or threat of market disruption and the
role of Chinese imports in that disruption or threat. If the two members
cannot agree on another solution, the quota limits remain in place. In the
United States, the interagency Committee for the Implementation of Textile
Agreements (CITA) has adopted procedures that explain the process it
follows in considering safeguard action requests from the public. CITA's
procedures stipulate that requests must include import, market share, and
U.S. production data, and additional information showing how imports from
China have adversely affected the domestic industry, such as their effect
on prices in the United States, or any other data deemed to be pertinent.
They also establish a 15-week approximate time frame for deciding whether
to impose safeguard measures. The duration of any safeguard applied can
vary a great deal-from 3 months to a year-depending on when U.S. producers
submit their requests.

5The agreement does not define the terms "market disruption" or "orderly
development of trade."

During 2003 and 2004, U.S. producer groups claimed market disruption and
requested safeguard actions against five Chinese products, including
brassieres and dressing gowns. In 4 of these cases, CITA determined, among
other things, that the market had been disrupted and that Chinese imports
had played a role in that disruption, and applied safeguard measures.
During 2004, U.S. producers also filed 12 "threat-based" requests for
safeguard action to prevent future market disruption. In 9 of these
requests, U.S. producers sought action to control expected growth in
products to be removed from quota restrictions on January 1, 2005. In the
remaining 3 instances, U.S. producers requested reapplication of
previously imposed safeguards slated to expire in December 2004 on the
grounds that this expiration threatened a renewal of disruptive import
surges. CITA agreed to consider these 12 requests and began investigating.
Decisions on these cases were due beginning in February 2005, but have
remained unresolved due to a pending lawsuit against CITA by U.S. textile
and apparel importers.

Procedural shortcomings have impaired application of the China textile
safeguard. First, we found that CITA was slow to issue procedures and that
the procedures do not provide clear guidance about threat-based requests.
The procedures were not issued until about 17 months after China joined
the WTO and after producer groups requested safeguard actions. When
issued, the procedures focused primarily on market-disruption-based
requests. U.S. importers and producers that we consulted in preparing this
report experienced uncertainty about whether or how threat-based cases
would proceed. In December 2004, U.S. importers filed a lawsuit to prevent
CITA from considering these threat-based requests, alleging that CITA
violated its own procedures in accepting them. The Court of International
Trade has enjoined CITA from considering threat-based requests pending
further judicial review. Regardless of the result, this situation will
affect the speed, scope, and duration of potential relief available to
U.S. producers. Second, we found that uneven availability of production
data hinders access to the safeguard. U.S. government production data are
unavailable on about half of the total value of textile and apparel
imports from China. In the event that producer groups want to file a
safeguard request on a product for which production data are unavailable,
they must collect their own data to meet the safeguard filing
requirements. This can be a difficult and time-consuming process that
limits access to the safeguard for some U.S. producers.

We recommend (1) CITA take actions to clarify its procedures about how it
will proceed in threat-based cases in the event that the courts rule that

CITA may process such cases and (2) the Department of Commerce take
actions to improve the availability of required U.S. production data for
industry sectors that are most likely to experience difficulties due to
Chinese import surges. The Department of Commerce, in its capacity as CITA
chair, compiled comments from the other member agencies into one letter.
With respect to our first recommendation, CITA noted that our review
focused on issues involved in the ongoing litigation, and, per a
Department of Justice request, it could not comment on certain parts of
the report. Nevertheless, CITA expressed concern about how we described
the timing of issuance and content of CITA procedures as they relate to
threat-based requests. CITA also expressed concern that some of our
conclusions in the report seemed to be premised on the arguments of
private parties in ongoing litigation. Our report does not take any
position on the legal issues that are the subject of the ongoing
litigation between the U.S. Association of Importers of Textiles and
Apparel and the United States, including whether CITA's procedures allow
for threat-based cases. Nevertheless, we continue to believe the
procedures could be improved in this regard to further increase clarity
and transparency. We believe the report's conclusions represent a balanced
summation of the facts, based on our own analysis of evidence obtained
from both government and private-sector sources. CITA disagreed with our
second recommendation believing that it would not be productive.
Additionally, CITA officials pointed out some constraints in making more
production data available. We modified our discussion of unavailable
production data and our recommendation to reflect some of the limitations
in the publication of U.S. government production statistics. However, we
continue to be concerned that some potential requesters may be
disadvantaged in the future in light of the potential difficulties
associated with private production data collection.

Background	U.S. textile and apparel production and employment have both
declined over the past decade. Textile and apparel imports have grown
throughout this period, with China recently playing a major role in this
growth. Until recently, CITA limited this growth by administering quota
limits, including limits on imports from China. However, with the final
removal of all quotas on January 1, 2005, textile and apparel trade is now
governed by the same WTO rules as apply to trade in other sectors.

U.S. Textile Production and Employment Have Declined

U.S. textile and apparel production and employment have both declined over
the last decade. Production of apparel (and textiles to a lesser extent)
tends to be relatively labor intensive. Consequently, developing
countries, which tend to have significantly lower labor costs, have a
competitive advantage. As shown in figure 1, U.S. producers' shipments of
apparel products fell by over half between 1995 and 2004, to about $56
billion in 2004. Similarly, shipments by textile mills (yarns, threads,
and fabrics) fell by about a third, to about $41 billion. On the other
hand, textile product mills (carpets, curtains, bedspreads) remained
relatively stable over the time period, with about $38 billion in
shipments in 2004.6

Figure 1: U.S. Production (Shipments) in Textile and Apparel Sectors,
1995-2004 Billions 2004 U.S. dollars

                                      250

                                      200

                                      150

                                      100

                                       50

                                       0

Apparel

Textile product mills

Textile mills

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: GAO analysis of Census and Federal Reserve Bank data.

Notes: Industry shipments may be made to either the U.S. or foreign
(export) markets.

Textile mills produce inputs such as yarns, threads, and fabrics. Textile
product mills produce goods such as carpets, curtains, bedspreads, and
other textile products besides apparel (clothing).

Figure 2 shows U.S. employment losses in this industry are also largely
attributable to declines in the apparel sector. From 1995 through 2004,
overall employment in this industry fell by over half, from about
1,502,000

6Production values reported here are in 2004 U.S. dollars (see app. I).

employees in 1995 to about 701,000 in 2004. During that time, the apparel
sector lost 65 percent of its employment, while the textile mills sector
contracted by 49 percent and the textile product mills sector contracted
by 19 percent.

       Figure 2: U.S. Domestic Textile and Apparel Employment, 1995-2004

                           All employees (thousands)

1,600

1,400

1,200

1,000

Apparel

Textile product mills Textile mills

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

         Source: U.S. Department of Labor, Bureau of Labor Statistics.

Note: Textile mills produce inputs such as yarns, threads, and fabrics. Textile
  product mills produce goods such as carpets, curtains, bedspreads, and other
                  textile products besides apparel (clothing).

Textile and Apparel Imports Have Grown, Especially from China

As shown in figure 3, U.S. imports of textile and apparel products from
all countries have grown significantly in the past decade, rising from
about $44 billion in 1995 to about $83 billion in 2004.7 While other U.S.
trade partners, such as Mexico, accounted for much of this growth in
earlier years, imports from China grew rapidly following its accession to
the WTO in 2001. As shown in figure 4, the value of U.S. textile and
apparel imports from China grew from about $5 billion in 1995 to about $15
billion in 2004, with much of that growth occurring since 2001. While
China's share of the U.S. textile and apparel market fell during the late
1990s, that country's share of the

7Import values reported here are in inflation-adjusted 2004 U.S. dollars
(see app. I).

market increased from about 9 percent in 2000 to 18 percent in 2004. Much
of that growth was in categories of products that were already removed
from quota or were removed from quota in 2002. China is now the largest
supplier of textile and apparel imports to the United States.

Figure 3: U.S. Textile and Apparel Imports from All Countries, 1995-2004

Billions 2004 dollars

90

80

70

60

50

40

30

20

10

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: GAO analysis of U.S. Department of Commerce, Office of Textiles
and Apparel data.

        Figure 4: U.S. Textile and Apparel Imports from China, 1995-2004

                            Billions 2004 dollars 16

                                       14

                                       12

                                      10 8

                                       6

                                       4

                                       2

                                       0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: GAO analysis of U.S. Department of Commerce, Office of Textiles
and Apparel data.

Import Growth No Longer Subject to Regulation by Quota

Until recently, the United States governed growth in textile imports
through a system of quotas established through approximately 45 bilateral
agreements with individual supplier countries. In 1994, however, the
United States (as well as Canada and the European Union, which also
maintained broad-ranging quota arrangements) agreed in the WTO Agreement
on Textiles and Clothing to remove these quota restrictions in a series of
stages beginning on January 1, 1995, and ending with the removal of all
remaining quotas on January 1, 2005. 8 Now textile and apparel trade is
subject to the same WTO rules that apply to trade in other sectors.9

8The United States continues to maintain quotas on textile and apparel
products from selected countries that are not WTO members (e.g., Vietnam).

9The United States continues to apply tariffs on these products, ranging
up to approximately 33 percent. The trade-weighted average U.S. tariff on
textile and apparel products was 10 percent in 2004, according to an
official at the U.S. International Trade Commission. However, U.S.
free-trade agreements and preferential access programs provide certain
countries with duty-free access to the U.S. market for certain textile and
apparel products.

China and the United States signed their first textile and apparel
agreement in 1980. As China became a major exporter of textiles and
apparel in the 1990s, these agreements came to be regarded as important
means for restraining import growth and providing U.S. producers with an
opportunity to adjust to trade liberalization in the textile and apparel
sector. Upon China's accession to the WTO, the United States began
removing quotas on Chinese textile and apparel products in accordance with
the terms of the 1994 Agreement on Textiles and Clothing. Nonetheless, a
majority of all imports from China remained subject to quota limits
through January 1, 2005. The final step in quota removals ended quota
restrictions on about 62 percent ($7 billion) of U.S. textile and apparel
imports from China.

