US International Trade and the Global Economic Crisis

E. James, William Working Paper US International Trade and the Global Economic Crisis ADB Economics Working Paper Series, No. 179 Provided in Cooperation with: Asian Development Bank (ADB), Manila Suggested Citation: E. James, William (2009) : US International Trade and the Global Economic Crisis, ADB Economics Working Paper Series, No. 179, Asian Development Bank (ADB), Manila, https://hdl.handle.net/11540/1836 This Version is available at: https://hdl.handle.net/10419/109371 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/3.0/igo ADB Economics Working Paper Series US International Trade and the Global Economic Crisis William E. James No. 179 | November 2009 ADB Economics Working Paper Series No. 179 US International Trade and the Global Economic Crisis William E. James November 2009 William E. James is Principal Economist, Macroeconomics and Finance Research Division, Economics and Research Department, Asian Development Bank. The author is grateful for the comments and suggestions received from Joseph E. Zveglich, Jr., and participants at a seminar hosted by the East-West Center, 10 July 2009 in Honolulu, Hawaii. Any errors are the responsibility of the author. The author thanks Shiela Camingue for her research assistance. Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org/economics ©2009 by Asian Development Bank November 2009 ISSN 1655-5252 Publication Stock No. WPS The views expressed in this paper are those of the author(s) and do not necessarily reflect the views or policies of the Asian Development Bank. The ADB Economics Working Paper Series is a forum for stimulating discussion and eliciting feedback on ongoing and recently completed research and policy studies undertaken by the Asian Development Bank (ADB) staff, consultants, or resource persons. The series deals with key economic and development problems, particularly those facing the Asia and Pacific region; as well as conceptual, analytical, or methodological issues relating to project/program economic analysis, and statistical data and measurement. The series aims to enhance the knowledge on Asia’s development and policy challenges; strengthen analytical rigor and quality of ADB’s country partnership strategies, and its subregional and country operations; and improve the quality and availability of statistical data and development indicators for monitoring development effectiveness. The ADB Economics Working Paper Series is a quick-disseminating, informal publication whose titles could subsequently be revised for publication as articles in professional journals or chapters in books. The series is maintained by the Economics and Research Department. Contents Abstract v I. Introduction 1 II. Direction of US Trade: Preferential and Non-Preferential Trade 5 III. What is the Matter with Trade within NAFTA?Case Studies of Autos and Textiles 8 IV. Conclusions 26 References 30 Abstract World trade volume is in retreat for the first time in more than two decades and the contraction is on a scale not seen since the global recession following the second oil shock of 1979–1980. The United States (US) is at the epicenter of the crisis and is a major source of external demand for developing Asia and Pacific economies. US import and export data are examined to understand the repercussions of the crisis for international trade, particularly for export-oriented economies in East and Southeast Asia. US trade with preferential trade partners is found to be contracting significantly faster than trade with the rest of the world. Moreover, US imports that avail of preferential tariff treatment are also contracting more sharply than imports from non-preferential partners. Developing Asian non-preferential suppliers appear to be performing better in the US market than free trade agreement partners. If preferential trade is faltering and trade disputes are on the rise, the question becomes whether the multilateral trading system can ride to the rescue before protectionist forces begin to strangle world trade. The failure of bilateral free trade agreements to act as a shock absorber suggests that a new global trade deal may be the way forward. The outcome is crucial as the US will need to expand net exports to restore growth and unwind its global debt obligations. US imports under preferential free trade agreements started to contract earlier than imports as a whole when examined quarter-on-quarter and, measured year-on-year, contracted more rapidly than US imports from the world. Quarter-on-quarter imports from partners in NAFTA began to slide in the third quarter of 2008, even as overall imports from the world continued to expand. For the first 8 months of 2009, all US imports from NAFTA partners declined more rapidly than imports from all suppliers (–22.4% vs. –19.1% constant prices). The United States International Trade Commission (USITC) publishes import data by special import program, including “free trade” (preferential) agreements such as NAFTA. Growth of US imports, measured in constant prices, from Canada and Mexico under NAFTA preferences was –1.63% in the third quarter of 2008 compared with the previous quarter and the rate of decline then accelerated to –4.2% in the fourth quarter of 2008 and a startling –25.3% in the first quarter of 2009 (this compares with a global drop of –1.5 percent in the fourth quarter of 2008 and –20.5 percent in the first quarter of 2009). Cumulatively, US imports under NAFTA preferential tariffs contracted by 25.7% compared with a global contraction of 19.1% (in constant prices). Quarter-on-quarter imports in constant prices from all US bilateral free trade agreements that were in force as of the third quarter of 2008 show a similar pattern to NAFTA of accelerating contraction from –3.6% in the fourth quarter versus the third quarter of 2008, and further declining to –16.9% in the first quarter of 2009 over the fourth quarter of 2008. Cumulatively, US imports from free trade agreement (FTA) partners fell at a rate of –21.0% in the first 8 months of 2009 compared with that in the same period in 2008, slightly higher than US imports from the world (Table 1). However, US imports under FTA preferences fell by more: 25.2% in the first 8 months of 2009 compared with that in the same period in 2008. Imports from non-preferential suppliers in developing Asia contracted by just 2.3% in the first 8 months of 2009, in stark contrast to the collapse in imports from all suppliers and from FTA suppliers in particular. US exports to NAFTA partners (in constant prices) have also contracted more sharply than US exports to all trading partners in the world (Table 2, bottom section, rows 1 and 2), whether measured in nominal or real terms. For all FTA partners, the collapse in US exports is –23.5% in the 8 eight months of 2009 (constant prices) compared with –21.3% for all destinations and –19.4% for all major non-preferential destinations.5 US exports to non-preferential partners in developing Asia also contracted less than those to FTA partners in 2009 (–20.3% vs. –23.5%). Year-on-year detail of the direction of trade for imports and exports underscores the point that US preferential trade appears to be collapsing more rapidly than trade with partners ineligible for preferential treatment, thus raising the question of whether preferences 5 Gordon (2009) finds that US exports to FTA partners through 2008 had grown more slowly than exports from other non-FTA member