TESTIMONY

NATIONAL COUNCIL OF TEXTILE ORGANIZATIONS

SENATE FINANCE COMMITTEE HEARING

on

S. 3495 – A bill to authorize the extension of nondiscriminatory

treatment (normal trade relations treatment) to the products of Vietnam

July 12, 2006

Cass Johnson, President

National Council of Textile Organizations

910 17^th Street NW, Ste 1020

Washington, DC 20006

The National Council of Textile Organizations represents the fiber, yarn, fabric and supporting interests of the U.S. textile industry and is pleased to submit this testimony to the Senate Finance Committee on extending Permanent Normal Trade Relations (PNTR) to Vietnam and the proposed terms of Vietnam’s WTO accession agreement.

First, we would like to clear the record regarding the textile provisions included in the U.S.-Vietnam bilateral WTO accession agreement.  USTR has repeatedly stressed how unique these provisions are and what an effective tool they will be if Vietnam violates the terms of the agreement.  Most important, however, is whether they force the Vietnamese government to become a fair player in textile trade.  In this context, the textile provisions are an abject failure – and U.S. textile workers, as well as their apparel partners in CAFTA and NAFTA, will pay a heavy price.

The agreement does not, as USTR has often implied, force the Vietnamese government to stop subsidizing its textile sector.  It also does not prevent Vietnam from creating new subsidies in the future[1].  And it does not contain an effective safeguard - rather it contains a sham safeguard[2] that essentially serves the interests of Vietnamese apparel producers at the expense of U.S. textile manufacturers. 

In fact, the agreement strips the U.S. textile industry of its ability to defend itself – in any manner – from either dumped or subsidized exports of apparel from Vietnam.  The agreement reinstates a failed and destructive policy of trading a major manufacturing sector away to gain new market access for product areas that themselves will see relatively small export gains[3].  As such, the net effect of the Vietnam WTO accession agreement will be to cause many more job losses and plant closures in the United States than it creates.  This is the type of bad trade policy that has given us a record trade deficit and the loss of nearly three million manufacturing jobs over the past six years.

These are important points.  USTR uses terms such as “unprecedented” in regards to the special textile enforcement mechanisms.  And there is some truth here – but in the wrong direction.  It is “unprecedented” for USTR to sign an agreement that allows a large government-owned and subsidized textile sector complete free reign in the U.S. market.  This has not happened before – the only other government to so deeply subsidize its textile sector, China, was required to include a real safeguard as part of its WTO accession package.    

And when we say “free reign,” we mean “free reign.”  The agreement leaves the U.S. textile sector defenseless, which may be a first for a WTO agreement.  Because the U.S. textile industry manufacturers component parts (yarns and fabrics), it is barred from filing dumping cases against subsidized apparel imports from Vietnam.   And because the apparel sector, the U.S. industry’s customers, has migrated to the NAFTA/CAFTA countries, there is no legal means for us to defend our vital interests.  So when we get a flood of apparel imports from Vietnam, which Vietnam is predicting it will send, our only option is to close plants and lay off workers.   And our partners in the NAFTA/CAFTA countries will have to do the same. 

We would ask the Committee to ponder if this sort of agreement is not one reason why trade agreements in general are so unpopular today.  The U.S. government has essentially negotiated an agreement with Vietnam that takes away our only defense against government-subsidized imports – our current quotas – and left us defenseless against one of the biggest, and most heavily subsidized textile producers in the world.

We would ask the Committee to consider whether the dairy or pork or citrus producers that they represent would ever accept such a result?   And imagine your outrage if the U.S. government stripped those producers of their rights to take trade remedy cases against their biggest competitors.