Interagency Committee Oversees Implementation of Textile Agreements

Congress has granted the President broad authority to regulate U.S.
imports of textiles and apparel.10 By executive order, the President, in
turn, established and delegated authority for implementing textile
agreements to CITA-an interagency committee chaired by the Department of
Commerce.11 Other CITA member agencies are the Departments of Labor,
State, and the Treasury and the Office of the United States Trade
Representative. Under the executive order, the committee chair takes
action necessary to implement textile trade agreements after notifying the
other CITA agencies, but if a majority of these agencies object within 10
days, the action may not be taken. While the end of the quota system has
altered CITA's role, CITA continues to administer a number of U.S. textile
and apparel import programs, such as quota arrangements with non-WTO
members.

China Textile The purpose of the China textile safeguard is to limit
surging imports and

foster the orderly development of trade in textiles and apparel from
China.Safeguard Permits Safeguards are import restrictions, normally of
limited duration and extent, Control over Surging that provide an
opportunity for domestic industries to adjust to increasing Imports
imports. The China textile safeguard permits WTO members, including the

United States, to temporarily restrict growth in specific imports from
China

even though textile and apparel quotas in general have been eliminated.

107 U.S.C. S: 1854.
11Exec. Order No. 11651, 37 Fed. Reg. 4699 (Mar. 3, 1972), as amended.

The safeguard is transitional in nature in that it may be applied only
through the end of 2008. CITA, an interagency group chaired by Commerce,
has published procedures that explain the process it follows in
considering safeguard action requests from the public.

WTO China Textile Safeguard Permits Application of Quota Limits

China's WTO accession agreement contains a textile safeguard that allows
WTO members, including the United States, to impose time-limited
restrictions on the growth of specific textile and apparel imports from
China. (See app. II for complete text). When a member finds that imports
of specific textile and apparel products from China are "due to market
disruption, threatening to impede the orderly development of trade" in
such products, it may request consultations with China, and at the same
time impose quota limits. When making such a request, the member is
required to provide China with a detailed statement of reasons and
justifications that demonstrates the existence or threat of market
disruption and the role of Chinese imports in that disruption. Unless
China and the importing country reach agreement on another satisfactory
solution within 90 days, the quotas remain in place.

The terms of China's accession agreement define the scope and duration of
relief. In the absence of a bilateral agreement on some other solution,
the importing member can generally limit growth in relevant Chinese
imports to 7.5 percent above the level imported during the first 12 months
of the previous 14-month period.12 The term of any quota begins on the
date of the request for consultations with China and ends on December 31
of the same year. When 3 or fewer months remain in the year at the time of
the request for consultations, the quota ends 12 months after the request
date. No quota may remain in effect longer than 1 year without
reapplication, unless the member and China agree otherwise.

The China textile safeguard can only be applied through the end of 2008.
After that, WTO members concerned about the effects of rapidly increasing
or unfairly traded Chinese-origin textile and apparel products will have
to rely on other import relief mechanisms. Other WTO agreements (and U.S.
law) provide a number of possible alternatives, including other safeguard
mechanisms and antidumping duties.

12In the case of wool products, the member will generally limit growth in
relevant Chinese imports to 6 percent above the level imported during the
first 12 months of the previous 14-month period.

CITA Has Established Procedures for the Safeguard

Requesters Must Provide Import, Market Share, and U.S. Production Data

In May 2003, CITA published procedures that explain to the public how it
will consider safeguard action requests.13 These procedures inform
producers of the information they must submit when requesting action,
describe U.S. producers' standing to submit such requests, and establish
time frames for processing requests and putting safeguard measures, if any
are found appropriate, into place.

CITA determined that these procedures fall outside the rule-making
provisions that apply to most federal agencies under the Administrative
Procedure Act because they pertain to foreign affairs. Therefore, CITA did
not provide the public with an opportunity to comment on the procedures
prior to issuing them.14

To obtain the information needed to determine whether a safeguard action
is justified, CITA's procedures stipulate that those requesting such
actions must submit (1) import and market share data from all foreign and
domestic sources and from China in particular, (2) U.S. production data,
and (3) additional information that shows how imports from China have
adversely affected the domestic industry, such as their effect on prices
in the United States "or any other data deemed pertinent." The import data
"should demonstrate that imports of [the subject] Chinese origin textile
and apparel product[s] . . . are increasing rapidly in absolute terms."

The relevant language in China's WTO accession agreement neither defines
"market disruption" or "orderly development of trade" nor establishes any
criteria for making determinations on these matters. CITA's procedures
also do not provide any specific criteria or benchmarks. CITA officials
informed us that in considering whether safeguard action is warranted,
they typically consider a wide range of factors to determine whether
imports from China are playing a role in any actual market disruption or
threat thereof. Those factors usually include the following: (1) all U.S.
imports of the products in question, (2) the quantity of imports from
China,

1368 Fed. Reg. 27787 (May 21, 2003).

14The Administrative Procedure Act generally requires that agencies
provide an opportunity for the public to comment on rules and procedures
prior to their enactment. However, the act's rule-making procedures do not
apply to certain agency activities, including the foreign affairs
functions of the United States. See 5 U.S.C. S: 553 and Attorney General's
Manual on the Administrative Procedure Act, at 9 (1947), included as an
appendix in American Bar Association, Section of Administrative Law and
Practice, Federal Administrative Procedure Sourcebook (3d ed. 2000).

(3) the extent to which imports of the product are increasing relative to
other imports, (4) pricing and average unit values of U.S. imports from
China relative to imports from the rest of the world, (5) the degree to
which U.S. production is declining, and (6) trends in the share of the
market held by imports from China and by the world.

CITA Proceedings Designed to The process for determining whether to impose
a safeguard has three

Take about 15 Weeks	phases. First, CITA procedures provide 15 business
days to review safeguard requests and determine whether the request
provides the information necessary for consideration. Second, if CITA
determines that the request provides the information required, it
publishes in the Federal Register a notice seeking public comments within
30 calendar days. For example, U.S. importers opposing a safeguard can
submit information that contradicts the requester's claims. Finally, CITA
then has up to 60 calendar days after the close of the comment period to
decide on the merits of a request.15 After any positive finding of market
disruption or threat thereof, CITA requests consultations with China and,
as set forth in China's WTO accession agreement, provides that country
with a "detailed factual statement of reasons and justifications" that
shows "the existence or threat of market disruption" and the role that
Chinese products have played in that disruption. At the same time, CITA
notifies the public via a Federal Register notice, and announces quotas on
the subject imports from China. The quotas remain in place unless
consultations between U.S. and Chinese officials yield an alternate
agreement. As shown in figure 5, the entire process is designed to take up
to about 15 weeks.

15If CITA cannot decide within 60 days, it will publish a notice in the
Federal Register indicating a date by which it will make a decision.

    Figure 5: CITA Timeline for Taking Action on Textile Safeguard Requests

Duration of Relief Depends on When Industry Files Case

Source: GAO analysis of Department of Commerce information.

Under CITA procedures, and as outlined in China's WTO accession agreement,
import limits are effective from the date that the U.S. requests bilateral
consultations to December 31 of the same calendar year. However, if 3 or
fewer months remain in the year at the time of the request for
consultations, the limit can be applied for one year from the consultation
request date. Therefore, the length of time that safeguard measures remain
in effect can vary by months, depending on when industry requests
application and when CITA requests consultations. For example, if U.S.
producers submit their request to CITA in mid-June, and CITA subsequently
requests consultations in late September, safeguard measures can only
remain in effect for a little over 3 months (that is, until the end of the
calendar year in question). However, if producers wait until mid-July to
submit their request, such that CITA initiates consultations with China in
October, measures imposed may remain in effect until the following
October-or for 12 months.

CITA procedures allow producer groups to request reapplication of
safeguard measures. However, the procedures specify that CITA will reapply
safeguards only in the event of a new determination that Chinese imports
are, due to market disruption, threatening to impede the orderly

development of trade.16 The timeline for processing reapplication requests
is the same as for initial safeguard requests.

CITA Procedures Grant Standing CITA procedures give broad standing to
producers of both finished goods

to Producers of Finished Goods (e.g., garments) and components (e.g.,
fabric) to submit requests for

and Components	safeguard actions. Requests may be filed by an entity that
represents either (1) domestic producers of a product "like or directly
competitive with" the Chinese textile or apparel product or (2) domestic
producers of a component used in such a product. CITA officials explained
that component producers have long had standing to request imposition of
quota restrictions on textile and apparel products. CITA officials
explained that although component producers may request safeguard actions,
the data they submit in support of their request must address the subject
Chinese imports. Entities eligible to file a request include trade
associations, firms, and certified or recognized unions or groups of
workers in relevant industries. CITA itself may also initiate a safeguard
action.

Over the last two decades, U.S. producers of apparel have come to rely
heavily on outward processing arrangements. In such arrangements, U.S.
factories focus on the relatively capital-intensive operations, such as
fabric production. These fabrics and components are then shipped to
Caribbean, Andean, or African countries that participate in certain U.S.
trade preference programs.17 Factories in these countries conduct the
relatively labor-intensive business of assembling the fabric and other
components into finished garments.

16China has taken the position that a safeguard cannot be reapplied
without its consent.

17Relevant trade preference programs include those established under the
Caribbean Basin Economic Recovery Act, as amended, 19 U.S.C. S:S: 2701 and
following; the Andean Trade Preference Act, as amended 19 U.S.C. S:S:
3201, and following; and the African Growth and Opportunity Act, 19 U.S.C.
S:S: 3701, and following. For further information, see for example United
States International Trade Commission, The Impact of the Caribbean Basin
Economic Recovery Act: Sixteenth Report 2001-2002, Publication 3636
(Washington, D.C., September 2003).