suppliers, particularly those in Asia and Europe. US International Trade and the Global Economic Crisis | 7 have encouraged trade diversion in the past during the boom. The possibility that NAFTA diverted large amounts of trade from nonmember countries in relatively highly protected and high-cost sectors in Canada, Mexico, and the US is a cause for concern (Romalis 2005). This diverted trade appears to be unwinding rapidly in the face of the severe economic downturn.6 III. What is the Matter with Trade within NAFTA? Case Studies of Autos and Textiles The reasons underlying the more rapid contraction of trade under US bilateral free trade agreements than trade under the auspices of most-favored nation (MFN) tariffs are not difficult to identify.7 In manufacturing trade (which represents the overwhelming share of merchandise trade receiving preferential treatment), two sectors come immediately to mind and will be the focus of the bulk of this paper. They are the two manufacturing sectors that had the strongest lobbies during the negotiation of NAFTA and most other US bilateral talks—autos and textiles. Together, these sectors accounted for 28% of US merchandise imports that entered the US market under NAFTA preferences in 2007, and although this share dropped to 25% in 2008, preferential trade was still heavily weighted toward these sectors even during the severe recession.8 The so-called “Big 3” auto giants (General Motors, Ford, and Chrysler) were very active in the NAFTA negotiations (Cameron and Tomlin 2000). The rules that determine if a good is eligible or not for preferential tariff treatment under the NAFTA were a key focus of lobbyist activity on behalf of the US automakers and textile producers—the rules of origin.9 6 A long-festering trade dispute between the US and Mexico over the access of Mexican trucks to the US market led to Mexico imposing penalty tariffs on 90 US industrial and agricultural export products in March 2009. These tariffs may have had an additional negative impact on US exports to Mexico in subsequent months, but would not explain the sharp deterioration overall. 7 Tighter border security measures along the northern (Canada) and southern (Mexico) borders may have had some impact on trade flows in 2009 but efforts to ensure that cross-border trade flows are not adversely affected make it unlikely that these measures could explain even a small fraction of the decline in intra-NAFTA trade in recent quarters of 2008 and 2009. 8 The share of imports under the NAFTA preferential tariffs in these sectors can readily be calculated from Tables 4– 6. Note that calculations using US general imports (Talbe 4–6) will differ from using US imports from consumption (Table 1). 9 Rules of origin under the US–Canada Auto Pact (1965) and under the Canada–US Free Trade Agreement (1989) were already highly restrictive (Baldwin 2008). With restrictive rules of origin and the fact that either one complies with the rules and gets preferential treatment or does not (“all or nothing”) means that even with an external tariff of 5% on a built-up vehicle, the effective rate of protection on parts and components is substantial (Baldwin’s example is of a car selling for $20,000 and a rule of origin requiring a component to be sourced within NAFTA. The component could therefore be priced as much as $1,000 more than a like component imported from outside the NAFTA). 8 | ADB Economics Working Paper Series No. 179 The rules of origin for autos within NAFTA are highly restrictive and subject to a graduated increase in regional content requirements that ended up at 62.5% of the value of the physical components that are used to assemble a finished vehicle.10 It is not just the rules themselves, however, that is the sticking point—it is also how the rules are administered. In the case of autos, the Big 3 wanted not only to restrict imports from non-NAFTA members but also to inhibit the movement of vehicles produced by rival transplants already operating within the borders of NAFTA members—such as Honda Motors.11 Hence, there are complex tracing requirements that are designed to make it difficult for Honda to take advantage of NAFTA preferential trade even when major components such as engines, drive-trains, and chassis and bodies are assembled or otherwise produced within the US, Canada, or Mexico. The textile industry in the form of the American Textile Manufacturers Institute (ATMI) was also hugely influential in the negotiation of rules of origin for textiles and apparel (Cameron and Tomlin 2000). The Mexican industry was similarly disposed to favor restrictive rules of origin in return for the US to phase out quotas on imports of apparel from Mexico well in advance of quota elimination under the Agreement on Textiles and Clothing (ATC). Not only that, but unlike in the case of autos, rules of origin in textiles were negotiated directly by the textile committee instead of the rules of origin committee. Consequently, the textiles rules of origin became known as “Neanderthal” (Cameron and Tomlin, 2000). They amount to practically a 100% regional content rule, with exceptions only for some fabrics and yarns not at all produced within NAFTA borders (e.g., silk fabric). The yarn-forward rule means that an article of apparel must undergo a tripletransformation beginning with yarn that must be spun within North America to be woven or knit into fabric (including dyeing and finishing) and then finally be assembled into apparel to be eligible for duty-free tariff treatment.12 The incentive to operate within such a restrictive rules regime is not hard to discern—US most-favored nation tariffs involving apparel made of synthetic fiber fabrics peak at over 30% and average applied MFN tariffs for apparel from non-preferential sources are over 14% and those on textiles exceed 10% (James 2007). 10 Mexico had local content requirements in its auto sector that served to protect the interests of its parts and components producers—the largest employer and owned by Mexican nationals (Cameron and Tomlin 2000). The US negotiators won over the Mexicans by agreeing to a gradual, transitional phase out of the local content requirements with a promise that US automakers would source parts and components from Mexico in return. 11 According to Cameron and Tomilin (2000) the Canadian negotiators wanted to retain the 50% rule that was agreed under the previous FTA and the auto pact between the US and Canada to enable Canada-based Honda plants to continue to compete in the US market and to improve access in Mexico. Destler (2006) provides a similar alternative explanation of how 62.5% was arrived at but also notes the interest of the Canadian and Mexican governments in access for transplants to the US market (as well as for each other’s markets). No one disputes the critical role of the “Big 3” in influencing the outcome. 