ECONOMIC POLICY COUNCIL MEETING -- SEPTEMBER 24, 1985 2:00 P.M. -- ROOSEVELT ROOM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00759R000200200009-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 47
• Document Creation Date: December 22, 2016
• Document Release Date: November 19, 2010
• Sequence Number: 9
• Publication Date: September 23, 1985
• Content Type: MEMO

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EXECUTIVE SEC1'ETARIAT
Ex tive Secretary
23 Sep 85
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WASHINGTON
THE WHITE HOUSE ATT'
CABINET AFFAIRS STAFFING MEMORAPP
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Date: 9/23/85 Number: 316996rA Due By: ~ de 41t
Subject: Economic
Policy Council Meeting -- September 24, 1985
2:00 P.M. -- Roosevelt Room
Action
ALL CABINET MEMBERS ^ _
Vice President
State
Treasury
Defense
Justice
Interior
Agriculture
Commerce
Labor
HHS
HUD
Transportation
Energy
Chief of Staff
Education
GSA
EPA
NASA
OPM
VA
SBA
FYI
Actio FYI
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CEA
CEQ ^ ^
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OSTP ^ ^
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McFarlane
Svahn
Chew (For WH Staffing)
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Executive Secretary for:
DPC ^
IQ
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EPC
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REMARKS:
The Economic Policy Council will meet on Tuesday,
September 24, at 2:00 P.M. in the Roosevelt Room.
The agenda and background paper are attached.
Cabinet Secretary ^ Rick Davis
456-2823 ^ Ed Stucky
(Ground Floor, West Wing)
Alfred H. Kingon ^ Don Clarey
Associate Director
Office of Cabinet Affairs
RETURN TO:
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THE WHITE HOUSE $85- 3573
September 21, 1985
MEMORANDUM FOR THE ECONOMIC POLICY COUNCIL
FROM: EUGENE J. McALLISTER5X/
SUBJECT: Agenda and Paper for the September 24 Meeting
The agenda and paper for the September 24 meeting of the
Economic Policy Council are attached. The meeting is scheduled
for 2:00 p.m. in the Roosevelt Room.
The single agenda item is the Multifiber Arrangement. At
its July 19 meeting, the Council asked that the Working Group on
the Multifiber Arrangement (MFA) prepare a paper presenting
options regarding the U.S. position in the upcoming negotiations
for a successor arrangement to the present MFA, scheduled to
expire July 31, 1986. Since informal discussions to begin the
negotiating process will take place in mid-October, the Council
needs to address now the position the U.S. should take in the
negotiations. The paper reviews the current program, economic
factors, and domestic and international political considerations.
It also presents several options on possible general negotiating
positions for Council consideration.
Confidential Attachment
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September 24, 1985
2:00 p.m.
Roosevelt Room
AGENDA
1. Multifiber Arrangement
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OPTIONS PAPER FOR MEMBERS OF THE ECONOMIC POLICY COUNCIL
FROM: Charles R. Carlisle, Chairman
Working Group of the Economic Policy Council
on the Multifiber Arrangement
Issue for Decision
The EPC decided on July 19 that the United States should enter
into negotiations for a successor arrangement to the inter-
national Multifiber Arrangement (MFA), which expires July 31, 1986,
and that the negotiations should be carried out as expeditiously as
possible. The United States has stated this position at a GATT
Textiles Committee meeting, and informal discussions to begin the
negotiating process will take place in mid-October. The fundamental
issue is:
Should the United States try to negotiate a more
restrictive MFA and bilateral textiles agreements,
maintain the present level of protection, or agree
to relax protection in world textile and apparel
trade?
Options
(NOTE: Actions listed under each option are illustrative;
further work on one or more of the options will be
necessary after a first EPC discussion.)
Option 1: Continuing As We Are.
Possible elements would include extending the present MFA for,
say, four to five years, continuing bilateral agreements along
present lines, setting quotas on a product-by-product, country-
by-country basis, continuing to exempt imports from the
developed countries (except Japan), and continuing not to grant
special treatment to apparel imports from the CBI nations.
The exporting nations would be displeased by lack of future
liberalization, and there would be increasing friction as the
United States establishes quotas on new entrants into its markets
and the poorest nations. The domestic industries would see the
decision as the continuation of what they regard as a failed
policy and would intensify their efforts to obtain protectionist
legislation.
DELL
CONFIDENTIAL
C. Carlisle
EXT BYND 6 YEARS BY
REASON
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Option 2: Liberalization.
Possible elements would include extending the MFA essentially
along present lines but possibly including a "fail-safe" provision
allowing importing nations to preserve some part of their domestic
industries; granting more liberal terms in bilaterals and setting
quotas; according more liberal terms to apparel imports from the
CBI nations; continuing to exempt imports from the developed
countries, except possibly Japan; lowering textile and apparel
tariffs in the New Round negotiations; and tying liberalization
to market opening and the ending of subsidies by the exporting
nations, especially the NICs.
Imports could rise in some years at faster rates than in 1983-84.
Foreign governments generally would welcome the U.S. decision (but
many exporting nations would fear loss of market share). Chances
for a successful New Round would be improved. Consumers would
benefit, but domestic industries would be incensed. Congressional
reaction would be strongly critical.
Option 3: More Protection.
Possible elements would include negotiating a new MFA essentially
along present lines, but extending coverage to ramie (flax-like),
silk, linen and other fibers not now covered, and explicitly
recognizing importing nations' rights to hold import growth to
low levels; lowering import growth under bilaterals; re-opening
bilaterals this fall with major suppliers (e.g., Taiwan, Hong
Kong, South Korea and possibly China), to freeze or cut back imports
from those nations; restraining imports from the EEC and other
developed nations; instituting some form of import licensing to
reduce quota evasion and provide early warning of import surges;
and self-initiating fair trade actions.
This might hold total import growth to 5 percent or less (compared
to 83-84 growth of 25-32 percent). Foreign nations would be
extremely displeased, and the United States would have to expend
considerable capital internationally to negotiate a more restrictive
MFA and bilaterals. New Round would be endangered. Domestic
industries would be pleased, but still skeptical about the
Administration's real intentions. U.S. retailers would be very
critical and consumers would be hurt more than they already are.