CITA Has Applied Market-Disruption-Based Safeguards but Threat-Based
Requests Remain Unresolved

During 2003 and 2004, CITA applied safeguard measures on four
Chinese-origin products that had previously been freed from quota limits,
based on evidence of both actual market disruption and the threat of
continued market disruption. As shown in figure 6, these products
accounted for about 7 percent of U.S. imports of textile and apparel
products from China.18 More recently, producers groups have filed
threat-based requests for safeguard action on a number of products,
alleging that there would be disruptive import surges once quotas on those
products expired on January 1, 2005. The main difference between the
market-disruption-based requests and threat-based requests is that the
market-disruption-based requests allege that market disruption has
occurred and that Chinese imports have played a role in that disruption,
whereas the threat-based requests allege that market disruption will occur
in the future and that Chinese imports will play a role in that
disruption. Figure 6 shows that these threat-based requests account for an
additional 11 percent of U.S. imports of textile and apparel products from
China.19 These requests remain unresolved pending resolution of a lawsuit,
filed by U.S. importers, that opposes CITA's processing of threat-based
requests.

18Share of imports from China based on 2003 import statistics.

19Share of imports subject to threat-based safeguard requests based on
petitions filed as of January 15, 2005. Threat-based petitions requesting
reimposition of recently expired safeguards are not included in the 11
percent. All products subject to these safeguard requests were under quota
until January 1, 2005. An additional 51 percent of total U.S. imports of
textile and apparel products from China were removed from quota
limitations in January 1, 2005, but have not been the object of safeguard
requests. Therefore, a total of 62 percent of U.S. imports of textiles and
apparel from China were removed from quota on January 1, 2005. These
figures are based on 2003 import statistics.

  Figure 6: Share of U.S. Imports from China Subject to Safeguards or Requests

Removed from quota January 1, 2005; no safeguard action requested

Safeguards applied 2003-2004

Removed from quota January 1, 2005; threat-based safeguard action
requested

Removed from quota prior to 2005 or never subject to quota; no safeguard
action requested

Source: GAO analysis of data from the Department of Commerce, Bureau of
the Census, and the Office of Textiles and Apparel.

Note: Share of approximately $12 billion in U.S. imports of textile and
apparel products from China is based on 2003 import statistics. Shares do
not equal 100 percent due to rounding.

Safeguards Applied in Four of Five Market-Disruption-Based Requests

U.S. producer groups requested that CITA impose safeguards on imports of
knit fabric, brassieres, robes and dressing gowns, and gloves from China
in July 2003, and in June 2004 they requested safeguards on socks from
China as well.20 Almost all of these products had been removed from quota
protection well in advance of the requests for relief-either when China
joined the WTO in December 2001 or shortly thereafter in January of 2002.

In four out of these five cases, CITA imposed 7.5 percent growth limits on
relevant imports from China, as provided in China's WTO accession
agreement, and these limits remained in place when U.S.-China
consultations failed to produce agreement on any alternate solution. In
each case, CITA determined that U.S. markets for the products in question

20Trade associations representing textile manufacturers that produced
components of brassieres, dressing gowns and gloves requested the
safeguard actions. In the case of knit fabric, trade associations
representing producers of the final product requested the safeguard
action. In the case of socks, the trade associations requesting the
safeguard action represented producers of both components and the final
product.

had been disrupted and that imports from China had played a significant
role in this disruption. In each case, CITA also determined, based on a
number of factors, that the subject Chinese imports posed a threat of
further market disruption in the future. First, CITA found that China had
a significant capacity to export textile and apparel products. Second,
CITA found that the prices of textile and apparel products from China were
lower than the average prices from other supplier countries. Third, CITA
noted that since the U.S. removed quotas on these products, trends in
prices, production, and imports had changed markedly. Consequently, CITA
determined that without action, the trends would continue. CITA also
considered the imports of the subject products to be increasing
dramatically. Finally, CITA noted significant Chinese investment in its
textile and apparel industry. See appendix III for more detail on each of
the four CITA determinations.

CITA refused to consider the fifth case-a July 2003 market-disruptionbased
request concerning knit and woven, cotton and man-made fiber
gloves-because (1) woven gloves were still subject to product-specific
quotas under the Agreement on Textiles and Clothing21 and therefore would
already be subject to limits during the period of safeguard relief, and
(2) the production data provided by the requester were from 2001, and 2002
data were to be released shortly. As of March 2005, however, U.S.
producers have not filed an updated request.

Threat-Based Requests Remain Unresolved

In the last three months of 2004, U.S. producer groups filed 12
threat-based requests. Nine of the threat-based requests focused on
products that would be removed from quota restrictions on January 1, 2005.
These included cotton trousers, man-made fiber knit shirts/blouses, cotton
knit shirts/blouses, man-made fiber trousers, man-made fiber shirts (not
knit), and man-made fiber underwear. The remaining three requested
reapplication of safeguard restrictions on knit fabric, brassieres, and
dressing gowns on the grounds that disruptive imports of these products
would resume when previously imposed restrictions ceased to apply in
December 2004.

21CITA had indicated that it would not take action on products subject to
specific quota limits but that this would not prevent CITA from
considering a request for safeguard action on a product subject to a
specific limit if the safeguard action were to take effect after the
removal of that limit.

CITA agreed to consider these 12 threat-based requests, but has not yet
completed action on them.22 CITA had been scheduled to decide upon all of
them between February and March 2005. However, as a result of a December
30, 2004, court-ordered injunction (described below) granted in response
to a motion by importers, CITA is not permitted to process threat-based
requests until judicial review of its authority to impose safeguards in
such cases has been completed. Therefore, these cases remain unresolved.

Procedural Shortcomings Have Impaired Application of China Textile
Safeguard

Although CITA has completed action on several textile safeguard requests
and U.S. producers have received relief, procedural shortcomings have
impaired use of the safeguard. First, we found that CITA was slow in
issuing its procedures and a lack of clarity in those procedures created
uncertainty about when, how, and under what circumstances CITA would
consider threat-based requests and that this uncertainty resulted, and
continues to result, in decisions being delayed while imports from China
increase. Second, we found that the lack of production data on some
textile and apparel products-data that is necessary to fulfill CITA filing
requirements-has inhibited equal access to the safeguard. Beyond these
issues, uncertainty about future developments in global textile trade
makes the future impact of the China textile safeguard unclear.

Procedural Shortcomings Created Uncertainty

U.S. producers considering requests for safeguard action and U.S.
importers of textiles and apparel that might oppose such safeguards have
faced uncertainty because CITA was slow in issuing procedures and a lack
of clarity in those procedures. A significant period of time elapsed
before CITA issued procedures for the China textile safeguard,
substantially delaying action on the initial market-disruption-based
requests. Once issued, CITA's procedures were unclear about whether or how
it would proceed on threat-based requests. The uncertainty surrounding
threat-based cases has resulted in a court-ordered injunction preventing

22Please see appendix V for a complete list of the 12 threat-based
requests. In a December 1, 2004, submission to CITA about whether to apply
the textile safeguard on imports from China of cotton trousers, China
contended that the language in its WTO commitment showed that the textile
safeguard could only be imposed when there was actual market disruption
and not merely a threat of market disruption. China contended that the
language regarding threat did not refer to the kinds of textile and
apparel cases that could be brought, but only to the material a WTO member
could present to China showing why a safeguard should be applied.

action on these requests and created additional delays-both for those
interested in seeking safeguard actions and those seeking a clear
determination that such actions should not be taken.

CITA Slow to Issue Procedures	CITA issued procedures about the textile
safeguard contained in China's WTO accession agreement approximately 17
months after China joined the organization. Until these procedures were
issued, it was not clear when, how, or under what circumstances CITA would
consider safeguard action requests from the public.

China's WTO accession agreement, which became effective December 11, 2001,
outlined some aspects of the safeguard mechanism, but did not fully
explain what or how much information national authorities should consider
in deciding whether to apply safeguards. Member governments were left to
clarify such matters.23 Even though CITA had not yet provided any
guidance, in September 2002 U.S. trade associations representing textile
manufacturers requested application of safeguards against Chinese knit
fabric, gloves, dressing gowns, brassieres, and luggage. CITA did not act
on these requests.

In May 2003 CITA issued procedures describing the information that it
would require in order to consider safeguard requests. U.S. producers of
knit fabric, gloves, dressing gowns, and brassieres subsequently refiled
their requests,24 and CITA applied safeguards on these products (except
gloves) in December 2003-15 months after these industry groups had
originally requested action. Imports of some of these products grew
significantly during the intervening months. Figure 7, for example, shows
that imports of Chinese-origin brassieres increased by about half between
the first and second industry filings.

23CITA officials noted that China's Accession Agreement does not obligate
WTO members to publish procedures.

24The trade associations did not submit a revised safeguard action request
for luggage, and no further action has been taken on this product.

 Figure 7: Monthly Brassiere Imports from China, January 1999 to December 2004

2,000

1,800

1,600

1,400

1,200

1,000 Jan.

.Mar

yMa

lyJu

                                     Sept.

.No

                                      Jan.

.Mar

yMa

yl

Ju

                                     Sept.

.No

                                      Jan.

.Mar

yMa

lyJu

                                     Sept.

.No

                                      Jan.

.Mar

yMa

lyJu

                                     Sept.

.No

                                      Jan.

.Mar

yMa

yl

Ju

                                     Sept.

.No2000 2001 2002 2003 2004

Source: GAO analysis of U.S. Department of Commerce, Office of Textiles
and Apparel data.

