China said it may raise export taxes on textiles in a bid to head off any protective action by the U.S. and other countries sparked by a flood of sales once global trade restrictions on the products end next year.
U.S. textiles and clothing companies have already sought protection against Chinese imports as trade quotas were eased as part of China's accession to the World Trade Organization in December 2001. The remaining restrictions are to be fully lifted by the beginning of next year under the accession agreement.
The Commerce Ministry "recently put forward some measures to ensure sustainable textile and garment exports, including charging export taxes," Beijing Orient Agribusiness Consultant Ltd., an Agriculture Ministry affiliate, said in a report.
The value of China's textile and clothing exports rose 28 percent last year to $81 billion, according to customs data provided by Beijing Orient. China's trade surplus with the U.S. rose 28 percent in the first four months this year to $18 billion, putting pressure on U.S. President George W. Bush, facing elections this year, to reverse the trend to save U.S. jobs.
The Commerce Ministry's move may drive costs too high for some domestic producers to continue selling their products overseas, stemming an increase that started last year, said Wang Xiaohong, a Beijing Orient analyst.
Exporters are already facing higher raw material costs as competition for cotton and other fibers drives prices higher. In January, China lowered the export tax rebate to 13 percent from 17 percent to slow the rise in sales to overseas buyers.
Export growth is likely to slow to 14 percent this year, Wang said.
"Many textile exporters only make profits because of the export rebates—especially since raw material costs have risen—and probably won't be able to export without them," Wang said.
China's cotton inventories will likely fall to 960,000 tons when the 2004-2005 marketing year ends on July 31, 2005, down from 1.05 million tons in the current marketing year, according to Beijing Orient data.
That has boosted the premium on domestic cotton against overseas prices to $590 a ton, from $205 a year ago. China's average cotton price has risen more than a third over the past year to 17,300 yuan a ton. They stabilized in November because o expectations of a larger crop this year.