Option 4: More Protection, Followed by Liberalization.
Possible elements would include negotiating an MFA for say
8-10
years, with explicit commitments requiring both importing
and
exporting nations to accord gradually more liberal treatment in,
say, years five to ten; first period: adopt many of Option 3
elements; apply more restrictions against apparel, but grant more
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liberal treatment to apparel imports from CBI nations; act
against imports from developed countries on a selective basis;
might negotiate an MFA and bilaterals which would protect against
import surges in broad categories of goods. Second period:
lower tariffs in New Round negotiations; progressively relax
quotas or antisurge provisions; tie liberalization to relaxation
of restrictive and subsidy actions by exporting nations,
especially NICs.
Might be possible to hold annual import quota to 5 percent range
in first period. Exporting nations probably would accept a more
restrictive MFA and bilaterals provided there were explicit and
firm commitments to phase down protection later. Negotiations,
however, would be difficult. Retailers would go along, but it is
difficult to predict domestic industries' reaction. They might
say this option would only postpone their demise, but they might
accept it if they thought the chances of the quota bill's
becoming law were not good.
Option 5: Substitution of MFN Tariffs for Quotas
(.see Treasury paper at Tab B).
This option concerns the means of protection and could be
compatible with any of the first four. Possible elements
would include negotiating changes in the MFA permitting tariffs
to be raised (now prohibited by MFA); negotiating changes in
bilaterals; substituting tariffs for quotas, possibly only on
some items (probably would have to be raised to about 25 percent
for textiles, 50 percent for apparel to give protection
equivalent to that afforded now); possibly granting GSP treatment.
Would eliminate uncertainties caused by quota setting and
administrative problems in determining country of origin and
transshipments. Incentive for foreign producers to upgrade their
production would no longer exist. According to CEA, U.S.
Government revenues might rise by over $3 billion annually;
a portion might be used for adjustment assistance. However,
legislation, which probably would be "Christmas treed," would
be necessary. Would be necessary to negotiate compensation on
GATT-bound tariffs, and prospects for the New Round could be
damaged. Many developing nations would dislike the proposal
because they would fear loss of market share to the most
efficient producers, e.g., China. The domestic industries
would oppose, arguing that substitution was tantamount to
liberalization and that some exporting nations would set prices
at whatever levels were necessary to sell in the U.S. market.
Other Key Questions
In considering the options certain key questions should be kept
in mind:
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1. Should there be a net change in protection? Should
protection be scaled back over time or after some
period of time?
2. Should tariffs be substituted for quotas?
3. Should the United States continue to control imports on
a country-by-country, product-by-product basis, or seek
more comprehensive controls?
4. Should there be fewer, broader product categories, instead
of the present 109?
5. How long should a new MFA last?
6. What should be done about certain categories of countries:
a. Industrial countries, whose exports the United
States does not now control?
b. CBI nations, which would benefit from more liberal
treatment of their apparel exports?
c. The poorest nations, which have difficulty expanding
44 (~w d.
their exports because of other countries' large quotas?
Major suppliers -- Taiwan, Korea, Hong Kong, China
and Japan -- whose large quotas severely restrict
the trade of other nations?
Should the United States seek controls on fibers not covered
by the present MFA -- ramie, linen, jute and silk?
8. Should an import licensing system be devised to try to
reduce circumvention and fraud and give advance warning
of import surges?
9. Should adjustment assistance be provided if import
protection is reduced?
Discussion
Current Program
The textile and apparel industries are the most protected
U.S. manufacturing industries. In addition to an extensive
quota system, there are high tariffs averaging 13 percent on
textiles and 25 percent on apparel. Increasingly restrictive
programs have been in force since 1961.
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Currently, the United States has some 1,300 restraints on
products from 37 countries; 300 have been added since 1983.
About two-thirds of apparel and one-third of nonapparel imports
are currently under restraint. If quotas cannot be negotiated,
the United States may impose them unilaterally, provided there
is market disruption.
Items made wholly or partially of ramie, jute, linen and
silk are not controlled. Imports of those items are rising
rapidly. Domestic manufacturers also claim that circumvention
and fraud plague the program despite the rules of origin
promulgated in final form last April.
Neither the United States nor the EEC restrict each
other's trade under a "gentlemen's agreement," unwritten and
apparently dating back to the 1960s. Japan is the only
developed country whose trade the United States does control.
Economic Factors (See Tab A for fuller discussion.)
Imports rose 25 percent in 1983, and 32 percent in 1984.
They were down 1 percent in the first seven months of 1985,
but were up 36 percent from the EEC. The EEC as a group is now
this country's largest supplier of nonapparel. Import penetra-
tion is 33 percent in apparel, 11 percent in nonapparel. U.S.
exports have been declining sharply since 1980.
Domestic production of apparel and nonapparel declined
slightly over the 1972-84 period while consumption grew about
1 percent a year.
Apparel production is concentrated in New York, Pennsylvania,
California and North Carolina. Productivity has been increasing
faster than for all manufacturing, but no technological break-
through is in sight which will enable U.S. manufacturers to meet
foreign competition without protection.
The textile industry is mainly in the Carolinas and Georgia.
Plant closings have accelerated this year, but some of the
plants are old.' Total job loss in the last two and one-half
years has been about 33,Q00, about 5 percent of the textile
labor force. Productivity has been rising much faster than in
all manufacturing, but the industry is still labor intensive.
Profits, which have fluctuated, grew about 22 percent in
current dollars from 1979 to 1984.
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The U.S. manmade fiber industry is very efficient but
claims that it is losing its domestic customer base while
confronting many foreign trade barriers. U.S. fiber production
is stagnant while that in the Far East is expanding rapidly.
The textile and apparel industries provide about 1.8 million
jobs, many to minority members, women and poorly educated people.
Employment has declined by over 500,000 since 1974. About
one-quarter of this decline has occurred in the last year.
The CEA estimates that the U.S. quotas and tariffs cost
consumers about $39 billion a year and preserve about one-fourth
to one-third of the jobs. That means each job saved costs
$65,000-87,000 a year.