Commerce officials pointed out that the procedures issued for the China
textile safeguard marked the first occasion that CITA had published
guidance on how it would consider requests for new quota restraints. They
noted that because CITA had not had this level of transparency in the past
when administering the wide-ranging U.S. textile quota system, the
procedures took longer than might be expected to prepare. Additionally,
CITA officials indicated that the procedure of soliciting comments prior
to requesting consultations and imposing limits was also unprecedented.
Previously, CITA put out notices for public comment only after delivering
a request for consultations to establish a quota.

Procedures Unclear on CITA's China textile safeguard procedures are not
clear on how it will

Threat-Based Requests for proceed in threat-based cases. CITA officials
told us that the procedures

Safeguard Action	utilize the WTO language through which members can
request consultations on the existence as well as threat of market
disruption. However, the procedures focus on market-disruption-based
requests. For

example, they state that a request will only be considered if it includes
specific information set forth in support of a claim of market disruption.
Similarly, the procedures state that reapplication will only take place if
CITA makes a new affirmative market disruption determination. They also
specify that the import data submitted with a request "should demonstrate
that imports of Chinese-origin textile and apparel products that are like
or directly competitive with the product produced by the domestic industry
concerned are increasing rapidly in absolute terms."

By their nature, threat-based cases will not rely on information claiming
that market disruption has already taken place, but rather will focus on
prospects for future market disruption. This was demonstrated in the
requests filed by U.S. producers in the fall of 2004. Although import data
demonstrating that a rapid increase has already occurred have been
important in CITA's determinations in market-disruption-based requests,
they would not be expected to be as important for threat-based requests.
In fact, a majority of the threat-based requests made in late 2004
asserted that imports were unlikely to increase rapidly until 2005 because
these products had, until recently, been subject to quotas that made
substantial import increases improbable.25

In the absence of formal guidance, U.S. producers requesting threat-based
actions submitted information on such matters as China's productive
capacity, performance in other apparel categories already removed from
quota, price behavior of products removed from quota, and information
about alleged unfair trade practices in China. CITA's procedures do not
specifically call for any of these types of information, but requesters
are allowed to submit other information deemed pertinent.

CITA Officials Accepted CITA officials emphasized that China's accession
agreement provides for

Threat-Based Requests and taking safeguard actions on the basis of threat.
These officials further

Announced Indicative Factors	explained to us that their procedures do not
preclude U.S. producers from requesting safeguard action solely on the
basis of threatened market disruption. Therefore, even if U.S. procedures
do not focus on threat, CITA

25The threat-based requests filed by producer groups thus far involve the
elimination of a quota in the near future. In providing technical comments
on this report, CITA officials said a threat could be found for which
imports are increasing extremely rapidly, even though those imports have
not yet caused market disruption.

may still consider requests on that basis.26 Finally, administration
officials maintained that they were under no obligation to issue
procedures and can independently consider safeguard measures based upon
the government's best information and judgment.

Although CITA's procedures do not clearly describe the information that
requesters should submit in support of threat-based requests, Commerce
officials observed that the Federal Register notices requesting public
comment on threat-based requests have indicated the types of information
that CITA would take into consideration in determining whether safeguard
actions should be applied. These notices requested that interested parties
submit information as to

o 	whether Chinese imports are entering the market at prices substantially
below the prices of the equivalent U.S. product and whether the Chinese
imports will likely depress prices of the U.S. product;

o 	whether Chinese imports are likely to rise due to increasing production
capacity in China;

o 	whether there will be an imminent diversion of Chinese-origin products
and other third markets to the United States;

o  changes in inventory levels of the Chinese-origin products in question;

o 	the extent to which conditions in the domestic industry demonstrate
that market disruption is likely (e.g., factory closures or production
declines); and

o 	whether U.S. managers, retailers, purchasers, importers, or other
market participants have recognized Chinese producers as potential
suppliers.

CITA officials noted that these factors are indicative but not necessarily
determinative. Moreover, they have not been integrated into their official
procedures.

26CITA stated that even if the procedures are silent as to how CITA
intended to evaluate requests for safeguards based solely upon allegations
of threatened market disruption, CITA's decision to accept as sufficient
such a request is in compliance with the overall principles of the
agreement it is implementing.

Some U.S. Importers and Producers Experienced Uncertainty about
Threat-Based Requests

Court Suspends CITA Consideration of Threat-Based Requests

In July 2004, a number of producers and producer associations observed
that CITA had thus far refused to consider threat-based requests for
safeguard action even though, in the associations' view, WTO rules allowed
consideration of such requests. One industry representative at the time
stated: "Specifically, the U.S. textile industry has asked the
administration to recognize that China poses a severe threat to the
domestic textile industry and to use appropriate safeguard actions, as
allowed under WTO rules. To date, the administration has refused to
consider safeguard actions before the actual occurrence of damage in the
marketplace." In concert with other organizations, the same industry
association subsequently filed a number of threat-based requests for
safeguard action in early October 2004.

In opposing CITA's decision to accept these requests and initiate
investigations as to whether safeguards should be applied, one association
representing importers argued that the administration had changed its
position on threat-based requests. The importers contended that
administration officials had informally indicated to them that the
safeguard was intended for market-disruption-based requests as opposed to
threat-based requests. In addition, the association observed that when
CITA decided to consider threat-based requests, it did not modify its
procedures or make a formal announcement to reflect the change in its
position.

Uncertainty over threat-based cases and the disagreement that ensued
between U.S. textile importers and the administration led to a court order
that CITA may not consider threat-based requests, pending further judicial
review. At this point, it is not clear when the court will render a final
decision.

The case began on December 1, 2004, when the U.S. Association of Importers
of Textiles and Apparel filed a complaint and motion for a preliminary
injunction before the U.S. Court of International Trade requesting that
the court enjoin CITA from considering threat-based requests.27 In
support, the Association argued, among other things, that CITA had (1)
violated its own procedures and the Administrative Procedure

27U.S. Ass'n. of Importers of Textiles and Apparel v. United States, Ct.
No. 04-00598 (C.I.T. Dec. 1, 2004). GAO is not taking any position in this
report on the legal issues involved in the lawsuit.

Act28 by deciding to consider threat-based petitions and (2) exceeded its
authority in taking any action under the China Textile safeguard because
Congress had not authorized CITA to do so.29

In its response, the administration argued that CITA was not obligated to
promulgate regulations implementing the textile safeguard and that, in any
event, CITA acted within its authority in considering threat-based
requests.30 In this regard, the administration maintained that CITA had
clarified its procedures regarding threat-based requests through
individual case proceedings.31 Furthermore, CITA officials asserted that
they never had a policy of categorically denying threat-based requests.

On December 30, 2004, the court granted the association's motion for a
preliminary injunction and enjoined CITA from taking any further action on
China textile safeguard actions based on threat of market disruption
during the court proceedings on the case.32 In enjoining CITA from further
considering threat-based requests, the court found that CITA officials
made statements to various trade publications between July and August 2004
indicating that the safeguard was intended for cases of actual market
disruption-rather than threat of market disruption. On Feb. 14, 2005, the
administration appealed the Court of International Trade's granting of a
preliminary injunction to the United States Court of Appeals for the
Federal

285 U.S.C. S:S: 551, and following

29The association also argued that CITA did not follow the notice and
comment requirements of 5 U.S.C. S: 553 in promulgating its procedures.

30For a more detailed presentation of the administration's legal
arguments, see Defendant's Memorandum in Support of its Motion to Dismiss
and Opposition to Plaintiff's Motion for a Preliminary Injunction, Ass'n
of Importers of Textiles and Apparel, Ct. No. 04-00598 (C.I.T. Dec. 15,
2004), and Brief of Defendant-Appellant, United States, Ass'n of Importers
of Textile and Apparel, Ct. No. 05-1209 (Fed. Cir. Feb. 14, 2005).

31As a supporting example, the United States cited CITA's solicitation of
public comments regarding whether there was a threat of market disruption
to the U.S. market for cotton trousers. In the solicitation, CITA listed 6
factors (cited above) as examples of information it sought to help it
determine whether there was a threat of market disruption. 69 Fed. Reg.
64,034 (Nov. 3, 2004).

32U.S. Assn. of Importers of Textiles and Apparel v. United States, Ct.
No. 04-00598 (C.I.T. Dec. 30, 2004). In support of its order granting a
preliminary injunction, the court noted that the plaintiff's complaint had
raised an important question about whether CITA's delegated authority to
administer textile agreements includes the authority to issue regulations
pursuant to China's accession agreement.

Circuit.33 Thus, at this point, it is unclear when there will be a final
determination on whether CITA can properly hear threat-based requests.

Delays Impact Timing and Level Lengthy legal action against CITA or a
court decision that CITA may only

of Relief	process cases that present evidence of actual market disruption
will postpone determinations on whether to apply safeguard measures and
may result in imposition of quota limits that remain in place for shorter
periods of time and are less restrictive of Chinese imports.

Because of the wording in China's WTO accession agreement, decision-making
delays on the pending requests for application of threat-based safeguards
may shorten the duration of any measures imposed. Prior to the court
issuing its preliminary injunction, CITA had been scheduled to decide
whether to take action on the threat based requests submitted in October
2004 by early February 2005. As shown in figure 8, had CITA decided in
favor of safeguard actions in accord with its original timetable, quota
limitations on cotton trousers, for example, would have been in place for
11 months (from February 1 through the end of 2005). In the event of a
court ruling in its favor, CITA may yet impose threat-based safeguards.
However, as provided in China's WTO accession agreement, any safeguard
measure imposed prior to October 1 of a given year will expire at the end
of that year. Through September, therefore, each month of delay means that
any safeguard measures imposed will remain in place for a correspondingly
shorter period of time. For example, measures imposed at the end of April
would remain in effect for 8 months.