12 The US textile lobby has also succeeded in imposing highly restrictive rules of origin in other agreements offering preferential access to the US market for apparel including under the various unilateral nonreciprocal agreements such as the Andean Pact, among others. For discussion see Rivoli (2005). In contrast to most US preferential trade deals, Haiti was granted less restrictive rules of origin in 2008 under the Hope II Program legislation and has in 2009 seen garment shipments to the US rise by over 28% through August (Emerging Textiles.com 2009). US International Trade and the Global Economic Crisis | 9 US manufacturing trade with Canada and Mexico is strongly influenced overall by autos and textiles. For example, in 2007, automotive components and vehicles from NAFTA partners account for, on average, about 14% of all US NAFTA imports.13 The large volume of US transactions (including exports and imports) in autos with Canada and Mexico (Table 3) reached $118 billion in 2007 or over one-tenth of all US merchandise trade within NAFTA. Romalis (2005) argues that NAFTA led to increased North American output and prices in sectors with high protection (and high preference margins) by driving out imports from nonmember countries. Even though US and Canadian most favored nation (MFN) tariffs on automobiles and automotive parts and components are relatively low on average (2.5–5.4%), some tariffs peak at 25% (WTO 2007). Mexican auto tariffs are a good deal higher—averaging nearly 15% on an MFN basis (WTO 2008). Moreover, parts and components are typically traded intensively across borders, so the effect of even small tariffs becomes magnified—thereby putting non-NAFTA parts and components at a distinct disadvantage in trying to compete with those of NAFTA members. This type of “imported protection” is a result of highly restricted rules of origin coupled with substantial preference margins and has led to the conclusion that such arrangements will make it more difficult for the US to agree to multilateral liberalization because the effects of MFN tariff liberalization on output and price declines would be magnified (Limao 2006; Romalis 2005). The impact of a severe recession on highly protected and inefficient sectors with substantial trade within NAFTA may also have been magnified by previous large trade diversion. Automotive Trade Case Study. With the onset of the crisis in the US auto sector, trade in motor vehicles and components is in a state of collapse with cumulative (January– August) 2009 imports and exports within NAFTA being nearly halved from the same period in 2008 (Table 3). In the case of 2009 imports of automotive parts and components with Canada, there is virtually no difference with the decline in imports of built-up units (Table 3, left panel rows 2 and 3) in contrast with Mexico where the previous positive growth in vehicle imports in 2008 has now dramatically been reversed. It is noteworthy that in 2007 and 2008 automotive trade with Mexico, US imports are dominated by builtup vehicles rather than parts and this is also true in automotive trade with Canada and for NAFTA partners combined. However, in 2009, this relationship is being upset in the case of imports from Mexico with built-up vehicles collapsing much faster than imports of parts. Over 93% of US imports of auto parts come under NAFTA preferences in 2007 and the share of built-up vehicle imports is over 99%.14 Combined together, automotive imports from NAFTA partners that take advantage of NAFTA or auto pact preferences are over 95% of total automotive imports from Canada and Mexico (Table 4). This compares with a ratio of just over 50% for imports from these partners as a whole. The reason for the high 13 On average, the sectors of textiles (including clothing) and autos and components account for about 16% of all US imports from NAFTA, but the share of US preferential imports from these sectors typically exceeded 25% of all US preferential imports under NAFTA in recent years. 14 See imports of HTS 8708 and HTS 8703, USITC Interactive Tariff and Trade DataWeb, available: dataweb.usitc.gov. 10 | ADB Economics Working Paper Series No. 179 Table 3: US Trade in Motor Vehicles and Parts (Value in Million US$, Current prices) Supplier of US Imports 2007 2008 % Change YTD 2008 YTD 2009 % Change Destination of US Exports 2007 2008 % Change YTD 2008 YTD 2009 % Change Canada 48,506 40,666 −16.16 28,587 14,837 −48.10 Canada 34,250 31,033 −9.39 22,208 11,525 −48.11 HS 8708 Parts 11,396 9,021 −20.84 6,562 3,100 −52.75 HS 8708 Parts 18,449 15,717 −14.81 10,997 6,601 −39.97 HS 8703 Motor Cars 37,109 31,644 −14.73 22,025 11,736 −46.71 HS 8703 Motor Cars 15,801 15,315 −3.07 11,212 4,924 −56.08 Mexico 23,549 23,331 −0.92 15,670 9,617 −38.63 Mexico 11,722 12,360 5.44 8,075 4,802 −40.53 HS 8708 Parts 10,053 9,388 −6.61 6,519 4,372 −32.94 HS 8708 Parts 8,018 8,299 3.50 5,525 3,928 −28.90 HS 8703 Motor Cars 13,496 13,944 3.31 9,150 5,244 −42.69 HS 8703 Motor Cars 3,704 4,061 9.64 2,550 874 −65.73 Sub-Total NAFTA 72,055 63,997 −11.18 44,257 24,453 −44.75 Sub-Total NAFTA 45,973 43,393 −5.61 30,283 16,327 −46.09 HS 8708 Parts 21,449 18,409 −14.17 13,082 7,473 −42.88 HS 8708 Parts 26,468 24,016 −9.26 16,522 10,529 −36.27 HS 8703 Motor Cars 50,606 45,588 −9.92 31,175 16,981 −45.53 HS 8703 Motor Cars 19,505 19,376 −0.66 13,762 5,798 −57.87 Germany 20,936 21,399 2.21 14,827 7,494 −49.46 Germany 8,046 9,375 16.52 6,688 3,435 −48.64 HS 8708 Parts 3,290 3,029 −7.93 2,172 1,340 −38.32 HS 8708 Parts 855 851 −0.54 606 483 −20.21 HS 8703 Motor Cars 17,646 18,370 4.10 12,655 6,154 −51.37 HS 8703 Motor Cars 7,190 8,524 18.55 6,082 2,952 −51.47 Japan 52,078 48,976 −5.96 35,254 16,532 −53.11 Japan 1,518 1,499 −1.25 1,110 579 −47.82 HS 8708 Parts 8,434 7,461 −11.54 5,244 2,957 −43.61 HS 8708 Parts 998 950 −4.79 720 270 −62.45 HS 8703 Motor Cars 43,644 41,514 −4.88 30,010 13,575 −54.77 HS 8703 Motor Cars 520 549 5.52 390 309 −20.80 Korea 10,344 9,489 −8.27 6,795 4,309 −36.59 Korea 759 641 −15.58 456 282 −38.17 HS 8708 Parts 2,126 2,034 −4.31 1,491 725 −51.36 HS 8708 Parts 409 265 −35.32 180 101 −43.74 HS 8703 Motor Cars 8,218 7,455 −9.29 5,303 3,583 −32.44 HS 8703 Motor Cars 350 376 7.49 275 180 −34.52 UK 4,403 4,226 −4.02 3,009 1,369 −54.50 UK 1,789 1,501 −16.12 1,120 198 −82.33 HS 8708 Parts 352 300 −14.73 220 141 −35.75 HS 8708 Parts 360 333 −7.45 248 115 −53.73 HS 8703 Motor Cars 4,051 3,926 −3.09 2,789 1,228 −55.98 HS 8703 Motor Cars 1,429 1,167 −18.31 872 83 −90.48 Sub-Total 87,762 84,090 −4.18 59,885 29,704 −50.40 Sub-Total 12,112 13,015 7.46 9,373 4,493 −52.06 HS 8708 Parts 14,203 12,825 −9.70 9,128 5,164 −43.43 HS 8708 Parts 2,622 2,399 −8.53 1,754 970 −44.71 HS 8703 Motor Cars 73,559 71,265 −3.12 50,757 24,540 −51.65 HS 8703 Motor Cars 9,489 10,617 11.88 7,619 3,524 −53.75 World 179,669 166,778 −7.17 117,861 61,572 −47.76 World 79,371 82,456 3.89 56,195 29,965 −46.68 HS 8708 Parts 45,151 40,668 −9.93 28,853 17,106 −40.71 HS 8708 Parts 34,578 31,749 −8.18 21,975 13,941 −36.56 HS 8703 Motor Cars 134,518 126,110 −6.25 89,007 44,466 −50.04 HS 8703 Motor Cars 44,793 50,707 13.20 34,220 16,024 −53.17 Notes: Data are for US general imports including re-exports as these appear to be significant in the automotive sector. YTD refers to data from Jan-Aug. Source: USITC Interactive Tariff and Trade DataWeb, available: http://dataweb.usitc.gov/. US International Trade and the Global Economic Crisis | 11 proportion of preferential trade in total is that within automotive production networks, auto parts and components are repeatedly transshipped across borders, magnifying the value of the small margins of preference on single transactions. Table 4: Preferential Share of US Imports from NAFTA Partners in Value Terms (In Million US$, Current prices) Partner 2004 2005 2006 2007 2008 YTD 2008 YTD 2009 Total Imports Canada NAFTA-CA 131,606.6 146,221.7 159,061.8 157,283.8 159,891.9 112,285.8 65,894.9 Other Preferential Program 142.9 177.5 215.5 240.7 269.4 185.2 169.9 No Program Claimed 124,178.4 141,471.0 144,139.0 155,586.4 175,393.9 122,925.0 76,376.5 Total 255,927.9 287,870.2 303,416.3 313,110.9 