USDA believes that additional restrictions on U.S. cotton
textile and apparel imports, if all other factors remained the
same, would increase returns to U.S. cotton producers. However,
retaliation by foreign buyers switching to other sources of
supply would be likely to more than offset these gains.
Domestic Political Situation
The domestic industries claim that nothing less than a quota
bill will satisfy them. They accuse the Administration of failing
to "enforce" the MFA and of failing to carry out a Presidential
commitment to relate import growth to the growth of the domestic
market. Despite the intensity of feeling, moderate industry
leaders might settle for a much more restrictive MFA and bilateral
agreements that would hold annual import growth to around 5
percent. Importers and retailers could accept a more restrictive,
comprehensive program in return for greater certainty, "contract
sanctity," and an eventual MFA phase-out.
International Political Situation
Developing exporting nations are very unhappy about current
U.S. actions, including this country's discrimination in favor
of developed countries, and are calling for an end to the MFA.
They are prepared, however, to negotiate. About half of their
textile and apparel exports come to the United States. Japan
and the EEC are talking vaguely about a more liberal MFA;
Canada wants a more restrictive arrangement because it too has
experienced rapid import growth.
Foreign Trade Barriers
Both a Commerce study and one done for the domestic industry
leave little doubt that exporting nation governments give
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substantial protection to their markets and also intervene in
various ways to assist their domestic industries. The domestic
industry claims that both Japan and the EEC more effectively
protect their markets than does the United States, the EEC
through more restrictive bilateral agreements, and Japan by
nontariff barriers and informal arrangements.
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Imports
Tables 1 and 2, attached, present data on U.S. imports of cotton,
wool and man-made fiber textiles and apparel from 1972 through
July 1985, measured in square yards equivalent (SYE). Tables
2 and 3 present import data by various foreign suppliers from
1980 to June 1986. Tables 5-7 present data on textile and apparel
imports not subject to the MFA, such as silk, linen and ramie.
The tables show that:
Imports accounted for 33 percent of the U.S. apparel
market in 1984, 11 percent of the non-apparel market.
While the long-term trend of imports has been up,
imports have increased much more rapidly in the 1980-84
period, about 13 percent a year for apparel, 26 percent
annually for non-apparel. Moreover, imports increased
at a 25 percent rate in 1983 and 32 percent in 1984.
They declined 1.3 percent in the first seven months
of 1985.
-- Imports from the three largest suppliers of apparel
and non-apparel products have grown less rapidly than
from other suppliers, because of very restrictive
growth rates negotiated on many products in 1982.
Imports from those countries, however, accounted for
over 23 percent of the total growth of imports in
the 1982-84 period because of diversification and
the full use of large quotas.
-- Imports from the EEC, spurred by the dollar's rise,
have grown very rapidly in the last several years,
and are still increasing while imports from "controlled"
sources are leveling off. The EEC countries, taken
as a group, are now this country's largest supplier
of non-apparel. Italy accounts for 41 percent of
the EEC's non-apparel exports to this country, 52
percent of the apparel exports.
Although exact figures are not available, a sizeable share of
U.S. imports of textile and apparel products are imported by
the domestic industry. One industry source has estimated that
25 percent of apparel imports are received by U.S. apparel manufac-
turers, mainly to mix with lines produced domestically to keep
costs down. Apparel producers are the main importers of yarns
and fabrics, partially to reduce their costs, but also because
domestic mills very often will refuse to produce short-run fashion
fabrics. Domestic textile mills, however, also import a significant
proportion of fabrics from China and other suppliers. More
than half of U.S. fabric imports are unfinished cloth, which
is dyed and/or printed by converters and U.S. mills and sold
to apparel manufacturers.
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Table 8 shows that U.S. import growth was much greater than
that of either the EEC or Japan in the 1982-84 period, but that
impo"rts have a larger market share in those countries than in
the U.S.
Exports
Table 9 shows that while both apparel and non-apparel imports
have been increasing rapidly in value since 1980, exports have
been declining sharply. Table 10, which presents data on U.S.
exports by destination, shows that the fall-off in exports apparently
was caused by the rising dollar. For example, U.S. exports
to the EC declined 62 percent from 1980 to 1984.
Domestic Industries
Table 11 presents volume data on apparent domestic consumption
and production for both the non-apparel and apparel industries
for the period 1972 - 1984. This table shows that:
Consumption has increased about 1 percent a year,
although apparel consumption grew 5 percent a year
from 1980 to 1984.
Domestic production has declined slightly over the
entire period.
Apparel industry. The apparel industry has about 22,000
shops and plants. Ownership is characterized by a small number
of large multi-plant manufacturers engaged in manufacturing
of many kinds of apparel and by thousands of small firms that
go in and out of business constantly. For this reason there
is no reliable way of estimating the number of firms or plants
that have been closed by imports. U.S. apparel production is
concentrated in New York, Pennsylvania, California and North
Carolina (Table 12).
Capital expenditure estimates also are not available for the
apparel, industry, but, according to a Commerce study, productivity
increased by an annual average of 2.5 percent from 1974 through
1982, compared to 1.7 percent for all manufacturing. Industry
leaders claim that they are doing all they can to make their
operations more efficient, but that there is no way they can
offset labor costs that, for example, in the Far East, often
are less than $1 an hour (compared to over $5 in the U.S., exclusive
of fringes).
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Most industry leaders also say that no technological
breakthrough is in sight (say, over the next 10 years) that
will enable U.S. manufacturers to meet foreign competition without
protection. About $7 million is being spent annually by industry
and the U.S. Government to fund research at an MIT laboratory
on apparel manufacture automation. The Japanese, with substantial
government support, are spending $50-60 million a year for research
on a robotized, workerless apparel factory, which might be opera-
tional by 1990.
Textile industry. The U.S. textile industry has about
6,000 plants, mainly in the Carolinas and Georgia (Table 12).
Some firms are publicly owned but many are family owned.
An average of 47 textile plants closed their doors in both 1983
and 1984; in the first half of 1985, 48 have done so. According
to the American Textile Manufacturers Institute, these plant
closings, plus lay-offs at plants which have remained open,
resulted in a job loss of over 33,000 in the 2-1/2 year period,
about five percent of the textile industry labor force (Table
13). It is impossible to say how many plants have closed because
of import pressures, either direct or on their customers the
(apparel manufacturers), and how many have closed simply because
of modernization programs.