33U.S. Ass'n of Importers of Textiles and Apparel v. United States, Ct.
No. 05-1209 (Fed. Cir. Feb. 14, 2005).

Figure 8: Comparison of Timelines for Actual Threat-Based Request with Possible
                        Market-Disruption-Based Request

Source: GAO analysis of Department of Commerce information.

Lengthy delays or a court ruling against CITA may result in U.S. producers
choosing (or being required) to file new requests based only on actual
market disruption. As shown in figure 8, any relief they receive would
come at a significantly later date than would have resulted from their
original threat-based requests. Since supporting import data in a
market-disruption-based case should demonstrate a rapid increase in
imports from China, any petitioner requesting relief based on actual
market disruption on a product removed from quota on January 1, 2005 would
likely have to wait until at least mid-March to file a request.34 The
reason is that they will probably need at least one month's import data
after the quota expires to demonstrate an increase in imports that is
leading to actual disruption in the U.S. market. In addition, it takes
about 6 weeks for the federal government to make import data publicly
available so that domestic producers may include it in their requests.35
Given CITA's 3-month decision-making timeline, U.S. producers could not
expect a decision on a case filed in mid-March until around July 2005. In
this scenario, U.S. producers would receive about 6 months of relief.

Alternatively, domestic producers could wait until midyear to file a
market-disruption-based request. As shown in figure 8, an affirmative
determination would then result in a year of relief. However, a decision
to postpone filing is likely to result in less effective relief for the
domestic producer. As already noted, China's WTO accession agreement
provides that quota restrictions will be calculated based on the import
levels recorded during the first 12 months of the 14-month period leading
up to the quota action being taken. In an environment of rapidly rising
imports, the longer an organization waits to file a request, the higher
import levels grow and the higher subsequently imposed quota limits
become.

Unavailability of Production Data Hinders Access to the Safeguard

Equal access to the China Textile Safeguard is impaired by the lack of
publicly available U.S. production data on some textile and apparel
products. As mentioned earlier, CITA requires that safeguard action

34CITA's procedures state that supporting import data should demonstrate a
rapid increase in imports from China, but do not specifically require the
data to make that demonstration. The administration has argued in court
proceedings that "rather than a prerequisite for CITA to consider
requests, the `rapid increase' language reflects an admonition that CITA
will normally look for a rapid increase in imports as it considers whether
to invoke paragraph 242 [the China Textile Safeguard]."

35The Census Bureau publishes official U.S. import statistics.

requests include import, market share and U.S. production data. CITA
officials review production data (for example, the amount of knit fabric
produced in the United States) to determine the nature and extent of
disruption in the U.S. market. According to CITA procedures, if production
data are not available from government sources, those requesting safeguard
actions must provide the data themselves, along with a complete list of
all sources from which the data were obtained. The submission must include
an affirmation that, to the best of the requester's knowledge, the data
represent substantially all of the domestic production of like or directly
competitive products.

The Bureau of the Census collects and publishes production data for many
textile and apparel products. The Census Bureau surveys U.S. industry to
obtain production information as part of the bureau's Current Industrial
Reports program. Census officials send questionnaires to manufacturers on
a monthly, quarterly, or annual basis, depending on the product. The
purpose of the bureau's program is to provide data on production and
shipments of certain products for use by both government and the private
sector.

Commerce's Office of Textiles and Apparel (OTEXA) takes the production
data, converts it, and publishes it in category form in order to compare
it with trade data.36 The purpose of the category system is to allow the
United States to implement quotas under international textile agreements
by grouping products in directly competitive Harmonized Tariff Schedule
headings together into single categories. For example, bow ties and other
types of ties enter the United States under different tariff headings, but
for quota management purposes, data on all types of ties are added
together to form one "neckwear" category.

Since the two classification systems were developed for different
purposes, Census production categories and CITA import categories differ
to varying degrees. Because OTEXA is not able to match Census production
data to all of CITA's categories, the availability of production data for
safeguard investigations can be affected. In addition, because of the
small number of producers in some industries, data are collected but not
released publicly

36In determining the product detail collected in its manufacturing
statistics programs, the Census Bureau has specifically worked over time
to improve the consistency with the classifications in the Harmonized
System, the international classification system for exports and imports
developed by the Customs Cooperation Council.

because they would disclose private business information.37 In total, U.S.
production data are not available for 32 of 167 textile and apparel
categories.38 OTEXA and Census officials provided the following accounting
of why data are not available in these categories:

o 	For 9 categories, Census does not collect production data. OTEXA
believes many of these the categories are composed of products for which
there is little or no domestic production. For 3 sock categories, Census
did not start surveying the industry until the end of 2004. Also, in 1
category (nonwoven fabric), OTEXA believes the industry is large, but not
import sensitive.

o 	For 11 categories, Census may collect some data, but Census production
descriptions do not match CITA categories. For example, CITA maintains a
category called "other man-made fiber apparel," which includes a range of
products from swimwear to shawls. Census collects data for some, but not
all, of the products in this category.

o 	For 12 categories, Census does collect domestic production data, but
the data cannot be published to avoid disclosure of individual company
information. Suppression across these 12 categories affects approximately
100 establishments, or about 1 percent of the total number of textile and
apparel establishments from which Census collects data.39

The unavailability of production data might disadvantage an unknown number
of U.S. producers facing market disruption. We found that most (25 of 32)
Chinese-origin imports in categories for which there are no publicly
available production data have increased both in absolute terms and in
relation to imports from other countries. This suggests that U.S.
producers

37Individual firms reporting to the Census Bureau in the Current
Industrial Reports program may waive their right to confidentiality. If
all companies in the suppressed sector submitted waivers, Census could
then publish the data.

38Census recently finished a comprehensive review of the Current
Industrial Reports program. As a result of that review, Census
restructured survey coverage of the textile sector. Beginning in 2005,
Census will cancel several textile surveys and consolidate others. We have
not evaluated the impact that this restructuring may have on Commerce's
ability to provide textile and apparel production data by category.

39An establishment is an individual business location (e.g., a factory). A
company may have multiple establishments that produce textile and apparel
products, and each one would be counted individually.

of these products face increased competition from Chinese imports, and
thus may be more likely to seek safeguard action. In its past decisions to
impose safeguards, CITA has cited relative and absolute Chinese import
increases as factors in its market disruption determinations.
Additionally, in some categories recently removed from quota, such as
"other man-made fiber apparel," the Chinese producers largely filled their
quota in the past several years. In its recent threat-based requests, the
domestic industry cited import increases and high quota fill rates as
evidence that Chinese imports will increase significantly upon removal of
the quotas.

Table 1 provides a summary of import trends in categories for which
production data are unavailable. (See app. IV for detailed information on
each product category.) About half of the total value of textile and
apparel imports from China (48 percent) fell into product categories for
which data on U.S. production are unavailable.40 Furthermore, for imports
from China removed from quota on January 1, 2005, about half also fell
into product categories in which data on U.S. production are unavailable.

Table 1: Summary of Import Data for Product Categories for Which U.S. Production
                    Data Are Unavailable Textile and apparel

                              Number of categories

Imports from China, 1995

Imports from China, 2004

China's share of total U.S. imports, 2004 (percent) Average annual change,
                                      imports from China, 2001-2004 (percent)

     Products removed from quota prior to                                  
     January 1, 2005, or never under quota    15  $556,780   $2,761,488 42 
    Products removed from quota January 1,                                 
                     2005                     14     790,702 4,479,622  41 60 
Products currently subject to safeguards                                
               measures (socks)                3       1,737  228,298   21 
    Total (all products without production                                 
                     data)                    32 $1,349,219  $7,469,408 40 

Source: GAO analysis of Department of Commerce data.

Note: Imports in thousands constant 2004 dollars.

40Analysis of import shares are based on 2003 U.S. imports from China.

Sock Case Illustrates Data Collection Difficulties

The experience of U.S. sock producers in preparing their
market-disruption-based request illustrates the difficulties that can
result from production data not being available. Since the Census Bureau
did not, until recently, collect production data on cotton, wool, or
man-made fiber socks, the U.S. producers that filed this request needed to
collect the data themselves. The requesters proceeded to survey the
domestic industry to obtain the required data. However, according to a
textile industry representative, some members of the industry did not
cooperate with the survey because they did not support the request. This
made it difficult for the requesters to collect the information needed to
meet CITA's requirement for data covering "substantially all" domestic
production. One industry representative said that collecting the
production data was "a very difficult and time-consuming exercise." One of
the producer associations requesting the safeguard said it had to delay
submission of a request for 10 months while they gathered the relevant
data. As shown in figure 9, sock imports from China rose substantially
during this delay.41

41After the request had been filed and accepted the Bureau of the Census
indicated that, due to interest among policymakers, it would conduct a
one-time survey of U.S. sock production. This survey was conducted at the
end of 2004. Availability of this data should make it easier for domestic
sock producers to use the safeguard in the future.

        Figure 9: Sock Imports from China, January 1999 to December 2004

                                       n

roductio

egins collectingp

                                   nodccessi

invoked

                  Request filed TWOadataDozen pairs (millions)

Jan.

.Mar

yMa

lyJu

                                     Sept.

.No

                                      Jan.

.Mar

yMa

yl

Ju

                                     Sept.

.No

                                      Jan.

.Mar

yMa

lyJu

                                     Sept.

.No

                                      Jan.

.Mar

yMa

lyJu

                                     Sept.

.No

                                      Jan.

.Mar

yMa

yl

Ju

                                     Sept.

.No

2000 2001 2002 2003 2004 Time CITA took to issue procedures

  Source: GAO analysis of U.S. Department of Commerce, Office of Textiles and
                                 Apparel data.