335,555.3 235,396.0 142,441.3 Preferential Share 51.48% 50.86% 52.49% 50.31% 47.73% 47.78% 46.38% Mexico NAFTA-MX 95,262.3 104,159.3 117,820.0 120,757.4 115,586.6 79,640.8 55,696.2 Other Preferential Program 84.4 49.1 77.2 40.5 60.7 40.9 28.0 No Program Claimed 60,499.0 65,989.5 80,361.5 90,001.2 100,267.5 68,864.1 53,191.5 Total 155,845.7 170,197.9 198,258.6 210,799.0 215,914.9 148,545.9 108,915.7 Preferential Share 61.18% 61.23% 59.47% 57.30% 53.56% 53.64% 51.16% NAFTA NAFTA 226,869 250,381 276,882 278,041 275,479 191,927 121,591 Other Preferential Program 227 227 293 281 330 226 198 No Program Claimed 184,677 207,460 224,500 245,588 275,661 191,789 129,568 Total 411,774 458,068 501,675 523,910 551,470 383,942 251,357 Preferential Share 55.15% 54.71% 55.25% 53.12% 50.01% 50.05% 48.45% Automotive Imports Canada NAFTA-CA 46,235.3 47,096.9 47,403.5 47,561.7 39,629.8 27,815.4 14,434.0 Other Preferential Program 34.7 16.6 3.3 2.9 1.6 1.1 0.8 No Program Claimed 1,168.1 1,378.5 824.6 940.9 1,034.1 770.6 402.1 Total 47,438.1 48,492.0 48,231.4 48,505.5 40,665.5 28,587.1 14,836.8 Preferential Share 97.54% 97.16% 98.29% 98.06% 97.46% 97.30% 97.29% Mexico NAFTA-MX 16,939.2 17,558.9 22,069.2 21,509.9 21,501.8 14,321.4 8,833.6 Other Preferential Program − − − − − − − No Program Claimed 853.7 1,046.2 1,313.0 2,039.1 1,829.6 1,348.3 782.9 Total 17,792.9 18,605.1 23,382.2 23,549.0 23,331.4 15,669.7 9,616.5 Preferential Share 95.20% 94.38% 94.38% 91.34% 92.16% 91.40% 91.86% NAFTA NAFTA 63,174.6 64,655.8 69,472.7 69,071.6 61,131.6 42,136.9 23,267.6 Other Preferential Program 34.7 16.6 3.3 2.9 1.6 1.1 0.8 No Program Claimed 2,021.8 2,424.7 2,137.6 2,980.0 2,863.7 2,118.9 1,185.0 Total 65,231.1 67,097.1 71,613.6 72,054.5 63,996.9 44,256.9 24,453.3 Preferential Share 96.90% 96.39% 97.02% 95.86% 95.53% 95.21% 95.15% Memo Item: Share of Automotive in Total 15.84% 14.65% 14.27% 13.75% 11.60% 11.53% 9.73% Notes: Automotive imports includes parts and components (HTS 8708) and built-up vehicles (HTS 8703). Imports refer to general imports since automotive components are frequently re-exported within NAFTA. YTD refers to data from Jan-Aug. Source: USITC Interactive Tariff and Trade DataWeb, available: http://dataweb.usitc.gov. 12 | ADB Economics Working Paper Series No. 179 Automotive imports also figure prominently in US imports from Japan and help explain the sharp contraction in US imports from Japan as the crisis has deepened. Table 3 shows that automotive imports from Japan declined in 2009 year to date by over –53% compared to –38 percent for all imports (Table 1 left panel row 3) from Japan. Globally, the contraction in US automotive imports is only matched by the collapse in energyrelated imports. US exports of automotive parts and components are substantially greater than of built-up vehicles in trade with NAFTA partners—a reverse of the trend in global US auto exports where vehicles dominate. The explanation for this is that rules of origin enforce purchases of US intermediate inputs in partner countries and serve to divert trade from more efficient suppliers outside the FTA. The margin of preference between most favored nation applied tariffs and NAFTA preferential tariffs in Canada and Mexico provides additional incentive to source inputs from US components suppliers. Rules of origin act as an export subsidy for US parts and components suppliers.15 This relationship superficially appears to be strengthening in the crisis in the sense that parts and components exports from the US to NAFTA partners are declining much less sharply than are built-up vehicles. However, the preferential trade agreement appears to provide no respite from the collapse of global trade and indeed in the case of auto parts and vehicles, the decline in NAFTA trade is in line with that from all destinations (right hand panel of Table 3). However, the automotive sector’s trade occupies a larger share of US intra-NAFTA trade than it does in US global trade. Automotive imports comprised 14% of US intra-NAFTA imports in 2007 but only 9% of US gobal imports. This helps explain why US intra-NAFTA imports are falling faster than US global imports. Textile Trade Case Study. The most significant change in global trade rules brought about by the Uruguay Round Agreement was the phasing out of industrialized country quotas on textile and apparel imports from developing countries over a 10-year period (1995–2004) under the ATC.16 The elimination of quotas, coupled with the entry of PRC into the WTO plus the normalization of trade relations between the US and Viet Nam greatly undercut the advantage preferential suppliers had in the US market for textiles and clothing. Without the quantitative restrictions, producers in Canada and Mexico would be forced to compete directly with Asian suppliers with only preferential tariffs even though applied MFN tariffs in the US remained quite high.17 Globally, it was predicted that the number of competitive suppliers would shrink and that exports would be consolidated into just a few countries led by PRC, India, and perhaps a few others (Nordas 2004). The extension of preferential arrangements by the US to new FTA partners in the 15 See Cadot, Estevadeordal, and Suwa-Eisenmann (2006) for a detailed explanation and empirical verification of the proposition that rules of origin act as trade-diverting export subsidies. James and Umemoto (2000) and Krueger (1997) and Krishna and Krueger (1995) provide theoretical models of FTA diversion of trade in intermediate goods. 16 For a discussion of the ATC and its implications for global trade in textiles and apparel, see Nordas (2004). See James (2005) and Whalley (2006) for the implications for developing Asia. 17 James (2007) estimates that the average tariff margin of preference for NAFTA suppliers compared with nonpreferential was about 14% for clothing and 10% for textiles in 2005. US International Trade and the Global Economic Crisis | 13 Central American Free Trade Agreement (CAFTA-DR)18 and to poor sub-Saharan Africa under the African Growth and Opportunity Act (AGOA) can be interpreted as a means of preserving a share of the US market for more developing countries that desperately needed to generate jobs and foreign exchange revenues.19 The impact of the full implementation of the ATC on US imports of textiles and apparel from NAFTA partners was negative (Table 5). There was negative growth in US imports overall beginning in 2005 with substantially large impacts on apparel imports, which fell by about 10%. The impact was similar on imports of apparel that used NAFTA preferences that fell by over 7% in 2005 (Table 5). In contrast to apparel, US imports of textile intermediate products and made-up textile products from NAFTA partners continued to expand slowly in 2005 but by 2006 turned broadly negative. The share of imports of textiles and apparel imports from Canada and Mexico that complied with NAFTA rules to avoid high MFN tariffs remained high at about 83–85% (Table 6). Table 5: US Textile and Apparel Imports from NAFTA Partners Supplier In Million US$, Current Prices % Change 2004 2005 2006 2007 2008 YTD 2008 YTD 2009 2005 2006 2007 2008 YTD 2009 Canada Yarns and Fabrics 1,608 1,628 1,556 1,466 1,195 831 668 1.21 −4.36 −5.82 −18.47 −19.63 Apparel 1,499 1,280 1,174 966 707 505 313 −14.58 −8.31 −17.69 −26.86 −38.02 Made-Up Textile Products 392 398 364 345 296 205 147 1.34 −8.34 −5.25 −14.35 −28.30 Sub-Total 3,499 3,305 3,095 2,777 2,198 1,542 1,128 −5.54 −6.37 −10.26 −20.88 −26.81 Mexico Yarns and Fabrics 954 1,009 944 920 803 562 443 5.75 −6.44 −2.47 −12.75 −21.24 Apparel 6,845 6,230 5,448 4,630 4,129 2,801 2,293 −8.98 −12.55 −15.02 −10.83 −18.13 Made-Up Textile Products 733 733 735 760 612 419 405 0.00 0.32 3.37 −19.53 −3.31 Sub-Total 8,532 7,972 7,127 6,311 5,544 3,782 3,141 −6.56 −10.60 −11.46 −12.15 −16.95 NAFTA Yarns and Fabrics 2,562 2,636 2,500 2,386 1,998 1,393 1,110 2.90 −5.16 −4.56 −16.26 −20.28 Apparel 8,344 7,511 6,622 5,596 4,835 3,306 2,606 −9.99 −11.83 −15.49 −13.59 −21.17 Made-Up Textile Products 1,125 1,131 1,100 1,105 907 625 553 0.47 −2.72 0.51 −17.91 −11.53 Sub-Total 12,031 11,277 10,222 9,088 7,741 5,324 4,270 −6.27 −9.36 −11.10 −14.82 −19.81 Notes: Yarns and Fabrics include HTS chapters 50, 51, 52, 53, 54, 55, 56, 58, 59 and 60. Apparel includes HTS chapters 61 and 62. Made-Up Textile Products include HTS chapters 57 and 63. YTD refers to data from Jan-Aug. Source: USITC Interactive Tariff and Trade DataWeb, available: http://dataweb.usitc.gov. 18 The CAFTA was extended to the Dominican Republic, hence the CAFTA-DR acronym. 