Vietnam has projected that it will become the second largest apparel supplier to the U.S. market after quotas are lifted.  Vietnam predicts, and we expect as well, that it will push aside our partners in the NAFTA and CAFTA region.  In fact, we are virtually certain this will happen because this is precisely what happened four years ago.  Once Vietnam received MFN status, Vietnam blew past Mexico and the Central American countries in nearly every product category that they manufactured – and this was in spite of our neighbors getting duty free status for their exports.  Exports, by the way, which were made up of over $10 billion worth of U.S. made yarns and fabrics.

This record was ignored by USTR which maintains that it consulted closely with the industry.  Though textile and apparel trade is by far the largest component of U.S.-Vietnam trade, the industry was not consulted until the very end of the negotiations.  Safeguards, we were then told, were “not popular” in the building.   When we asked what other trade remedies the industry could rely on if Vietnam dumped apparel in the U.S. market, there was no response .  And, amazingly, USTR did not even discover that Vietnam had any textile-specific subsidies until the final two weeks of negotiations.  This is despite the fact these subsidies can be easily accessed on the web[4].   This leaves little confidence that USTR is either fully aware of or overly concerned with the scope of subsidies that Vietnam is providing to its industry.

Similarly, USTR is being disingenuous when it testifies that the textile industry identified as “a major goal” that Vietnam should be required to “cease all prohibited subsidies.”  To set the record straight, the industry’s major goal was for Vietnam to either demonstrate that its prices were no longer reflecting subsidies from the central government – eg, that prices were being set at the free market rate - or that safeguards be imposed until they were.  The industry never said that a partial removal of some subsidies – in this case, the small list of subsidies that the WTO has decided are prohibited - was ever an industry goal. 

Aside from China, Vietnam’s list of subsidy support to its industry is the longest in the world.  It ranges from preferential tax rates, tax forgiveness, free land and reduced land rents, low cost or no cost loans, reduced wage rates, currency manipulation and many others.  None of these subsidies are ended by this agreement.  Add to this the fact that Vietnam has already poured billions of dollars of government financing into its textile sector in terms of new plants and equipment – and these “in the ground” subsidies are not touched either.  And of the “prohibited” subsidies that Vietnam has agreed to end, these can easily be transformed into the “legal” subsidies by merely removing the word “export” from the subsidy description.    

As a strong supporter of CAFTA, we had hoped that the industry’s concerns would have some traction with USTR.  We had hoped the recent history with Vietnam – when just four years ago, their textile and apparel exports increased thousands of percent – would give USTR some pause.  We had hoped that current price data showing Vietnamese prices were 30 to 40 percent below CAFTA and NAFTA prices would have an impact.  We had finally hoped that the fundamental inequity of an agreement that leaves our industry with no means of defense, particularly in light of a major competitor that deeply subsidizes its industry, would have provoked some concern. 

But USTR consistently demonstrated a lack of interest or will to address this problem.  This is because, we were repeatedly told, that PNTR would not be a close vote in the Congress.  Which is why we go back to why trade policy has become so unpopular in this country.  When USTR constructs agreements that they know are going to cause widespread job losses, that will most likely bring more harm than good to the U.S. economy, that trades away one sector for another, then people are right to get angry.  And when we go back to our workers and tell them their plant has to close because the U.S. government signed an agreement that will not even let us defend them against dumped goods, much less remove the subsidies that made the dumping possible, then people are right, as they consistently do, to judge our government’s trade policy harshly.  No wonder trade policy, and more importantly trade votes, has become such a divisive issue. 

In closing we would ask the Committee and the Congress to send a message that you will not stand for one way trade deals that sacrifice the biggest sector involved in order to bring a country like Vietnam into the WTO.   Such sacrifices are not required and should not be supported by this Congress.  Trade policy done for the sake of foreign policy, particularly in this case where we have few if any vital security interests, is a mistake.  And trade policy that will not only cost many U.S. jobs but also takes apart a CAFTA agreement where USTR has already argued that vital economic, security and immigration issues are clearly present, is a folly.  We urge the Committee and the Congress to send the message that this type of folly will no longer be tolerated and that WTO accession for Vietnam should be renegotiated.