Textile mill owners say that many of their plants are as modern
as any in the world. Textile mill capital expenditures have
averaged $1.5 2.0 billion a year since 1979, while productivity
grew at an average of 5.2 percent between 1974-82, about three
times the average for all manufacturing.
Textile mills remain labor intensive, however, with the fourth
lowest output per worker among U.S. industries. Moreover, with
labor costs averaging, say, about one-third of total manufacturing
costs at the mill, textile executives claim that they are unable
to offset foreign labor costs that may run as little as 25 cents
an hour in China.
Table 14 shows that textile corporate profits, which have fluctuated,
grew by 22 percent in current dollars from 1979 to 1984. Profits
almost doubled from 1982 to 1983 and increased again, marginally,
last year. Profits usually run from two to three percent of
sales and eight to 12 percent of equity.
Fiber Industry. The U.S. fiber industry consists of about
15 companies, mainly subsidiaries of large, U.S. and foreign
owned chemical companies. These firms, e.g., DuPont, have led
the world in developing and commercializing new synthetic fibers.
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U.S. fiber producers say that they are as efficient as any producers
in the world, but that they are badly disadvantaged because
their domestic customer base is shrinking while foreign trade
barriers seriously hamper export sales. Far Eastern apparel
and textile producing countries have been integrating backward.
For example, Taiwan (whose producers, U.S. manufacturers claim,
are subsidized) has increased its capacity significantly, becoming
not only self-sufficient but a substantial exporter of low-cost
fiber to offer in Asian markets. China and Korea have also
increased their fiber capacity dramatically. Table 15, attached,
gives fiber capacity data for the U.S. and principal foreign
countries since 1976.
Four U.S. fiber plants have closed in the last 18 months, and
a fifth is scheduled to close. No new plants have opened and
none is planned.
Cotton
USDA believes that additional restrictions on U.S. cotton textile
and apparel imports may result in a net loss for U.S. cotton
farmers if foreign nations retaliate.
In the 1982-84 period, according to USDA, about 25 percent of
U.S. cotton textile and apparel imports consisted of U.S. cotton.
With foreign cotton production accelerating rapidly, the proportion
of U.S. cotton textile and apparel imports comprised of U.S. cotton
could drop from about 25 percent to 15 percent in 1986. This
is especially likely if the U.S. minimum loan rate continues
to support U.S. cotton prices above foreign prices.
If U.S. cotton textile and apparel imports were to decrease,
U.S. mill use of domestically grown cotton (cotton imports are
minimal) would increase. That gain would be partially offset
by a decline in U.S. cotton exports, so that a 10 percent decline
in U.S. cotton textile and apparel imports might cause total
use of U.S. cotton to increase 100,000 - 200,000 bales a year
-- about 1.0 percent of the U.S. cotton crop. USDA
believes, however, that the loss of goodwill and possible trade
retaliation could more than wipe out that gain.
Labor Force and Job Loss
Table 16 shows that there are approximately 1.9 million textile
and apparel workers. Table 14, attached, gives data on the
characteristics of the labor force in the textile and apparel
industries. This table shows that in both industries:
The percentage of minority workers is high.
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The percentage of female workers is high.
-- The percentage of poorly educated workers is high.
-- Workers receive an average wage well below the average
of manufacturing workers throughout U.S. industry.
In short, the textile and apparel industries afford a large
number of entry-level jobs to women and minority members who
have difficulty finding jobs elsewhere. Moreover, many apparel
and textile plants are in small communities where alternative
employment is scarce. Apparel plant jobs may help attract illegal
immigrants to large cities.
Table 16 gives annual employment data in the textile and apparel
industries since 1972. The table shows that:
Apparel and non-apparel employment has declined by
over 500,000 jobs since 1974, and that about half
of that decline has occurred since 1981.
Until 1980 employment was declining about 1.4 percent
a year; since then the rate of decline has increased
to 2.1 percent.
Consumer Costs
The Council of Economic Advisors has estimated that if all U.S. tex-
tile and apparel tariffs and quotas were eliminated, American
consumers would save $39 billion a year, about $640 a year for
a family of four. The CEA also has estimated that if just quotas
were eliminated, consumers would gain $21 billion annually.
If the textile quota bill now before the Congress were to become
law, it would cost consumers an addition $14 billion a year,
according to CEA estimates.
CONFIDENTIAL SENSITIVE
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? ?
U.S. IMPORTS OF APPAREL
(Millions of Square Yards Equivalent)
Yearly
C hie
Import Share
of U. S. Market
1972 2,226
17.4
1973 2,090
- 6.2
17.3
1974 1,937
- 7.3
16.8
1975 2,077
+ 7.2
18.6
1976 2,449
+17.9
20.5
1977 2,466
+ 0.7
19.5
1978 2,905
+17.5
22.7
1979 2,671
- 8.0
21.7
1980 2,884
+ 7.9
24.7
1981 3,123
+ 8.3
25.6
1982 3,373
+ 8.0
26.9
1983 3,862
+14.5
27.7
1984 4,703
+21.7
33.0
Compound Annual Change:
1972-1984
+ 6.4
1980-1984
+13.0
Jan. -July
1984
2,905
1985
3,004
+ 3.4
Note: Imports are for cotton, wool and man-made fiber. Excluded
are from 1972-1984 figures are certain down-filled apparel items
which were not included in U.S. import statistics until 1982
(1984 imports equaled 11.6 million square yards). U.S. market
is production of all fibers minus exports plus imports.