19 The CAFTA-DR includes Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. The entry into force of CAFTA differs according to the date of ratification of the treaty by partner countries. AGOA provided limited duty-free access to the US market for imports from 37 sub-Saharan African countries. 14 | ADB Economics Working Paper Series No. 179 Table 6: Share of US Imports of Textiles and Apparel from NAFTA Partners Utilizing NAFTA Tariff Preferences (% of total) Supplier 2004 2005 2006 2007 2008 YTD 2008 YTD2009 Canada Yarns and Fabrics 85.6 83.4 83.8 82.3 79.9 80.3 78.6 Apparel 96.0 96.1 97.1 97.3 97.4 97.6 96.4 Made-Up Textile Products 78.5 81.6 83.3 82.3 80.2 80.5 76.9 Sub-Total 89.2 88.5 88.9 87.5 86.7 86.0 83.3 Mexico Yarns and Fabrics 88.9 88.3 85.9 83.9 81.4 80.3 82.7 Apparel 81.4 84.6 83.3 83.8 84.8 85.1 87.6 Made-Up Textile Products 67.9 69.3 67.7 67.8 66.7 66.7 62.6 Sub-Total 81.1 83.7 82.0 81.9 82.3 82.4 83.7 NAFTA Yarns and Fabrics 86.8 85.3 84.6 83.0 80.5 80.3 80.2 Apparel 84.0 86.6 85.7 86.1 86.6 87.0 88.7 Made-Up Textile Products 71.6 73.6 72.9 72.3 71.1 71.3 66.4 Sub-Total 83.5 85.0 84.1 83.6 83.2 83.4 83.6 Notes: Yarns and Fabrics include HTS chapters 50, 51, 52, 53, 54, 55, 56, 58, 59 and 60. Apparel includes HTS chapters 61 and 62. Made-Up Textile Products include HTS chapters 57 and 63. YTD refers to data from Jan-Aug. Source: USITC Interactive Tariff and Trade DataWeb, available: http://dataweb.usitc.gov. In 2006, another major change was introduced in the global trading system for textiles and apparel that would potentially set back the clock on the reforms introduced by the ATC. This was the imposition over 2006–2008 of newly negotiated safeguard quotas on selected fast-growing textile and apparel exports from the PRC by the Government of the US and by the European Community, among others.20 In the US case, these new quotas restricted imports for items accounting for about 50% of all US imports of textiles and apparel (Table 7). Imports of these restricted items from the PRC (see Appendix for details) were growing at the spectacular rate of 47% in 2005 in volume before the safeguard quotas were imposed.21 The dramatic impact on US imports for the covered items can be seen in the drastic decline in volume growth to just over 1% in 2006 (Table 7). In value terms, the decline in growth was from just over 50% in 2005 to 16.7% in 2006 (Table 8).22 20 In fact the items with safeguard quotas on the PRC correspond closely to the 50% of tariff lines on which quotas were only eliminated under the fourth and final tranche of the ATC at the end of 2004. 21 This growth surge followed the lifting of all quotas under the WTO ATC on 1 January 2005. Under the terms of PRC’s Accession Agreement to the WTO, importers reserved the right to impose product-specific safeguards to counter any surge in imports for an interim period. The US and PRC reached agreement on the safeguards in November 2005 and these were implemented on 1 January 2006 for a period of 3 years (through December 31 of 2008). See appendix table A2.1 for details on the volume of US imports of the items coming under safeguards from 2004 to June 2009. 22 The quotas are implemented on the basis of the volume and not the value of shipments. In general, the imposition of quotas may have a more restrictive impact on volume than on value as prices of the restricted items tend to rise under the quota regime (see Figure 5 for an example). US International Trade and the Global Economic Crisis | 15 Table 7: US Imports of Textile and Apparel Items Restricted by Safeguard Quotas on People’s Republic of China by Major Supplier, Volume and % Change Supplier Volume in Million Square Meter Equivalents % Change 2004 2005 2006 2007 2008 YTD 2008 YTD 2009 2006 2007 2008 YTD 2009 Non-Preferential Suppliers: Major Asian Suppliers China, People’s Republic of 5,409 7,984 8,082 8,998 8,559 3,498 4,078 1.2 11.3 −4.9 16.6 Viet Nam 511 512 628 903 1,116 521 667 22.5 43.9 23.5 28.0 Bangladesh 728 834 1,016 1,094 1,196 591 599 21.8 7.7 9.3 1.4 Indonesia 571 613 840 831 845 448 397 37.0 −1.0 1.6 −11.4 India 476 770 999 1,035 1,156 582 541 29.7 3.6 11.7 −7.0 Cambodia 217 299 470 560 578 301 390 57.1 19.0 3.3 29.6 Pakistan 814 859 939 744 816 399 363 9.2 −20.7 9.7 −9.0 Thailand 542 562 602 578 548 268 217 7.1 −3.9 −5.2 −18.8 Sri Lanka 226 280 315 306 286 142 123 12.7 −2.9 −6.6 −13.6 Philippines 346 352 440 327 266 148 107 25.1 −25.7 −18.6 −27.2 Malaysia 172 188 238 203 200 102 53 26.2 −14.4 −1.4 −47.8 Sub-Total Major Asian Suppliers 10,011 13,253 14,567 15,579 15,565 6,999 7,537 9.9 6.9 −0.1 7.7 Asian Newly Industrialized Economies Taipei,China 861 732 789 729 651 330 225 7.8 −7.5 −10.8 −32.0 Korea, Republic of 1,755 1,516 1,481 1,177 1,023 536 491 −2.3 −20.5 −13.0 −8.4 Hong Kong, China 532 520 512 351 272 130 30 −1.6 −31.5 −22.3 −76.8 Land-Locked Asian Suppliers Lao PDR − − 2 5 15 7 6 * 143.9 218.5 −19.0 Mongolia − 32 25 17 7 4 0 −21.6 −31.2 −61.4 −91.6 Nepal 20 13 10 6 1 1 0 −22.1 −40.4 −75.7 −71.7 Preferential Suppliers FTA Partners Mexico 2,590 2,385 2,117 1,745 1,455 753 594 −11.2 −17.6 −16.6 −21.0 Canada 1,622 1,537 1,254 926 545 295 210 −18.4 −26.2 −41.1 −28.9 CAFTA-DR 3,420 3,513 3,211 3,154 3,224 1,619 1,202 −8.6 −1.8 2.2 −25.7 Australia 42 31 19 8 8 4 2 −36.4 −59.4 −2.0 -48.6 Bahrain 31 29 17 14 19 10 7 −40.5 −18.2 34.8 −27.3 Chile 3 3 4 8 3 1 1 45.1 97.0 −64.0 −36.8 Israel 228 208 169 191 250 132 112 −18.8 13.2 30.7 −14.7 Jordan 188 223 252 223 200 102 76 12.9 −11.6 −10.1 −25.6 Morocco 11 4 5 3 3 1 1 39.7 −51.0 4.1 −17.6 Singapore 33 25 24 22 16 8 5 −0.7 −11.5 −24.5 −35.2 Sub-Total FTA Partners 8,168 7,956 7,074 6,293 5,723 2,926 2,211 −11.1 −11.0 −9.1 −24.4 Beneficiaries of Unilateral US Preference Programs ANDEAN 227 226 207 171 155 83 59 −8.4 −17.5 −9.6 −28.6 AGOA 399 351 312 323 312 147 126 −11.2 3.7 −3.4 −14.7 Egypt 190 178 202 209 207 108 106 13.0 3.5 −0.6 −1.1 World Total 24,583 26,711 26,895 26,537 25,304 11,966 11,280 0.7 −1.3 −4.6 −5.7 Memo Item: 2005 2006 2007 2008 YTD 2008 YTD 2009 Share of restricted items in Total US textile and apparel Imports 52.5% 51.6% 50.0% 50.2% 49.2% 51.6% Note: YTD refers to data from Jan-Jun. Source: United States Department of Commerce, Office of Textiles and Apparel. Available: http://otexa.ita.doc.gov/. 