Safeguard's Future Impact Unclear

Uncertainty about future patterns in the global textile and apparel trade
and the applicability of other U.S. import relief mechanisms make the
future impact of the China textile safeguard unclear. It is unclear to
what extent safeguards imposed on China will provide relief to the U.S.
industry-or will instead increase the market share obtained by other
foreign producers. As shown in figure 10, U.S. textile and apparel imports
from producers such as India, Pakistan, and especially Vietnam have also
increased over the past decade, and the China textile safeguard cannot be
applied to non-Chinese imports. While China is widely expected to become a
more dominant force in global textile and apparel markets, it is too early
to predict how other major producing countries will fare in the postquota

environment.42 Other WTO members have expressed concern about changing
trade patterns resulting from the termination of the quota limits. These
members note that, while some studies suggest overall benefits from the
liberalization of textile and apparel trade, certain developing countries
will face difficult adjustment costs.

Billions 2004 dollars

4

3

2

1

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

India

Pakistan

Vietnam Source: U.S. Department of Commerce, Office of Textiles and
Apparel.

The Chinese government's recent announcement that it will impose export
taxes on a range of textile and apparel products to ensure a smooth
transition from the end of the quota system further clouds future

42For example, studies from both World Trade Organization and the U.S.
International Trade Commission suggest that China will become the largest
supplier to the U.S. market. However, both also suggest possible market
share gains for other supplier countries. See United States International
Trade Commission, Textiles and Apparel: Assessment of the Competitiveness
of Certain Foreign Suppliers to the U.S. Market (Washington, D.C., 2004);
and World Trade Organization Secretariat Staff, The Global Textile and
Clothing Industry Post the Agreement on Textiles and Clothing (Geneva,
Switzerland, 2004).

developments in U.S. textile trade. The Chinese government has indicated
that these taxes are intended to encourage the export of
higher-value-added products while discouraging export surges. The impact
of these taxes remains to be seen.

Other import relief mechanisms available under the terms of China's WTO
accession agreement and U.S. law may or may not prove useful for U.S.
textile and apparel producers. The "product-specific" safeguard
established under the accession agreement may in theory be applied to
textile and apparel imports from China through the end of 2013.43 However,
no one has yet made such a request. Other import relief mechanisms
available under U.S. law-such as noncountry and nonsector-specific
safeguard measures and antidumping duties-might be used to deal with
imports from China and other WTO members. However, to our knowledge these
remedies have not been applied in the textile and apparel industry
recently, and thus it is difficult to predict how effective they might
prove.

It is also possible that a portion of the textile industry will not have
recourse to any U.S. trade remedies after the China textile safeguard
expires on December 31, 2008. Two industry representatives told us they
had concerns about their eligibility to use other trade remedies. CITA
procedures explicitly give standing to U.S. component producers to request
application of the China textile safeguard against imports of finished
products. However, the industry representatives observed that the laws and
regulations governing antidumping and other import relief mechanisms have
standing requirements that may preclude component producers from
requesting relief through these other mechanisms. Thus, U.S. government
agencies may determine that component manufacturers do not have standing
because their component is not "like or directly competitive to" the
subject Chinese import.

Conclusions	The China textile safeguard provides a mechanism for limiting
growth in imports from that country in certain circumstances-thus helping
to avoid market disruption and facilitate orderly adjustment to China's
growth as a source of textile and apparel products. The four requests that
the United States has decided upon thus far have demonstrated that once
removed from quota restrictions, imports from China can rise rapidly and

43This commitment has been implemented by section 421 of the Trade Act of
1974, 19 U.S.C. S: 2451.

significantly disrupt U.S. markets. The termination of all remaining
quotas on Chinese imports at the beginning of this year may bring
additional import surges and associated disruption in U.S. markets.

Procedural shortcomings have impaired effective application of the China
safeguard, leading to, among other things, uncertainty and delay that may
weaken safeguard actions on some products that were recently released from
quota restrictions. Similarly, lack of production data impaired access to
safeguard measures for U.S. sock producers, and may pose similar problems
should other producers in similar circumstances seek application of this
mechanism.

The extent to which vigorous application of the China-specific textile
safeguard will assist U.S. producers-or create opportunities for other
exporting nations-is unknown, and in any case, the safeguard is only
available through the end of 2008. Nonetheless, China is expected to
continue to be a major source of U.S. textile and apparel imports, and the
usefulness of alternative U.S. import relief mechanisms remains untested
by textile and apparel producers. Since the safeguard was an integral part
of the framework that led to Congress approving permanent normal trade
relations with China and cleared the way for that country to join the WTO,
it is important that CITA and the Department of Commerce take action to
enhance the procedures employed in applying this mechanism while it
remains available.

Recommendations for Executive Action

In the event that the courts rule that CITA may process threat-based
requests for China textile safeguards, we recommend that CITA amend its
procedures to clarify how it will proceed in threat-based cases, including
the information that producers should submit in such cases.

To enhance access to safeguard relief for all segments of the textile and
apparel industry that may face import surges, we recommend that the
Department of Commerce, as CITA's chair, review the products and
categories for which U.S. Bureau of the Census production data are
unavailable and, with public input, conduct a risk assessment aimed at
identifying industry sectors at high risk of experiencing import surges
from China and associated market disruption. We further recommend that on
the basis of the risk assessment, Commerce's Office of Textiles and
Apparel work with the Census Bureau to explore options to make production
data concerning these industry sectors available for safeguard requests.
We realize that in some instances it might not be feasible to make such
data

publicly available due to disclosure limitations and that data (or
analysis of trends in that data) possibly may need to be limited to CITA.

Agency Comments and Our Evaluation

We provided draft copies of this report to the Department of Commerce, in
its capacity as chair of the interagency Committee for the Implementation
of Textile Agreements. The Department of Commerce collected and compiled
comments from the CITA member agencies into one letter, which, with our
responses, are reproduced in appendix VI. CITA also provided technical
comments that we incorporated, as appropriate. We also incorporated
technical comments from the Bureau of the Census and the United States
International Trade Commission.

With respect to our first recommendation, CITA noted that our review
focused on issues involved in the ongoing litigation and, per a Department
of Justice request, CITA could not comment on certain parts of the report.
Nevertheless, CITA expressed concern about how we described the timing of
issuance and content of CITA procedures as they relate to threat-based
requests. CITA also expressed concern that some of our conclusions in the
report seemed to be premised on the arguments of private parties in
ongoing litigation. Our report does not take any position on the legal
issues that are the subject of the ongoing litigation between the U.S.
Association of Importers of Textiles and Apparel and the United States,
including whether CITA's procedures allow for threat-based cases. However,
we continue to believe the procedures could be improved in this regard to
further increase clarity and transparency. With respect to the timing
issue, we acknowledge the significant steps CITA has taken to increase the
transparency of its investigations. Nevertheless, a significant amount of
time elapsed prior to CITA's issuing procedures, and concerned groups had
to refile several safeguard action requests. We reviewed the submissions
of the parties and described some of their main points. However, we drew
our conclusions from our analysis and evidence that we collected. We
maintain that our findings about the public's uncertainty at the time
represent a balanced summation of the facts.

In responding to our second recommendation, Commerce made three points.
First, the agency observed that there are several reasons why production
data might not be available, including the need to protect the
confidentiality of individual producers. Second, it stated that there are
few, if any, domestic entities from industries for which Census data were
not published that would likely request safeguard action. Third, it noted
that any domestic entity that did request a safeguard would be able to
collect its

own data and that Commerce and CITA stand ready to provide advice as to
how the data requirements could be met.

We revised our report to make clear that there are a number of reasons why
production data are not published and that it may not be proper, in some
situations, to make the data available to the public. We agree that the
universe of producers that may be adversely affected by a lack of
production data may be small. However, we found that collecting the
information needed to meet CITA's production data requirement can be a
time-consuming process that impedes safeguard access relative to industry
sectors where the data is readily available from government sources. Given
that the textile and apparel industry is undergoing rapid change, new
industry sectors not previously viewed as vulnerable to Chinese
competition may seek relief and would need data.

We are sending copies of this report to the heads of CITA member agencies
(the Departments of Commerce, Labor, State, and the Treasury and the
Office of the United States Trade Representative), appropriate
congressional committees, and other interested parties. In addition, the
report will be available at no charge on GAO's Web site at
http://www.gao.gov.

If you or your staff have any questions about this report, please contact
me
at (202) 512-4347 or [email protected]. Other GAO contacts and staff
acknowledgments are listed in appendix VII.

Loren Yager
Director, International Affairs and Trade

Appendix I

                       Objectives, Scope, and Methodology

In May 2003, the House Appropriations Committee's Subcommittee on
Commerce, Justice, and State, the Judiciary, and Related Agencies held
hearings regarding U.S. government efforts to support American businesses
adversely affected by imports from China. In light of concerns expressed
at this hearing, the House-Senate conference report on fiscal year 2004
appropriations legislation requested that GAO monitor the efforts of U.S.
government agencies responsible for ensuring free and fair trade with
China. In subsequent discussions with your staff, we agreed to respond by
providing a number of reports on relief mechanisms available to U.S.
producers that are adversely affected by unfair or surging imports, and
the manner in which the mechanisms have been applied to China.1 In this
report, we (1) describe the China textile safeguard, (2) describe the
requests for safeguard action filed by domestic industry and the results
of these requests, and (3) evaluate agency procedures for transparency and
accessibility and identify additional issues that may affect application
of safeguard measures in the future.

To address our first objective, we reviewed U.S. laws and procedures as
well as relevant World Trade Organization (WTO) agreements and China's WTO
accession agreement. To ensure our understanding of relevant laws,
procedures, and agreements, we spoke with officials from the five member
agencies of the U.S. government's Committee for the Implementation of
Textile Agreements (CITA). The members of CITA are the Departments of
Commerce, Labor, State, and the Treasury, and the United States Trade
Representative. In addition, we interviewed officials with the World Trade
Organization and private sector experts on trade law.

