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The United States has negotiated separate bilateral agreements with each of the textile/apparel exporting nations whose products have been regarded as a threat. Bilateral agreement establishes country-by-country quotas, or annual maximums, on hundreds of categories in cotton, wool, and manufactured fiber textiles and apparel. Each bilateral agreement establishes the quota level on a category-by-category basis, specifies the amount the category can grow in the year, and provides for establishing new quotas in cases that the bilateral agreement does not cover. The chief U.S. textile negotiator, in the Office of the U.S. Trade Representative, negotiates the bilateral agreements on behalf of the United States. The U.S. Customs Service is responsible for keeping track of import levels and quota levels. When more goods are presented for entry into the United States than the quota level allows, that merchandise is denied entry and is warehoused at the port of entry, at the expense of the importer.
Quotas, which vary for different merchandise categories and for different countries, are specified in square meter equivalents (SMEs), and all apparel items can be translated into SMEs. For example, customs authorities can convert every dress, shirt, or pair of slacks into square meter equivalents to monitor shipments to be sure the exporting country does not exceed its quota limits.
Under the bilateral agreements, the U.S. government grants each trading partner designated quota levels. Then, each exporting country administers its own quota and makes allocations to individual producers based generally on their past export performance. Allocations can be lost if they are not used within the designated quota year. Manufacturers, however, can and do sell unused quotas to other companies and thus maintain their export rights for subsequent years. Each exporting country has its own system for distributing quota among its manufacturers. In some cases, a board of government and/or industry representatives makes the decisions. In Hong Kong, quota may be bought and sold from one company to another. In some years, when quota was in high demand in Hong Kong, a manufacturer who had large quota allotments might have made as much from selling part or all of its quota as from actually producing apparel.
A manufacturer in another country who plans to export products having quota limits must have available quota to be able to ship products into the U.S. market. For example, the Fabulous Frocks Company in Indonesia must hold adequate U.S. quota for those product categories the company plans to produce and ship to the U.S. market.
U.S. fashion firms, whether manufacturers or retailers, having products made in another country must be certain they are working with companies holding adequate quota to cover the products being made for the U.S. firm. Without the quota, the merchandise cannot be delivered to the U.S. Company ordering it. This applies, of course, only to those countries and products with quota limits.
Several areas in the world, however, have had no quota restrictions at all for entering the U.S. market-for example, the European Union. Exemptions are based on the assumption that
- These are high-wage industrialized countries whose products are not price-competitive with domestic goods,
- Our exports to these countries balance our imports from them, and
- Their import penetration is not large enough to cause domestic market disruption.
Mexico and Canada are exempt from the quota limits as a result of the North American Free Trade Agreement (NAFTA), which permits free trade among the three countries in north America. As a result of this agreement, Mexico has become a growing source of apparel imports in the U.S. market. This group of countries exempt from quotas is likely to increase as the United States enters into additional free trade agreements in the Americas.
Also exempt from U.S. quotas are other countries in the Caribbean Basin and in Central America (for most product categories) under the Caribbean Basin Initiative which is discussed in a following section. These countries have been given special treatment in the past because the United States has felt a responsibility to aid many of these very poor countries in their economic development. Additionally, many V.I government leaders have considered it important to assist with economic opportunity to avoid political uprising in nearby countries. Many countries in Africa that are not yet industrialized or even on the road to development are exempt as well. All of these exempt areas are in marked contrast to the quota restrictions placed on more than percent of the textile and apparel products imported from Taiwan, Hong Kong, South Korea, and China. This group, known as the "Big Four," has been the biggest source of supply to U.S. markets over the past two decades.
Getting around the quotas:
As might be expected, many producers in other countries have devised ways to get around" the quota limits imposed by the United States. When an exporting country has used all its quota but is determined to continue shipping products to the U.S market, foreign producers have been very enterprising.
Often production has been transferred to countries with unused or excess quotas, or to countries without quotas (those that are underdeveloped or that may hale a preferential arrangement with no quota). An example of moving production have been when some of the Big Four Asian countries have set up garment production~ Caribbean or African countries that are free from U.S. quota limits. They produce and ship fashion goods to the U.S. market without the quota restrictions placed on them in their homelands.
In addition, transshipment has been a common strategy. In this illegal practice, countries with used-up quotas transship products through a third country with quota availability. The countries with available quota are sometimes called "quota havens.' For example, China has the ability to produce a volume of garments far in excess 01 what the country is permitted to ship under the U.S. quota limits. To get around this problem, Chinese manufacturers have frequently shipped their merchandise to other places, such as Macau, that have plenty of available quotas. The garments bear "made in Macau" labels, and when they arrive in U.S. ports, they appear to have been made in the third country. The U.S. government has cracked down on these illegal practices and on occasion has penalized China by reducing quota in certain product categories as a result.
In a sense, quotas have created opportunities of export growth for many of the low-wage countries around the world. As demand for inexpensive imports grows, manufacturers and retailers from many countries have of necessity sought sources beyond the quota-limited facilities of the Big Four Asian countries. Many of the most underdeveloped countries would not have the equipment, the know-how, and the market contacts to start up garment production on their own. Start-ups in these poorest countries have required the investment and assistance of industry representatives from more developed countries who are looking for low wages and quota-free production sites. In many cases, as the newest countries become proficient at making garments, quotas are then imposed. Then, manufacturers and retailers sometimes move on to yet another developing country without quotas.
As long as the quota system lasts, it is likely that some producers in exporting countries will try to find illegal means of shipping beyond their legal limits to the more prosperous market countries like the United States. By the same token, as long as the quota system exists, industry representatives working with producers in countries covered by quota will find it critically important to be sure their international partner has legal access to quota before signing business contracts.
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