16 | ADB Economics Working Paper Series No. 179 It appears that market shares are also consolidating (Table 12) with few clear winners (Bangladesh, Indonesia, Viet Nam, and PRC) and many losers—especially preferential suppliers but also landlocked suppliers—the EU, Asian NIEs, and most other Asian suppliers including those that had benefited from the quotas on the PRC. Large South Asian economies such as Sri Lanka and Pakistan are breaking even but are now facing severe negative effects from the collapse in external demand for their apparel exports. Table 12: Market Share of Major Clothing Suppliers in US Imports (% of Value) Supplier 2005 2006 2007 2008 YTD 2009 Non-Preferential Suppliers: Major Asian Suppliers China, People’s Republic of 22.0 25.9 30.8 32.0 32.6 Viet Nam 4.0 4.5 5.9 7.3 8.1 Bangladesh 3.5 4.1 4.2 4.8 6.0 Indonesia 4.2 5.1 5.4 5.6 6.7 India 4.3 4.4 4.3 4.3 5.5 Cambodia 2.5 3.0 3.3 3.3 3.1 Pakistan 1.8 2.0 2.0 2.1 2.1 Thailand 2.6 2.6 2.4 2.3 2.1 Sri Lanka 2.4 2.3 2.1 2.0 2.2 Philippines 2.7 2.8 2.3 1.9 1.8 Malaysia 1.0 1.0 0.9 0.9 0.8 Sub-Total 51.0 57.6 63.6 66.6 71.0 Asian Newly Industrialized Economies Taipei,China 1.7 1.4 1.2 1.0 0.8 Korea, Republic of 1.7 1.3 0.8 0.7 0.5 Hong Kong, China 5.1 3.9 2.8 2.2 0.6 Sub-Total 8.4 6.6 4.8 3.9 1.9 Land-Locked Asian Suppliers Lao PDR 0.0 0.0 0.0 0.0 0.0 Nepal 0.1 0.1 0.0 0.0 0.0 Mongolia 0.2 0.1 0.1 0.1 0.0 Sub-Total 0.3 0.2 0.2 0.1 0.1 Other Non-Preferential Suppliers EU-15 2.8 2.6 2.7 2.5 2.0 Sub-Total Major Non-Preferential Suppliers 62.5 67.0 71.2 73.1 75.0 Preferential Suppliers: Major FTA Partners Mexico 8.8 7.4 6.1 5.6 5.6 Canada 1.9 1.6 1.3 1.0 0.8 CAFTA-DR 13.2 11.7 10.7 10.6 10.1 Other FTA Suppliers 2.7 2.7 2.3 2.0 1.8 Sub-Total 26.6 23.5 20.4 19.2 18.3 Beneficiaries of Unilateral US Preference Programs: ANDEAN 2.1 1.9 1.7 1.6 1.4 AGOA 2.1 1.8 1.7 1.6 1.5 Egypt 0.6 0.9 0.9 1.0 1.8 Sub-Total 4.2 3.8 3.4 3.2 4.7 Sub-Total Major Preferential Suppliers 30.9 27.2 23.8 22.4 23.0 World Total 100.0 100.0 100.0 100.0 100.0 Notes: YTD refers to data from Jan-Jun. Other FTA suppliers include: Australia, Bahrain, Chile, Israel, Jordan, Morocco and Singapore. Source: United States Department of Commerce, Office of Textiles and Apparel. Available: http://otexa.ita.doc.gov/. US International Trade and the Global Economic Crisis | 23 US exports of textiles comprise close to three-quarters of total US exports of textiles and apparel (Table 13) and growth in the value of US textile exports was sustained through the post-quota years, 2005–2008. US apparel exports have been shrinking even before the global crisis. The picture that is emerging in 2009, however, is different. US exports of intermediate textile products are collapsing more rapidly than are final textile and apparel products (Table 13). Moreover, US exports are falling just as rapidly across major destinations whether they enjoy preferential treatment or not (Table 14) with a rate of decline of over 25% in the first 8 months of 2009 compared with that in the same period in 2008. Thus, even though preferential rules of origin may act as export subsidies, they are no insurance policy against a global economic downturn. Table 13: Composition of US Exports of Textiles and Apparel Value in Million US$, Current prices % Change Group 2005 2006 2007 2008 YTD 2008 YTD 2009 2006 2007 2008 YTD 2009 Yarn 1,554 1,825 1,987 2,205 1,542 1,143 17.44 8.88 10.95 −25.86 Fabric 8,124 7,907 7,475 7,242 5,011 3,662 −2.67 −5.47 −3.12 −26.92 Sub-Total Textile Intermediates 9,678 9,733 9,462 9,447 6,553 4,805 0.56 −2.78 −0.16 −26.67 Apparel 4,471 4,317 3,665 3,762 2,506 2,335 −3.45 −15.10 2.64 −6.84 Made-Up Textile Products 2,467 2,653 2,829 2,978 1,982 1,690 7.53 6.64 5.26 −14.76 Total Textiles and Apparel 16,616 16,702 15,956 16,186 11,041 8,830 0.52 −4.47 1.44 −20.03 Note: YTD refers to data from Jan-Jun. Source: United States Department of Commerce, Office of Textiles and Apparel. Available: http://otexa.ita.doc.gov/exports/e0.htm Table 14: Destination of Export of US Intermediate Textile Products, Value (US$ millions, current prices) Value in Million US$, Current prices % Change Destination 2005 2006 2007 2008 YTD 2008 YTD 2009 2006 2007 2008 YTD 2009 Preferential Trade Partners: FTA Partners: Canada 1,606.9 1,583.3 1,480.9 1,391.2 977.0 727.7 −1.47 −6.47 −6.06 −25.52 Mexico 3,275.2 3,087.5 2,831.6 2,649.2 1,806.9 1,394.4 −5.73 −8.29 −6.44 −22.83 CAFTA-DR 2,397.7 2,382.1 2,499.9 2,594.8 1,824.9 1,284.4 −0.65 4.94 3.79 −29.62 Australia 69.6 72.2 87.4 100.8 72.1 53.7 3.73 20.93 15.37 −25.53 Bahrain 0.3 0.9 1.1 1.0 1.1 1.1 167.06 25.56 −7.26 2.38 Chile 17.6 17.3 14.3 27.0 12.2 15.7 −1.56 −17.34 88.52 27.97 Israel 29.4 21.5 30.4 31.8 25.0 22.2 −27.06 41.77 4.40 −11.33 Jordan 1.0 2.2 2.7 1.6 1.5 1.0 109.00 25.73 −41.48 −34.40 Morocco 1.5 1.7 1.7 1.4 1.0 2.6 17.66 −3.59 −17.25 154.88 Singapore 27.2 37.7 37.0 37.0 25.5 15.2 38.52 −1.80 −0.06 −40.47 Sub-Total FTA Partners* 7,426.6 7,206.4 6,987.1 6,835.7 4,747.1 3,517.7 −2.96 −3.04 −2.17 −25.90 Continued. 24 | ADB Economics Working Paper Series No. 179 Other Preference-Receiving Partners: ANDEAN 128.1 159.9 128.3 121.7 85.0 54.0 24.86 −19.76 −5.12 −36.51 AGOA** 30.5 29.6 33.4 39.2 24.6 20.7 −2.72 12.75 17.33 −15.60 Egypt 5.2 10.4 10.5 27.9 22.7 3.0 102.38 0.17 166.91 −86.63 Sub-Total Other PreferenceReceiving Parnters 163.7 200.0 172.2 188.9 132.3 77.8 22.17 −13.90 9.69 -41.22 Sub-Total Preferential Trade Partners 7,590.3 7,406.4 7,159.3 7,024.6 4,879.4 3,595.5 −2.42 −3.34 −1.88 −26.31 Non-Preferential Trade Partners: Developing Asia: China, PRC 299.7 394.0 418.1 451.7 321.3 219.2 31.44 6.14 8.03 −31.79 Cambodia 0.7 3.6 1.4 1.7 0.6 1.3 387.24 −61.40 22.17 132.69 Taipei,China 28.1 30.0 24.2 31.6 21.2 14.9 6.81 −19.17 30.50 −29.65 Hong Kong, China 209.3 219.7 184.0 179.5 116.7 84.1 4.96 −16.27 −2.43 −27.89 India 24.2 34.5 29.0 33.8 22.3 21.6 42.12 −15.81 16.52 −3.18 Indonesia 22.7 23.2 22.1 25.2 25.2 16.2 1.99 −4.49 13.77 −35.80 Malaysia 22.2 13.5 14.9 22.9 13.3 12.0 −39.39 10.75 53.81 −10.00 Korea, Rep. of 65.8 69.3 67.7 69.9 48.1 44.1 5.30 −2.31 3.25 −8.31 Pakistan 9.2 12.2 11.0 8.8 5.2 4.6 32.06 −9.88 −20.06 −11.52 Philippines 20.0 14.9 13.4 11.9 8.6 4.9 −25.43 −10.23 −10.98 −42.95 Sri Lanka 22.0 21.4 17.4 18.7 12.4 7.6 −2.72 −18.85 7.34 −38.74 Thailand 55.1 62.0 91.4 91.8 64.4 44.8 12.43 47.51 0.42 −30.53 Viet Nam 8.2 10.2 15.8 12.6 8.7 9.4 24.40 55.61 −20.53 8.81 Sub-Total Developing Asia 787.3 908.2 910.4 960.0 668.0 484.7 15.35 0.24 5.45 −27.44 Japan 167.6 211.4 170.0 178.7 121.4 77.3 26.15 -19.59 5.14 -36.31 EU-15 746.2 796.4 811.9 854.7 601.9 423.1 6.72 1.95 5.27 -29.72 Sub-Total Non-Preferential Partners 1,701.1 1,916.0 1,892.3 1,993.4 1,391.3 985.1 12.63 -1.24 5.34 -29.20 World Total 9,678.2 9,732.5 9,462.0 9,446.5 6,552.7 4,805.0 0.56 -2.78 -0.16 -26.67 Memo item: share of US exports of intermediate textile products (% of world total) 2005 2006 2007 2008 YTD 2008 YTD 2009 FTA Partners 76.74 74.05 73.84 72.36 72.44 73.21 All Preferential Partners 78.43 76.10 75.66 74.36 74.46 74.83 Developing Asia (Non-Preferential) 8.14 9.33 9.62 10.16 10.19 10.09 All Non-Preferential Partners 21.57 23.90 24.34 25.64 25.54 25.17 Notes: Intermediate textile products consist of yarn and fabric. *Excludes FTA partner Oman which receives less than $1mil. In US textile intermediate exports. **AGOA members are allowed to use non-originating fabric and yarn in production of garments for export to the United States under the agreement up to certain limits. YTD refers to data from Jan-Aug. Source: United States Department of Commerce, Office of Textiles and Apparel. Available: http://otexa.ita.doc.gov/exports/e0.htm. Table 