Source: U.S. Department of Commerce
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U.S. IMPORTS OF NON-APPAREL
(Millions of Square Yards Equivalent)
Imports of
Yarns,Fabrics Yearly
& Made -Up Articles % Change
Imports of
Made-Up
Articles Only
Import Share
of Market I/
1972 4,010
384
2.9
1973 3,035 -24.3
358
2.7
1974 2,474 -18.5
315
2.5
1975 1,750 -29.3
228
1.9
1976 2,537 +45.0
329
2.5
1977 2,512 - 0.1
328
2.4
1978 2,835 +12.9
398
2.8
1979 1,968 -31.3
413
3.0
1980 2,000 + 1.6
403
3.1
1981 2,639 +32.0
490
3.9
1982 2,553 + 3.3
579
4.9
1983 3,536 +38.5
799
6.2
(8.4)*
1984 5,063 +43.1
1,238
9.0
(11.4)*
Compound Annual Change:
1972-1984 + 2.0
+ 10.2
1980-1984 +26.1
+ 32.4
Jan.-July
1984 3,378
980
1985 3,200 - 5.3
1,053 (+
7.5)
3,1 Market share for non-apparel is f or made-up textile products
other than apparel; such as soft-sided luggage, draperies,
sheets, etc.
Note: Imports are for cotton, wool and man-made fiber. Excluded
from 1972-1984 figures are certain man-made fiber products which
were not included in U.S. import statistics until 1983 (1984
imports equaled 37.4 million square yards). U.S. market is
production of all fibers (including imports of yarns and fabrics
consumed by domestic manufactures of the end product) minus
exports plus imports.
* Import share including certain man-made fiber products not
added in statistics until 1983.
Source: U.S. Department of Commerce
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Table 3
O N M M M 100 r-I M V M I O I 00 I ri 1
0 N r-1 V r-1 .?i
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+
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APPAREL & NON-APPARL
PRODUCTION AND APPARENT CONSUMPTION
(Millions of Square Yards Equivalent)
Apparel
Non-Apparel
Production
Apparent
Consumption
Production
Apparent
Consumption
1972
10,762
12,762
13,309
13,296
1973
10,244
12,110
13,778
13,475
1974
9,910
11,545
13,329
12,740
1975
9,378
11,183
12,636
12,280
1976
9,790
11,937
13,619
13,264
1977
10,497
12,638
14,090
13,769
1978
10,229
12,780
14,309
14,175
1979
10,131
12,311
14,198
13,815
1980
9,840
11,688
13,413
12,951
1981
9,923
12,246
12,942
12,694
1982
9,729
12,593
11,875
11,810
1983
10,135
13,548
12,937
13,468
1984
10,086
14,327
13,150
14,124
Compound Annual Change:
1972-
1984
- 0.5%
+ 1.0%
- 0.1%
+ 0.5%
1980-
1984
+ 0.6%
+ 5.2%
- 0.6%
+ 2.2%
Source: U.S. Department of Commerce
Note: Imports are for cotton, wool and man-made fiber. Apparent
consumption is production of all fibers minus exports plus
imports. Non-Apparel data is household and industrial made-up
items.
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?
APPAREL AND NON-APPAREL
EMPLOYMENT TOP 10 STATES
THOUSAND WORKERS)
State Seasonally
1974
1984
Change
AQntRatnemploy-
July 1985
North Carolina
349,700
312,500
- 37,200
5.6
Georgia
182,800
180,300
- 2,500
7.3
New York
253,400
177,100
- 76,300
6.1
South Carolina
198,900
162,700
- 36,200
6.7
Pennsylvania
209,200
148,000
61,200
7.8
California
117,900
123,100
+ 5,200
7.7
Tennessee
108,000
94,500
- 13,500
8.7
Alabama
101,400
94,400
- 7,000
9.3
Virginia
84,800
76,000
_ 8,800
5.8
New Jersey
91,100
66,500
Aooarel
- 24,600
6.0
1974
1984
Change
New York
199,900
145,100
- 54,800
Pennsylvania
149,800
113,900
- 35,900
California
93,000
109,000
+ 16,000
North Carolina
81,000
92,300
+ 11,300
Georgia
60,200
74,600
+ 14,200
Tenessee
74,000
68,900
- 5,100
Texas
73,500
62,000
- 11,500
7.7
Alabama
51,600
55,000
+ 2,400
New Jersey
62,500
51,500
- 11,000
South Carolina
44,700
49,700
+ 5,000
Non-Apparel
1974
1984
Change
North Carolina
281,200
220,200
61,000
South Carolina
154,200
113,000
41,200
Georgia
122,600
105,700
16,900
Virginia
45,000
43,400
1,600
Alabama
49,800
39,300
10,500
Pennsylvania
59,400
34,100
25,300
New York
53,500
32,000
21,500
Tenessee
33,700
25,600
8,100
Massachusetts
28,300
20,600
7,700
4.3
New Jersey
28,600
15,000
13,600
Source: Department of Labor
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U.S. TEXTILE MILL CLOSINGS
1983
1984
Jan-June 1985
Plants closed
47
46
48
Number
of Employees
8,650
11,200
8,200
Plants with
permanent
layoffs
Permanent
layoffs
1,160
2,000
1,350
Total permanent
layoffs
9,810
13,200
9,550
Source: American Textile Manufacturers Institute
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w ?
TEXTILE CORPORATE PROFITS
(Millions of Dollars)
Profits
Percent of
Percent of
Currents
Constants
Sales
Equity
1979
1,340
919
3.2
11.9
1980
977
611
2.2
8.4
1981
1,157
662
2.4
9.4
1982
851
487
2.0
6.9
1983
1,599
896
3.3
12.0
1984
1,635
879
3.1
11.2
Compound Annual Change:
1979-
1984
+ 4.1
- 0.9
- 0.6
- 1.2
1980-
1984
+13.7
+ 9.5
+ 9.0
+ 7.5
Sources: Department of Commerce
Constant dollars are based on 1972 as published in
1985 U.S. Industrial Outlook
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WORLD MAN-MADE FIBER PRODUCTION & CAPACITY
(Thousands of Metric Tons)
West
Europe
U. S
Other
Amer-
ica's
Japan
China
Taiwan
Korea
World
_
1976
2,303
2,746
541
1,204
52
272
309
8,601
1977
2,155
3,037
589
1,280
60
364
350
9,149
1978
2,344
3,218
638
1,376
137
464
433
10,034
1979
2,382
3,484
715
1,363
164
521
477
10,601
1980
2,169
3,234
735
1,358
248
558
536
10,476
1981
2,297
3,276
681
1,327
347
587
610
10,827
1982
2,176
2,603
669
1,304
369
631
612
10,140
1983
2,310
3,009
716
1,318
400
737
664
11,074
1984
2,422
2,936
786
1,369
701
866
746
11,893
1985*
2,978
3,607
1,104
1,654
1,015
1,055
762
15,401
1986*
3,022
3,631
1,122
1,654
1,095
1,210
842
15,956
Compound
Annual
Change:
1976-
1984
+ 0.6
+ 0.8
+ 4.8
+ 1.6
1980-
1984
+ 2.3
- 2.4
+ 1.7
+ 0.2
1985-
1986 *
+ 1.5
+ 0.7
+ 1.6
0
* Producing capacity, prior to 1985 is actual production
Source: Textile Organnon
Note: production if for noncellulosic yarns, monofilaments,
staple, tow and fiberfill.