To address our second and third objectives, we reviewed and analyzed each
of the Statements of Reasons and Justifications that CITA has issued to
explain its determinations on safeguard actions completed as of December
2004. We also reviewed the information that CITA received in response to
its request for public comment on each of these requests. To clarify the
views of parties in favor of applying safeguard measures, we spoke with
representatives of the three domestic industry trade associations that
have participated in filing every safeguard action request to date. To
clarify views of parties opposed to such measures, we spoke with a trade
association representing over 200 importers of textiles and apparel and a
trade association representing 50 state retail associations and

1Forthcoming reports will focus on countervailing duties, the China
product-specific safeguard, and antidumping duties.

Appendix I
Objectives, Scope, and Methodology

20 national retail organizations as well as national and independent
retailers, and also attended an international conference of textile and
apparel importers. We also spoke with Chinese government officials. To
obtain a broader perspective on global textile trade and the application
of the safeguard in a postquota environment, we spoke with representatives
of additional textile and apparel exporting and importing countries.
Finally, we reviewed the order of the U.S. Court of International Trade
granting a preliminary injunction to the U.S. Association of Importers of
Textiles and Apparel precluding CITA from acting on threat-based requests
for safeguard action,2 as well as other relevant documents filed by the
parties involved in this case.

In support of these objectives, we also conducted analyses of textile and
apparel import data, as well as U.S. domestic production and employment
data for textile and apparel sectors. U.S. import data are official
statistics from the Bureau of the Census, Department of Commerce. We
adjusted the import data for inflation by using the textile and apparel
products import price deflators from the Bureau of Labor Statistics.
Inflation-adjusted values are in constant 2004 dollars and are identified
throughout the report. U.S. production (shipment) values are from the
Census Bureau's Manufacturing, Mining, and Construction Statistics. In
order to present values in 2004 dollars, we used the 2004 value of
shipments from Census for each industry and extrapolated prior year
shipments using the Federal Reserve Board's Industrial Production Index
for the particular industries. U.S. employment data are official
statistics from the Bureau of Labor Statistics, Department of Labor. We
assessed these data and found them to be sufficiently reliable for the
purposes of this report.

We performed our work from January 2004 to January 2005 in accordance with
generally accepted government auditing standards.

2U.S. Ass'n. of Importers of Textiles and Apparel v. United States, Ct.
No. 04-00598 (C.I.T. Dec. 30, 2004).

Appendix II

Paragraph 242 of the Working Party Report on China's Accession to the WTO

The representative of China agreed that the following provisions would
apply to trade in textiles and clothing products until 31 December 2008
and be part of the terms and conditions for China's accession:

(a) 	In the event that a WTO Member believed that imports of Chinese
origin textiles and apparel products covered by the ATC as of the date the
WTO Agreement entered into force, were, due to market disruption,
threatening to impede the orderly development of trade in these products,
such Member could request consultations with China with a view to easing
or avoiding such market disruption. The Member requesting consultations
would provide China, at the time of the request, with a detailed factual
statement of reasons and justifications for its request for consultations
with current data which, in the view of the requesting Member, showed: (1)
the existence or threat of market disruption; and (2) the role of products
of Chinese origin in that disruption;

(b) Consultations would be held within 30 days of receipt of the request.
Every effort would be made to reach agreement on a mutually satisfactory
solution within 90 days of the receipt of such request, unless extended by
mutual agreement;

(c) Upon receipt of the request for consultations, China agreed to hold
its shipments to the requesting Member of textile or textile products in
the category or categories subject to these consultations to a level no
greater than 7.5 per cent (6 per cent for wool product categories) above
the amount entered during the first 12 months of the most recent 14 months
preceding the month in which the request for consultations was made;

(d) 	If no mutually satisfactory solution were reached during the 90-day
consultation period, consultations would continue and the Member
requesting consultations could continue the limits under subparagraph (c)
for textiles or textile products in the category or categories subject to
these consultations;

(e) 	The term of any restraint limit established under subparagraph (d)
would be effective for the period beginning on the date of the request for
consultations and ending on 31 December of the year in which consultations
were requested, or where three or fewer months remained in the year at the
time of the request for

Appendix II Paragraph 242 of the Working Party Report on China's Accession
to the WTO

consultations, for the period ending 12 months after the request for
consultations;

(f) 	No action taken under this provision would remain in effect beyond
one year, without reapplication, unless otherwise agreed between the
Member concerned and China; and

(g) 	Measures could not be applied to the same product at the same time
under this provision and the provisions of Section 16 of the Draft
Protocol.

Appendix III

Summary of CITA Determinations on Market-Disruption-Based Requests to Date

                                                              Role of imports 
                                                              from            
                     Key elements of                          China in threat 
                                CITA                               to disrupt 
                        finding that Role of imports from     the U.S. market 
                          market was China in                 in the          
Product Key dates    disrupted       present disruption      near future   

Brassieres and other body supporting garments Request filed: July 24,
2003.

CITA determination: Nov. 17, 2003.

Consultation requested/quotas imposed: December 24, 2003.

U.S. production, including outward processing, dropped from 28,375,000
dozens in 2000 to 27,781,000 dozens in the year ending June 2003.

U.S. producers' share of the market fell from 52.8 percent in 2000 to 43.8
percent in the year ending June 2003.

Total imports grew 17 percent from 2000 to year-end October 2003. Imports
from China grew 291 percent in the same period. China went from the sixth
largest supplier of such garments to the United States in 2001 to the
largest source in 2002 and 2003. China gained U.S. market share (15.5
percentage points gained between 2000 and year-end June 2003), and gains
came at the expense of domestically produced garments, including U.S.
outward processing.

Enormous capacity of China to produce textile and apparel products for
export.

Lower average prices than other suppliers.

Rapid change since integration suggests that without action, current
trends in imports from China will likely continue.

China has made significant investment in plants, equipment, and research
and development in its textile and apparel industry.

Cotton and Request filed: July 24,
man-made 2003.
fiber dressing
gowns CITA determination: Nov.

17, 2003.

Consultation requested/quotas imposed: Dec 24, 2003.

U.S. production plus outward processing fell by about 40 percent from 2000
to year-end June 2003.

Share of the market held by U.S. producers fell 17.9 percentage points
between 2000 and yearend June 2003.

Total U.S. imports grew by 77 percent from 2000 to yearend October 2003.
U.S. imports from China increased 1,483 percent during the same period.

Market share of imports from China increased from 3.9 percent in 2000 to
30.7 percent for the year ending June 2003.

Imports from the rest of the world minus outward processing and U.S.
producers plus outward processing both lost market share.

(See above explanation under "Brassieres.")

Appendix III
Summary of CITA Determinations on Market-
Disruption-Based Requests to Date

                         (Continued From Previous Page)

                                                              Role of imports 
                                                              from            
                     Key elements of                          China in threat 
                                CITA                               to disrupt 
                        finding that Role of imports from     the U.S. market 
                          market was China in                 in the          
Product Key dates    disrupted       present disruption      near future   

Knit fabric	Request filed: July 24, 2003.

CITA determination: Nov. 17, 2003.

Consultation requested/quotas imposed: Dec 24, 2003.

U.S. production declined from about 657 million kilograms in 2000 to about
480 million kilograms in 2002.

U.S. producers' market share had declined 9.6 percent between 2000 and
2002.

Financial difficulties of two publicly traded firms engaged primarily in
the manufacture of knit fabric.

Total imports increased 42 percent from 2001 to year-end October 2003,
while knit fabric imports from China increased 21, 307 percent from 2000
to year-end October 2003.

Imports from China gained market share at the expense of U.S. producers:
Of the 9.6 percent of U.S. market share lost from 2000 to 2002 1.1 percent
is attributable to Chinese imports.

(See above explanation under "Brassieres.") CITA also stated that the
significant increase in knit fabric import volume since 2001 suggested
that imports would continue to increase in the near future.

Cotton, man-Request filed : June 28,
made fiber, and 2004.
wool socks

CITA determination: Oct. 22, 2004.

Consultation requested/quotas imposed: Oct. 29, 2004.

Excluding outward processing, U.S. imports increased from 51,014,517 to
98,976,106 dozen pairs between 2001 and 2003. U.S. production, including
outward processing, dropped from 246 million dozen pairs to 214 million
dozen pairs from 2001 to 2003.

U.S. production plus outward processing market share fell from 82.9 in
2001 percent to 68.4 percent in 2003.

Employment and number of sock-producing establishments both declined.

Between 2001 and August 2004, Chinese imports grew 4, 211 percent. Between
2001 and yearend August 2004 total world imports increased 100 percent.

China went from the 12th largest foreign supplier to the United States in
2001 to the largest supplier by year-end August 2004.

China's market share grew from 0.3 percent in 2001 to 7 percent in 2003,
and the market share gain came at the expense of U.S. producers.

(See above explanation under "Brassieres.")

             Source: CITA Statements of Reasons and Justifications.

Appendix IV

Textile and Apparel Products Imported from China for Which U.S. Production
Data Are Unavailable

U.S. production data on 32 of 167 textile and apparel categories are
unavailable. Table 2 lists these 32 product categories and provides
information on the size of U.S. imports from China in 1995 and 2004,
imports from China as a percentage of total U.S. imports, the average
annual percentage change in imports since China became a WTO member in
2001, and the quota fill rates for these product categories. Quota fill
rates (as of December 1, 2004) show what share of the quota allocation for
each product category was already allocated near the end of the quota
period (December 31, 2004). Quotas on these products were removed
completely on January 1, 2005, but the quota fill rates provide some
information about how constraining the quotas were prior to their removal.
In addition, notes at the end of the table identify qualitative
information from OTEXA and Census on why the data for each category are
unavailable.