14: Continued. US International Trade and the Global Economic Crisis | 25 The relatively small number of textile workers in the US compared with the vastly larger number of workers engaged in retail trade dependent on imported clothing would seem to militate against continued protectionism. And looked at from the entire value chain in the global clothing and textile industry, greater profit seems to lie in fashion design, advertisement, and other related services rather than in manufacturing. This perspective helps explain the seeming contradiction between protectionism (aimed at keeping textile workers employed) and the extending of unilateral preferences to less developed countries in sub-Saharan Africa, the Middle East, and the Western Hemisphere. The unilateral preference programs themselves include complex rules that may vitiate the purpose of aiding the development of poorer countries by offering them limited market access on a duty-free basis (Matoo, Roy and Subramanian 2002). The reform of rules of origin is likely to be an important step in reviving the manufacture of clothing for export from poorer countries and ensuring that such trade is not distorted to serve US textile interests. The steps taken by Canada and the European Community to revamp their rules governing preferential access through the Generalized System of Preferences for least developed countries are in the right direction.23 The simplification of the rules to allow duty free access for clothing items assembled in developing countries with no requirements regarding intermediate inputs is easing market access for poor countries that have difficulty reaching high value added thresholds and that lack textile capacities of their own. IV. Conclusions The trend towards bilateralism has claimed too much and delivered too little. The current economic crisis reveals that preferential trade is even less robust than MFN trade and is likely to have fueled animosities rather than greater cooperation on critical issues facing the global community.24 It is high time that strategy be refocused to emphasize the global trading system and the necessity of urgently moving forward with the multilateral negotiations. The world can hardly hope to cope with the crises besetting it unless it can at least agree to move forward with the agenda of development. Reducing wasteful subsidies and other harmful practices that punish peasant farmers and garment workers in developing countries and providing improved market access to manufacturing and agricultural products of developing countries in exchange for more liberalization of services trade and investment makes sense for most WTO members. 23 The EU allows regional cumulation within recognized regional integration agreements such as the South Asian Association for Regional Cooperation (SAARC) and the Association of South East Asian Nations (ASEAN) in complying with its rules of origin. For detailed discussion see Textiles Intelligence (September–October 2008: 148–153). 24 Witness the recent disputes between the US and Mexico over the implementation of NAFTA rules on land transport and the endless dispute between Canada and the US over softwood lumber. In the case of transport, the US refuses to permit trucks from Mexico to engage in providing transport services within the US, sparking Mexico to retaliate by imposing penalty tariffs on US exports. When Canada won the NAFTA panel decision on softwood lumber on an antidumping case, the Office of the U.S. Trade Representative (USTR) simply filed the case at the WTO. 26 | ADB Economics Working Paper Series No. 179 The economic crisis is also likely to shift the balance in US trade policy formulation away from protectionist domestic interests in favor of more outward-looking interests including export-oriented producers of both goods and internationally traded services. Renewal of the traditional US emphasis on the multilateral trading system rather than bilateralism may also take place as the restoration of American growth and employment will have to generate growth in net exports at the global level. US global export interests can no longer be held hostage to bilateral arrangements to protect sunset industries. It is far from certain whether recovery will begin anytime soon and, as unemployment mounts, there will be demand for more, not less, protectionism. If the US can successfully resist such sentiments, it may be possible to move forward with a multilateral trade agreement. Research on the implications for global trade of the elimination of all quantitative restrictions on textiles and garments, the rising incidence of contingent forms of protection on various key tradable goods, and the future of US automotive trade are likely to provide more insights and support the agenda for a renewed emphasis on multilateralism. US International Trade and the Global Economic Crisis | 27 Appendix Table A2.1: People’s Republic of China’s Shipments to the United States in Categories Restricted by Safeguard Quotas (Volume in Million Square Meter Equivalents) Item 2004 2005 2006 % Change 2007 % Change 2008 % Change YTD 2008 YTD 2009 % Change CLOTHING: 239 baby garments 482.420 545.791 605.464 10.93 638.274 5.42 520.115 −18.51 225.965 196.736 −12.94 332 hosiery, cotton 2.525 19.388 33.780 74.23 81.121 140.15 87.518 7.89 45.016 47.270 5.01 432 hosiery, wool 0.482 0.116 0.179 54.31 0.272 51.96 0.384 41.18 0.057 0.077 35.09 632 hosiery, mmf 224.297 221.126 152.583 −31.00 200.201 31.21 193.116 −3.54 84.042 128.666 53.10 338 mb knit shirts, cot. 8.392 47.883 40.298 −15.84 55.391 37.45 52.842 −4.60 20.986 34.842 66.02 339 wg knit blouse, cot. 8.505 75.885 88.903 17.15 126.897 42.74 140.424 10.66 52.918 104.918 98.27 340 non-knit shirts, cot. 19.202 68.142 58.960 −13.47 113.431 92.39 127.742 12.62 51.000 60.386 18.40 640 non-knit shirts, mmf 30.473 55.912 31.185 −44.22 38.465 23.34 33.094 −13.96 18.750 16.039 −14.46 345 sweater, cotton 4.442 69.536 72.311 3.99 171.073 136.58 159.818 −6.58 21.330 33.182 55.56 645 mb sweater, mmf 2.963 14.264 6.626 −53.55 7.329 10.61 2.973 −59.44 0.685 0.640 −6.57 646 wg sweater, mmf 25.647 157.982 79.474 −49.69 96.014 20.81 67.355 −29.85 6.742 7.739 14.79 347 mb trousers, cotton 14.136 100.042 77.626 −22.41 93.636 20.62 98.604 5.31 44.125 85.824 94.50 348 wg slacks, cotton 18.406 173.673 175.159 0.86 235.793 34.62 258.676 9.70 120.272 234.093 94.64 349 brassiers, cotton 11.675 15.297 12.535 −18.06 16.618 32.57 16.307 −1.87 9.541 7.838 −17.85 649 brassiers, mmf 59.265 67.532 62.850 −6.93 74.120 17.93 80.563 8.69 40.721 41.566 2.08 352 underwear, cotton 17.632 85.242 61.811 −27.49 111.846 80.95 96.869 −13.39 41.200 69.875 69.60 652 underwear, mmf 44.159 119.252 93.360 −21.71 146.709 57.14 160.162 9.17 64.710 104.058 60.81 359 other cotton app. 247.224 334.688 381.876 14.10 362.817 −4.99 316.040 −12.89 147.724 131.021 −11.31 659 other mmf app. 245.107 692.287 792.621 14.49 915.190 15.46 973.902 6.42 322.243 375.479 16.52 443 mb wool suits 0.573 6.066 4.973 −18.02 4.905 −1.37 5.613 14.43 2.751 2.323 −15.56 447 mb wool trousers 0.998 3.05 2.220 −27.21 2.649 19.32 2.198 −17.03 0.952 1.048 10.08 638 mb knit shirts, mmf 7.167 29.587 25.910 −12.43 39.474 52.35 35.771 −9.38 17.399 23.351 34.21 639 wg knit blouse, mmf 30.591 92.303 140.297 52.00 173.077 23.36 149.859 −13.41 50.206 92.629 84.50 647 mb trousers, mmf 24.519 65.842 49.650 −24.59 67.048 35.04 69.284 3.33 32.591 45.109 38.41 648 wg slacks,mmf 17.965 46.63 48.497 4.00 74.365 53.34 64.456 −13.32 21.878 28.195 28.87 847 mb silk trousers 262.574 234.242 220.521 −5.86 189.668 −13.99 180.141 −5.02 105.500 66.260 −37.19 Sub-Total Clothing 1811.339 3341.758 3319.669 −0.66 4036.383 21.59 3893.826 −3.53 1549.304 1939.164 25.16 Continued. 