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TEXTILE AND APPAREL
TOTAL EMPLOYMENT
(Thousand Workers)
Textile*
Apparel
1972
985.7
1,382.7
2,368
1973
1,009.8
1,438.1
2,448
1974
965.0
1,362.6
2,328
1975
867.9
1,243.3
2,111
1976
918.8
1,318.1
2,237
1977
910.2
1,316.3
2,227
1978
899.1
1,332.3
2,231
1979
885.1
1,304.3
2,189
1980
847.7
1,263.4
2,111
1981
823.0
1,244.4
2,067
1982
749.4
1,161.1
1,911
1983
741.3
1,163.4
1,905
1984
746.0
1,196.6
1,943
July
1985
690.6
1,121.5
1,813
Compound Annual Change:
1972-
1984
- 2.3
1.2
- 1.6
1972-
1980
- 1.9
- 1.1
- 1.4
1980-
1984
- 3.1
- 1.3
- 2.1
Source: Textile Mill Products (SIC22)
Apparel & Other Textile Products (SIC23)
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EMPLOYEE CHARACTERISTICS
Textiles
Apparel
All Manufacturing
Median Age (Years)
Male
37
37
37
Female
38
39
36
Percent High School
Graduates
Male
51
58
72
Female
48
47
66
(Source: OMB)
Percent Women
49
79
33
Percent Black
20
14
10
Percent Hispanic
4
14
6
(1984)
1984 Average
Hourly Wage
$6.39
$5.20
$9.20
(Source: Labor Department)
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I- ?
=thetical Rollback of U.S. Textile and
re Imports in 1984 Under S. 680
Percent Reduction of U.S. Imports of:
U. S. Imports Fran: Textiles &
8 are1 Riles B~tare.1
All Exporters
26.7
30.1
22.6
Major Ex_uorters
33.6
52.4
'28.6
Brazil
80.5
India
22.2
Pakistan
41.3
Thailand
64.4
Singapore
3.2
Indonesia
89.7
Philippines
21.2
Peoples' Republic of China
59.1
Korea
35.1
Hong Kong
14.7
Taiwan
47.9
Japan
20.1
Source: Department of Commerce, USTR
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? VUJU I L .tI If, ii. ?
Tab B
SUBSTITUTION OF TARIFFS FOR QUOTAS IN THE MAJOR MARKETS
The current system of discriminatory quo L provides a leaky
wall of protection for the domestic industry, Ike repair of which
involves repeated confrontations with some thirty supplying
nations and the associated uncertainty for producers both here
and in our LAC suppliers. The overall effect of this protection
is to promote production in relatively inefficient countries (the
U.S. and the EC) at the expense of the more efficient.
The protection which the domestic indust r" would receive from
tariffs would be more constant in terms of proini' margin but
(possibly) less predictable in terms of the absolute volume of
imports. (Either more of fewer import might result.) This
protection would be additive to the competitive effects of
currency movements, i.e., it could be either magnified or offset
by them. There would be greater reliability of supply for
importers/retailers and, as a result, possibly lower profit
margins. There would also be greater competition among foreign
suppliers leading to lower export prices, even from-the most
efficient producers (who had been collecting the greatest quota
rents).
A likely summary of the outcome on the domestic ledger is
that while prices to producers would be generally unchanged,
retail prices could be somewhat lower, and collections of import
duties would go up quite substantially (i.e., by at least $ 1
billion). The national economic welfare would thus clearly be
increased. Likewise, the international political benefits,
especially in the longer run, would be considerable.
The technical problems posed by an orderly conversion to MFN
tariffs as the principal means of protection for the textile and
apparel industries in the developed world are substantial. As
the discussion below brings out, though, there are a number of
ways to approach these problems and the rewards appear sufficient
to make the undertaking worthwhile.
Current Levels of Tariffs
Industrial country tariffs on textiles and apparel are
variable but generally much higher than on other goods. As Table
1 indicates, of the major markets the United ?tes and Canada
have the highest tariffs--trade-weighted averages of around 20
percent. Finland and Austria, however, have the highest average
duties on the textiles and apparel complex of some 30 percent.
These two countries, followed by the United States and Canada,
also have the largest absolute disparity between textile and
apparel duties and average duties on manufactured imports as a
whole, suggesting the highest degree of relative protection.
(Although comparable data are not available for-Australia and New
CONFIDL4l.
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 ULaIgl ILJLII Ifni
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? 2
a
Zealand, it should be noted that they also have ver high
duties--close to 100 percent on some apparel items.
Partly as a result of the high level of duties for textiles
and apparel, the tariff structures of the industrial textile
trading. nations are also c,iracterized by a very high degree of
tariff escalation in thi ea, as shown in Table 2. It is
notable in the case of the United States that there appears to be
negative effective protection on made-up articles and very high
duties on fibers, at least when compared to other importing
countries.
Table 3 gives data on the dispersion on tariffs by level for
these same eight importing -:ountries which are useful in crafting
formulae for additional t ffs, as demonstrated below. For
example, given the sensit ity of the U.S. garment industry to
imports, any tariff formulae would have to preserve, if not
increase, the effective protection embodied in our current tariff
schedules. One way to do this would be to add uniform increments
of duty to those currently prevailing, or larger increments for
apparel than textiles, or simply to multiply the current duties
by some factor.
