China to Limit Textile Exports With New Tax

BEIJING – China (search) said Monday it will impose a new tax on textile exports, responding to U.S. and European pressure to restrain their growth amid fears that low-cost Chinese textiles (search) will flood markets abroad when global quotas expire next month.

The tariff is to be imposed on unspecified textile products beginning Jan. 1, the Commerce Ministry (search) said. It didn't say how high the duties would be, so it wasn't clear whether they will satisfy Washington, which is considering whether to impose import limits.

Duties are to be based on the quantity of the export rather than the value of the goods in order to "encourage high-end textiles," the Commerce Ministry said in a statement.

China is a dominant competitor in the $350 billion-a-year world textile trade.

World Trade Organization members, including China, will see quotas on textile and clothing trade expire on Jan. 1 as part of the WTO Agreement on Textiles and Clothing.

The United States and the European Union worry that the change will result in a glut of Chinese goods pouring into their markets, devastating their domestic producers.

China's decision to impose export taxes should avert a trade war with the United States, the European Union and other major economies, said Carl Weinberg, chief economist for Valhalla, New York-based High Frequency Economics.

"In a larger sense though, a big distortion to free trade remains as a consequence of this decision," Weinberg wrote in a research report.

The Bush administration has until February to decide whether to protect American textile companies by imposing temporary limits on Chinese textile imports.

U.S. textile producers won the right to request such relief through 2008 as part of China's entry into the World Trade Organization three years ago in 2001.

Dozens of U.S. retailers, including J.C. Penney Co. and Liz Claiborne Inc., have filed suit to block the Bush administration from imposing textile limits, which would raise the price of the imported clothing and other goods.

China's commerce ministry statement also encouraged Chinese textile firms to invest overseas.

U.S. clothing and textile producers are asking for restrictions that would limit the growth of American imports of Chinese products in certain categories to 7.2 percent a year.