28 | ADB Economics Working Paper Series No. 179 TEXTILE INTERMEDIATES: 200 yarn & sewing thrd. 6.928 29.111 20.981 −27.93 16.875 −19.57 18.658 10.57 7.782 8.218 5.60 301 combed cot. yarn 17.133 21.581 5.390 −75.02 1.232 −77.14 6.565 432.87 2.743 0.555 −79.77 222 knit fabric 130.633 222.999 135.931 −39.04 135.170 -0.56 137.283 1.56 71.131 269.989 279.57 229 special fabric 260.444 394.352 171.022 −56.63 147.644 −13.67 202.643 37.25 85.361 117.603 37.77 619 poly filament fabric 3.882 60.347 28.511 −52.75 40.753 42.94 60.185 47.68 29.955 30.659 2.35 620 other syn. filament 5.895 81.658 15.090 −81.52 26.452 75.29 39.304 48.59 18.637 26.826 43.94 622 glass fabric 16.016 30.3 15.855 −47.67 15.227 −3.96 18.054 18.57 7.576 5.611 −25.94 Sub-Total Tex. Int. Products 440.931 840.348 392.780 −53.26 383.353 −2.40 482.692 25.91 223.185 459.461 105.87 TEXTILE MADE-UPS 363 pile towels 8.591 35.138 32.620 −7.17 40.103 22.94 43.629 8.79 24.493 23.156 −5.46 666 oth furnishings mmf 3148.145 3766.725 4337.112 15.14 4537.902 4.63 4138.957 −8.79 1700.568 1656.706 −2.58 Sub-Total Tex. Made Ups 3156.736 3801.863 4369.732 14.94 4578.005 4.77 4182.586 −8.64 1725.061 1679.862 −2.62 Grand Total Restricted: 5409.006 7983.969 8082.181 1.23 8997.741 11.33 8559.104 −4.87 3497.550 4078.487 16.61 Note: YTD refers to data from Jan-Jun. Source: United States Department of Commerce, Office of Textiles and Apparel. Available: http://www.otexa.ita.doc.gov/ Appendix Table A2.1: Continued. US International Trade and the Global Economic Crisis | 29 References Baldwin, R. 2008. Big-Think Regionalism: A Critical Survey. NBER Working Paper 14056, National Bureau of Economic Research, Cambridge, Massachusetts. Cadot, O., A. Estevadeordal, and A. Suwa-Eisenmann. 2006. “Rules of Origin as Export Subsidies.” In O. Cadot, A. Estevadeordal, A. Suwa-Eisenmann, and Thiery Verdier, eds. The Origin of Goods: Rules of Origin in Regional Trade Agreements. Oxford and New York: Oxford University Press. Cameron, M. A., and B. W. Tomlin. 2000. The Making of NAFTA: How The Deal Was Done. Ithaca and London: Cornell University Press. Destler, I. M. 2006. “Rules of Origin and US Trade Policy.” In O. Cadot, A. Estevadeordal, A. Suwa-Eisenmann, and T. Verdier, eds. The Origin of Goods: Rules of Origin in Regional Trade Agreements. Oxford and New York: Oxford University Press. Emerging Textiles.com. 2009. “Haiti’s Apparel Exports Boosted By New Rules of Origin.” Country Report. 28 October. Available: www.emergingtextiles.com/. Gordon, B. K. 2009. “Obama Trade Policy Taking Shape—Part II.” Yale Global Online Magazine. 16 September. Available: yaleglobal.yale.edu./print/5951 James, W. E. 2005. “Outlook for Asian Textile and Clothing Trade in the Post-Quota Era.” Textile Outlook International 120(November–December). ———, 2007. “Rules of Origin in Emerging Asia-Pacific Preferential Trade Agreements: Will PTAs Promote Trade and Development?” In Y. Duval, ed. Trade Facilitation Beyond the Multilateral Trade Negotiations: Regional Practices, Customs Valuation and Other Emerging Issues. New York: United Nations. James, W. E., and M. Umemoto. 2000. “NAFTA Trade with East Asia: Rules of Origin and Market Access in Textiles, Apparel, Footwear and Electronics.” ASEAN Economic Bulletin 17 (3, December). Krishna, K., and A. O. Krueger. 1995. “Implementing Free Trade Areas: Rules of Origin and Hidden Protection.” In A. Deardorf, J. Levinsohn, and R. Stern, eds. New Directions in Trade Theory. Ann Arbor: University of Michigan Press. Krueger, A. O. 1997. “Free Trade Areas versus Customs Unions,” Journal of Development Economics 54(October):169–87. Limao, N. 2006. “Preferential Trade Agreements as Stumbling Blocks for Multilateral Trade Liberalization: Evidence for the United States.” American Economic Review 96(3):896–914. Matoo, A., D. Roy, and A. Subramanian. 2002. The African Growth and Opportunity Act and Its Rules of Origin: Generosity Undermined? World Bank Policy Research Paper 2908, World Bank, Washington, DC. National Bureau of Economics Research. 2008. “Determination of the December 2007 Peak in Economic Activity.” Announcement by NBER’s Business Cycle Dating Committee. Available: www.nber.org/dec2008.pdf. Nordas, H. K. 2004. The Global Textile and Clothing Industry Post the Agreement on Textiles and Clothing. World Trade Organization, Geneva. Office of Textiles and Apparel. 2009. Trade Data: US Exports and Imports of Textiles and Apparel. International Trade Administration. Available: otexa.ita.doc.gov/ Rivoli, P. 2005. The Travels of a T-Shirt in the Global Economy: An Economist Examines the Markets, Power and Politics of World Trade. Hoboken, NJ: John Wiley & Sons, Inc. Romalis, J. 2005. NAFTA’s and CUSFTA’s Impact on International Trade. NBER Working Paper 11059, Cambridge, Massachusetts. Available: www.nber.org/papers/w11059 Textiles Intelligence. 2008. Textile Outlook International 137(September–October). Available: www. textilesintelligence.com/ 30 | ADB Economics Working Paper Series No. 179 United States International Trade Commission. 2009. “Interactive Tariff and Trade Data Web.” 29 June. Available: dataweb.usitc.gov/. Whalley, J. 2006. The Post MFA Performance of Developing Asia. NBER Working Paper No. 12178, Cambridge, Massachusetts. Available: www.nber.org/papers/w12178. World Bank. 2009. “The Financial Crisis: Charting a Global Recovery.” World Bank Weekly Update. 22 June. Available: newsletters.worldbank.org/ World Trade Organization. 2007. Trade Policy Review-Canada. Report by Secretariat. Trade Policy Review Body, WT/TPR/S/179/Rev.1. 4 June. World Trade Organization, Geneva. ———. 2008. Trade Policy Review-Mexico. Report by Secretariat. Trade Policy Review Body, WT/TPR/S/195/Rev.1. 2 May. World Trade Organization, Geneva. ———. 2009. “World Trade 2008, Prospects for 2009.” WTO Press Releases, Press 554, 23 March. Available www.wto.org/english/news_e/pr554_e.htm. US International Trade and the Global Economic Crisis | 31 About the Paper The impact of the collapse of the United States’s (US) international trade on US trade partners around the globe during the current severe crisis is examined for aggregate imports and exports and for two case studies: automobiles and textiles. Among the most interesting findings is that US imports and exports with “Free Trade Agreement” partners such as those in the North American Free Trade Agreement (Canada and Mexico) are collapsing significantly faster than with non-preferential partners, especially those in developing Asia. The large share of automotive and textile-based trade in US preferential trade and recent changes in US and global trade polcies help explain this finding. About the Asian Development Bank ADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries substantially reduce poverty and improve the quality of life of their people. Despite the region’s many successes, it remains home to two thirds of the world’s poor: 1.8 billion people who live on less than $2 a day, with 903 million struggling on less than $1.25 a day. ADB is committed to reducing poverty through inclusive economic growth, environmentally sustainable growth, and regional integration. Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org/economics ISSN: 1655-5252 Publication Stock No. Printed in the Philippines