Another consideration raised by the disparity of current
duties would be the effect of possible harmonization of duties
across importing markets as a way to increase import flows into
those markets which have prohibitively high duties, such as
Finland, New Zealand, and Australia. We would want to be
careful, though, that the considerable tariff escalation between
the fabric and garment stages in the United States not be
compromised in the course of item by item (or group by group)
harmonization with other importers. An advantageous approach
might be to seek a ceiling on duties at 'prohibitive" levels,
arbitrarily defined to accomodate the U.S. tariff structure (and
those of the other major traders), but not the truly high-duty
countries. were post-Tokyo Round duties to be doubled, for
example, all but 6 percent of U.S. tariff line items would be
accomodated by a ceiling of 40 percent a.v.e., while 31 percent
of Canadian, 34 percent of Austrian, 79 percent of Finnish, and
presumably most Australian and New Zealand tariffs could not go
up by their full "formula" amount. (See Table 3.)
Tariff Equivalents of Quotas
While there has been some empirical research in the United
States on the question of t:.- tariff equivalent of the quota
system in effect on textiles and apparel, it has been limited in
scope and is now somewhat dated. We do not know of comparable
work done in other importing markets.
Interagency calculations in May, 1985, based on the work of
Morkre and Tarr, estimated the tariff equivalents of existing
U.S. quotas in 1964 to have been some 12 percent for textiles and
24 percEr.t for apparel, i.e., increments approximately equal to
CGNrIDEir' u;,4.
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cNFI1iTIAL
the existing average tarif on these product groups. The
relative restrictiveness between these two groups is consistent
with general expectations. It is also confirmed by data on the
relative portions of imports in each group under import control:
43 percent for non-apparel and 60 percent for apparel in 1984.
Alternative analytical approaches would produce somewhat
different results, but it should be kept in mind that domestic
political imperatives and negotiating possibilities will be more
determinant of a formula (for the substitution of tariffs for
quotas) than the results of any econometric determination of
equivalence. Moreover, there is little doubt that the
restrictive effect of quotas is by no means constant, much
less readily measured. (Quotas are based on absolute numbers
rather than market share, will vary considerably by product and
over the business cycle. One advantage of tariffs over quotas
frow the viewpoint of the domestic industry is that they provide
a producer of a given product a constant margin of protection
regardless of swings in consumer taste or overall demand.)
Nonetheless, the 12 and 24 percent figures are useful in
providing an order of magnitude and possible point of departure
in the search for a means to convert quota protection to tariff
protection without adversely affecting domestic economic
interests.
In an effort to determine which importing markets and
products receive relatively more protection under existing quota
regimes, one might look at the degrees of utilization of the
quantitative restraints involved. In theory, the more
restrictive a quota, the higher its utilization. The data do not
support any meaningful conclusions, though. Table 4 shows the
decree of utilization of quota by supplier and imported over some
recent years. These data demonstrate the variable
restrictiveness of particular restraints over time and, even more
dramatically, the differential restrictiveness across suppliers
(for one importer) and across importers (for one supplier). For
these reasons and the fact that the structures, mechanisms, and
category systems of various importing nations all differ, it is
hard to interpret these data in any meaningful manner.
Another way to attempt to measure tariff equivalents of
quotas across countries would be to make international price
comparisons for each of a wide range of comparable products and
then adjust the results for applicable tariffs, taxes and fees.
This would be a huge technical undertaking which could yield
results of limited practical value because of differences in
marketing practices internationally, including costs of doing
business, among other factors.
Prcbahle Trade Effects
Substituting tariffs for quotas should result in the
maintenance of the existing overall competitive situation for
producers in importing markets. This could be defined in a
CONFIDENTIAL
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CONFIDENTIAL
number of ways (e.g., in either value or volume terms as import
level, import penetration, or trade balance) and at a number of
levels.(e.g., individual product, product group, or in
aggregate).
while the overall trade situation would be unchanged,
significant adjustments would be expected in other respects,
though. The substitution of KFN for discriminatory restraints
would presumably result in considerable shifts in sourcing, from
DCs and less efficient LDCs to the more efficient LDCs. Based on
current market shares (in descending. order of magnitude), this
would make Taiwan, Korea, Hong Kong and China winners and Italy,
west Germany, Canada, and the UK losers. The product composition
of trade might well change too, although in an unpredictable
fashion, due to differential price elasticities of import demand.
This is especially likely where the equivalent tariffs of the
earlier quotas are determined for relatively large product
aggregates. (Looked at the other way, the earlier subjecting of
large categories to quotas created greater distortions of product
composition due to upgrading.)
Assuming other developed countries were to apply similar
MFN increases in duties in the place of their quotas on LDCs, our
exports (largely textiles) to them could be reduced. The overall
significance of this side-effect for our industry would of
necessity be small because even in textiles only three percent of
domestic production is exported to developed countries. (The EC,
which exports some $7 billion to developed countries, would face
greater difficulties.) we could largely avoid even this minor
adverse effect though, if we chose to, by negotiating with our
'Gentleman's Agreement' partners to minimize increases in the
rates of duty to be applied to particular products of interest to
us. This would be most readily achieved through "carve-outs' of
particular goods, including high-valued products. Duty increases
would be on an MFN basis, but our more important two-way trade
could be largely insulated from adverse effects.
In addition to such agreements, adverse effects on U.S.
exports might be offset in part if the more efficient producers
of garments (who would be expanding operations) were particularly
reliant on our textiles or if they were to provide greater market
access. As Tables 5 and 6 show, developing countries maintain
even higher levels of tariff (and possibly non-tariff) barriers
to imports of textiles and apparel than do the industrial
markets. It would be a reasonable U.S. negotiating request, and-
possibly a political necessity to sell conversion to tariffs
domestically, to seek very substantial liberalization on our
textiles from the LDCs. For example, any ceiling applicable to
duties by importing nations as discussed above might equally
apply to supplying nations. (The suspension of quotas for a
particular supplier might be conditioned on such liberalization.)
There would be another factor which could compensate our
-textile producers for any lost sales-to other *Gentleman's
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a
C
n!
Agreement' countries which might also convert to tariffs. Higher
U.S. tariffs on garments would increase the incentive to all
foreign assemblers to use American parts and enter goods under
TSUS item number 807.