 Table 2: Import Data for Product Categories for Which U.S. Production Data Are
                                  Unavailable

Category name

Category number

Imports from China, 1995

                                                     Imports from China, 2004

Share of China in U.S. imports from all countries,

2004

(percent)

     Average annual change, imports from China 2001-2004 (percent) Quota fill
                                                       rate as of December 1,

  Products removed from quota prior to January 1, 2005, or never under quotaa

     Flat goods, handbags, and luggageb   670 $196,648 $1,735,685 78% 68% N/A 
           Wool floor coveringsd          465  181,679  164,981   18  -2  N/A 
     Womens' and girls' man-made fiber                                    
                   down-                                                  
               filled coatsc              654   32,522  203,076   85  42  N/A 
     Other man-made fiber manufacturesd   669   13,804  264,822   39  148 N/A 
    Men's and boys' man-made fiber down-                                  
               filled coatsc              653   66,801  108,207   85   6  N/A 
      Man-made fiber floor coveringsd     665    8,933   96,762   16  48  N/A 
          Special purpose fabricc         229    4,175  122,266   14  134 N/A 
          Wool gloves and mittensc        431    5,182   15,857   76   6  N/A 
           Cotton handkerchiefsb          330    6,143   18,832   91  15  N/A 
Women's and girls' cotton down-filled                                  
                   coatsc                 354    7,114   3,941    78  130 N/A 
              Nonwoven fabricb            223      830   14,264    2  505 N/A 
               Wool blanketsc             464      414   4,055    24  30  N/A 
     Men's and boys' cotton down-filled   353                     68  -7      
                   coatsc                       30,248   4,293            N/A

                                  Appendix IV
                   Textile and Apparel Products Imported from
                    China for Which U.S. Production Data Are
                                  Unavailable

                         (Continued From Previous Page)

                                                             Average 
                                                 Share of     annual 
                                               China in              
                                               U.S.          change, 
                                               imports                  Quota 
                                               from          imports     fill 
                                                                         rate 
                                       Imports all        from China    as of 
                                               countries,            
                      Category Imports from          2004 2001-2004  December 
                               from    China,                              1, 
     Category name      number  China,    2004  (percent)  (percent) 
                                  1995                               
      Nontextured          606       0   3,138          3     17,654      N/A 
     filament yarnb                                                  
     Man-made fiber        630                         49         -7          
     handkerchiefsb              2,286   1,309                            N/A

                  Subtotal N/A $556,780 $2,761,488 42% 50% N/A

Products removed from quota January 1, 2005

Other cotton manufacturesd  369 $280,155 $1,070,693 46% 42% 
      Babies' garments and     239   76,606 1,103,435  55  135 No information 
      clothing accessoriesd                                    
      Other man-made fiber     666   40,702 1,211,228  61  194 
          furnishingsd                                         
      Other cotton appareld    359  134,105  413,203   42   38 49.8 and 66.4a 
      Other man-made fiber     659                     16   32  84.2 and 77.9 
            appareld                110,658  330,931           
                                                                    and 76.8a 
     Bedspreads and quiltsc    362  120,525  183,713   34    6 
       Other wool appareld     459   12,595  138,199   55   28        No info 
      Wool knit shirts and     438    5,102   9,560     3    5 
            blousesc                                           
     Yarns put up for retail                                   
        sale, and sewing                                       
             threadb           200    3,032   9,434     5   43 
    Other wool manufacturesd   469    3,699   5,257    29    8          64.8a 
Woven fabric containing 85                                  
         percent or more                                       
      by weight artificial     611    3,081   2,756    13    6 
             staplec                                           
        Specialty yarnsc       201      346    855      0   -5          64.8a 

            Other wool fabricd          414       95    142      0  -25 64.8a 
      Man-made fiber fabric, woven,                                     
                containing                                              
    more than 15 percent but less than                                  
                    36                                                  
              percent woolc             624        1    215      1  -20 64.8a 
                 Subtotal               N/A $790,702 $4,479,622 41% 60%   N/A 

Products currently subject to safeguards measures (socks)

         Hosiery (socks)e        632(part)       $515  $221,348  57% 295% N/A 
         Hosiery (socks)e              332      1,222   4,848     1   32  N/A 
         Hosiery (socks)e              432          0   2,103    10   21  N/A 
             Subtotal                          $1,737  $228,298  21% 197% 
Total (all products for which                                          
            production                                                    
       data is unavailable)         N/A    $1,349,219 $7,469,408 40% 57%  N/A 

N/A = Not applicable.

           Source: GAO analysis of U.S. Department of Commerce data.

Appendix IV
Textile and Apparel Products Imported from
China for Which U.S. Production Data Are
Unavailable

Notes: Safeguard on hosiery (socks) is a single safeguard measure covering
products from all three categories.

aQuota restraints are applied against a group of categories or
subcategories in these cases. The fill rates either apply to the combined
categories or several fill rates apply to one category.

bCensus does not collect production data.

cCensus does collect domestic production data, but the data cannot be
published to avoid disclosure of individual company information.

dCensus may collect some data, but Census production descriptions do not
match CITA categories.

eCensus began collecting data in December 2004

Appendix V

Threat-Based Requests for Safeguard Action Filed by U.S. Producer Groups,
2004

                                         Date request      Date CITA accepted 
                                         received by                  request 
           Description          Category CITA chair (2004) for consideration  
                                                           (2004)             
         Cotton trousers         347/348      Oct. 8            Oct. 29       
      Knit cotton shirts and     338/339      Oct. 13            Nov. 3       
             blouses                                       
    Men's and boys' cotton and                Oct. 13            Nov. 3       
               man-                                        
made fiber shirts, not knit   340/640                   
    Knit man-made fiber shirts                Oct. 13            Nov. 3       
               and                                         
             blouses             638/639                   
     Man-made fiber trousers     647/648      Oct. 13            Nov. 3       
    Cotton and man-made fiber                 Oct. 15            Nov. 3       
            underwear            352/652                   
        Combed cotton yarn           301      Oct. 27           Nov. 18       
     Other synthetic filament        620      Nov. 8             Dec. 1       
              fabric                                       
       Men's and boys' wool          447      Nov. 12            Dec. 6       
             trousers                                      
           Knit fabric               222      Nov. 19           Dec. 13       
     Dressing gowns and robes    350/650      Nov. 24           Dec. 16       
    Brassieres and other body                 Dec. 1            Dec. 22       
            supporting                                     
             garments            349/649                   

Source: Defendant's Memorandum in Support of its Motion to Dismiss and
Opposition to Plaintiff's Motion for a Preliminary Injection, Sch. A,
Ass'n of Importers of Textiles and Apparel, Ct. No. 04-00598 (C.I.T. Dec.
15, 2004).

Appendix VI

                      Comments from the Committee for the
                      Implementation of Textile Agreements

Note: GAO comments supplementing those in the report text appear at the
end of this appendix.

Appendix VI
Comments from the Committee for the
Implementation of Textile Agreements

                                 See comment 1.

Appendix VI
Comments from the Committee for the
Implementation of Textile Agreements

                                 See comment 2.

                                  Appendix VI
                      Comments from the Committee for the
                      Implementation of Textile Agreements

The following are GAO's comments on the Committee for the Implementation
of Textile Agreements' letter dated March 11, 2005.

GAO Comments 1.

2.

Our report does not take any position on the legal issues that are the
subject of the ongoing litigation between the U.S. Association of
Importers of Textiles and Apparel and the United States, including whether
CITA's procedures allow for threat-based cases. We acknowledge CITA's
extensive consultations and that the procedures represent a significant
increase in the transparency of its investigations compared with those
conducted under other agreements such as the Agreement on Textiles and
Clothing. Nevertheless, 17 months is a significant amount of time to issue
procedures to inform the public about CITA's process. The timing of
issuance of the procedures necessitated industry groups refiling several
safeguard action requests made months before the procedures were
published. As noted in appendix I, we independently reviewed China's WTO
accession agreement and CITA's procedures, and other information, as well
as submissions from all parties involved in the ongoing litigation. We
maintain that our description of CITA's procedures and findings about the
public's uncertainty at the time represents a balanced summation of the
facts. We continue to believe the procedures could be improved in this
regard to further increase transparency and clarity.

According to a Bureau of the Census official, the Current Industrial
Report program's coverage of U.S. textile and apparel production remained
unchanged from 1993 until the completion of a programwide review in 2004
to reassign resources to manufacturing areas of increasing economic
importance. We consider a risk assessment to be a useful and timely
exercise due to the recent change in long-standing trade rules for
textiles and apparel and resulting increased global competition. We agree
that there are a variety of reasons why production data might be
unavailable, including suppressing data to protect respondent
confidentiality, and we amplified our discussion on textile and apparel
production data accordingly. Additionally, we modified our recommendation
to acknowledge that in certain instances, making the production data
available might not be feasible. However, we found that requesting a
safeguard action is substantially more difficult when production data are
unavailable than when they are available; for example, it could add months
onto the time to prepare a request. Accordingly, we believe that lack of
production data may constitute a substantial impediment to a safeguard
action request and

Appendix VI
Comments from the Committee for the
Implementation of Textile Agreements

steps should be taken to mitigate this condition. Furthermore, some
industries that were not deemed import sensitive in the past may become so
in the future.

Appendix VII

                     GAO Contacts and Staff Acknowledgments

GAO Contacts	Adam Cowles, (202) 512-9637
Michael McAtee, (202) 512-8978

Staff In addition to those named above, R. Gifford Howland, Richard
Seldin, and Acknowledgments Timothy Wedding made significant contributions
to this report.

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