Implementation
Legislation would be needed to impel sntt thee w eandnvisioned
substitution of tariffs for quotas und U.S.
in most other textile trading countries as well. Delays and
possible complications would be likely but could be accomodated
in such the same way that acceptances of the MFA have been spread
out over the years and compliance with its provisions has not
been uniform or perfect. For example, importing markets might be
authorized to maintain (and extend) ex' '.ng quantitative
restrictions for some period while the, cgotiate with domestic
interests and foreign suppliers the particular adjustments in
tariffs they would make consistent with the agreed formula.
Similarly, as discussed above, individual exporters could be
denied the benefits of the relaxation of quotas by the major
industrial markets until these exporters had taken steps to
reduce to some agreed maximum their import barriers on such
goods.
The problems posed by the legislative process in the United
States are always considerable when it comes to trade, but should
not be daunting in this instance because, unlike most others,
trade liberalization would not be sought. Indeed, the levels of
duty envisioned for the United States are well in excess of those
which Congress mandated (in section 504 of the Trade Agreements
Act of 1979) to go into effect should quantitative restraints
cease to apply.
Those members of Congress which have pushed for textile
legislation on the grounds that current partial restraints have
not been effective might prefer a global tariff approach to a
fine-tuned discriminatory system. The considerable revenue
raising potential of the tariff approach and related capture of
the existing foreign quota rents (as well as the profit-paring
effect on importers/retailers) would be strong selling points.
Most of Congress' concerns with effective and fair enforcement of
the current-system (including release from embargoes, origin
determinations, transhipments, overshipments and prior visa
approval) would also be made moot by the conversion to MFN
tariffs. Customs staffing and other resources dedicated to the
complex operation of the textile prograt could be redirected to
other projects.
For a proposed tariff increase to receive legislative
approval here and in other importing markets, it would have to
meet the particular needs of especially import sensitive or
politically important sectors. Rather than rigidly applying a
tariff formula across all items, we might want to to increase
duties by some trade-weighted average while retaining the freedo7
CQNFIDENTIAL
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ONFIOENTIAL I
to spread the burden across products as we wish. This would of
course be a complicated process but well worth ttie effort in view
of the economic and international political benefits of this
approach which would accrue as long as it was in effect.
Similarly, both Import-competing industries and exporting
interests will dis? st the calculations which would underly the
conversion to tariffs and want to be able to make considerable
adjustments in the tariffs on the basis of market results after
the initial conversion. This would constitute a very natural
safeguard against unforeseen developments or the unpredictability
of the effects of a tariff system presumed by many in industry.
For example, if import penetration were to rise (or fall)
more than a certai: o'ireshhold from a base period, uncompensated
adjustments in the e,'Ly would be provided for. Building on the
illustrative figures mentioned above, after doubling existing
tariffs an increment (or decrement) of say 10 percentage points
might be allowed were the market results to indicate the tariffs
for a particular product provided significantly more or less
protection than the earlier quotas. Alternatively, only
compensated adjustments might be allowed, but they could be of
much larger degree and more permanent.
The final implementation of a conversion to tariffs could be
linked to a new trade round if we wished to try to use it as a
carrot to induce LDC support or, alternatively, it might be
formally agreed that the results of the conversion would be
exempted from future multilateral tariff concessions for a decade
or so to increase its saleability to import competing industries.
Presumably no Article 19 actions would be allowed for textiles
and apparel until after subsequent tariff cuts were made in a
multilateral round, or possibly even until cuts were made to
levels below post-Tokyo Round levels. In all other respects,
though, the conversion to tariffs could mark the return to full
application of GATT rules to this sector.
CONIJOENTIAL
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CWTRI11C IT BO1CTO
:rtLTt/0 00OOTtitia P FIR UNIT=
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1,71-11 2
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1980
1981
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67.7
75.6
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69.3
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43.0
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Sweden
U.S
?3.0
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7
88
79.7
84.7
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.
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$6.6
33.1
73.3
.
8
66
Canada
0
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67.4
61.1
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73.1
80.3
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Finland
Sweden
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89.6
93.0
89.2
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Singapore
54
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33.4
61.3
66.1
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.
9
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33.7
43.6
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Canada
69.9
63.2
52.6
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Sc
24.9
16.8
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Finland
Sweden
101.8
92.3
Sri Lanka
$1.2
80.6
83.3
United states
69.2
$6.3
41.8
SC
69.7
Finland
Sweden
69.8
85.8
rtailand
2
70
73.4
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74.6
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74.1
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63.3
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' 78.1
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51.6
66.8
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Finland
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97.0
91.9
93.3
$5.8
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1
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1979
1980
1981
1962
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Orated states
97.4
60.2
74.9
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102.7
97.3
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74.3
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Vatted states
23.1
91.1
. 17.4
39.4
39.3
.
79.3
39
8
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Sweden
Colombia
61.7
$6.3
47.2
54.1
.
43.3
49.1
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36.2
36.0
71
9
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Valted states
64.7
36.9
75.4
71.6
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33.3
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35.4
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9
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Bulgaria
Canada
35.1
46.1
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23.6
3.1
11.4
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6.0
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Czechoslovakia
Canada
St
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42.3
102.0
45.3
70.5
33.6
60.5
62.4
.
32.7
69.5
64.2
Canada
168.8
37.0
3.0
75
0
SC
Poland
Gaited States
54.7
20.2
33.4
32.8
39.5
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28
.
32.5
24
2
Canada
78.4
32.6
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51.2
.
54.3
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Vatted states
68.2
68.3
58.9
39.7
43.5
78
3
32.9
64
4
Canada
89.6
134.6
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9
37
.
33
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Orit.1 states
37.0
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30.0
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82
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68
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China
.
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75.8
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87.1
91
3
77
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Canada
169.8
99.1
.
115.1
.
64.2
&Supplying countries have been included in this table when they
have a restraint with more than one of the five iagorting areas for
which quota utilization data have been received. The above data are
of 11aited comparability in terms of quota definitions. product
categories and tlae periods covered. They should be taken therefore
as only rough Indications of the relative perforsance of supplying
countries in the five import markets.
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