The Agreement Between The US And South Korea Brings Difficulties To Our Textiles Exported To The US.

The US Korea Free Trade Agreement (hereinafter referred to as the US Korea agreement) is a preferential trade arrangement between the United States and its trading partners since the North American Free Trade Agreement (NAFTA), which has the most economic importance and influence.

Although the US Korea agreement is not directly related to China on the surface, China is actually an important stakeholder of the agreement, especially in textiles.

Due to the agreement between the United States and South Korea, South Korea's textiles and garments can enjoy 8% to 30% tariff preferences when exporting to the United States. This will make China's similar products in an obvious disadvantage in competition, and may even lose their original market share, that is, the impact of the so-called "trade diversion effect".

According to the US forecast, after the implementation of the US Korea agreement, South Korea's textile and clothing exports to the United States will increase by about US $3 billion a year, and about 85% to 90% of it will be the market share that Korea grabs from other members.

On the other hand, many of the core textile provisions of the US Korea agreement are implicit in China.

As early as the negotiation of the agreement on textile clauses, the "Chinese factor" has often become the focus of debate among the parties, and it is enough to see that China is closely related to the agreement between the United States and South Korea.

The United States is one of the core export markets of China's textiles and clothing. When the agreement on the US and South Korea is about to be implemented, China's textile and garment export enterprises need to understand the new changes in the export environment after the entry into force of the US Korea agreement and the possible impact of China's textile and apparel exports to the United States.

Tariff concession is the most direct impact.

The agreement between the United States and South Korea is related to the textiles and clothing department.

The first is tariff concessions for South Korea's US products.

Textiles and garments are the highest tariff products in the United States. At present, the weighted average tariff rates applicable to imported textiles and clothing at US ports are 11% and 16.5% respectively.

According to the agreement between the US and South Korea, the United States will abolish the above tariffs in three years in ten years. This indicates that after the tariff adjustment, South Korea's textile and apparel exports to the United States will enjoy 11% to 16.5% price advantages than other competitors including China, and thus seize market share.

The second is the stricter "rules of origin".

On the surface, the rules of origin of the US Korea agreement basically extends the practice of the United States in other trade agreement arrangements in recent years, and also adopts the principle of "spinning after", that is, the processing of products from spinning to finished products must be completed in the United States or South Korea.

But the United States and South Korea agreement does not include "tariff preferences" and "cumulative clauses", such as the Central American trade agreement (CAFTA-DR), which allow some "flexibility".

As the Asian region has formed a regional textile and garment production network, especially the vertical separation and cooperation mode between China and Korea has a very high maturity (for example, the export of Korean fabrics to China, and then the processing seams are exported to the United States), the removal of the above two clauses is obviously against China, especially to prevent Chinese products from "going south" into the US market.

In the long run, will the US Korea agreement affect the Asian region?

The third is strict customs border measures.

Article 4.3 of the US Korea agreement explicitly requires Korean manufacturers to acquire and keep all relevant information and documents in the process of production and circulation.

The agreement also gives the us the right to spot inspections of Korean textile and garment production and processing enterprises at any time.

If illegal pshipment or other illegal trade practices are verified, the United States can deprive the products of the preferential tariff measures under the agreement.

These strict demands are very rare in the free trade agreement signed by the United States, and the purpose is largely to guard against the "opportunity" for Chinese enterprises.

In view of this, the agreement between the US and South Korea is expected to have an important impact on the trade of textiles and clothing between the two ports.

The scope of the impact of the agreement will not only be limited to the United States and South Korea, but also to the vast Asian countries including China.

As regards the specific textile terms in the US Korea agreement, the tariff concession arrangement has the most direct and obvious impact on our textile and apparel exports to the United States, while the rules of origin, customs border measures and safeguard measures may cause subtle changes in the trade structure in the medium and long term.

High alternative textiles will be subject to strong pressure.

The influence of the US Korea agreement on the trade volume of China's textile and apparel exports to the US depends directly on the structural similarity between China and Korea, and the mutual substitution of prices between the two sides.

The higher the similarity and the higher price substitution, it means that when the Korean products begin to enjoy the tariff reduction and exemption treatment from the US Korea agreement, the similar products will be more susceptible to "extrusion", that is, the impact of the trade deflect effect.

A quantitative analysis of the relevant trade data for 2005~2010 years shows that the overall product mix of China and South Korea's textiles and clothing exported to the United States is relatively high, but it has a significant downward trend in recent years.

According to the highest value of 100, the similarity between China and South Korea exported to the US in 2005 reached 69.17, but by 2010, the figure had dropped to 40.67.

The main reason for the decline in similarity between China and South Korea is the ROK.

In 2005, 60.5% of Korean textiles and clothing exported to the United States were clothing products and 30.7% were fabrics. But in 2010, the share of Korean textiles exported to the United States dropped to 30.1%, while the fabric share increased to 53.7%.

Behind this change, there may be structural changes in Korea's textile industry in recent years, and its specific contents and effects need further analysis.

China exported to the US in the same period.

Secondly, price substitution is common in Chinese and Korean textile products at the specific product level, but the substitution of specific categories is not balanced.

There are two points to be concerned about: first, the price substitution of the finished products between the two countries (such as woven garments, knitted garments, wool fabrics, etc.) is higher than that of raw materials or semi finished products, such as chemical fibers, and the second is the price substitution (such as clothing) of clothing products is generally higher than that of non clothing (such as industrial, home textiles, etc.).

The above phenomena are related to the respective characteristics and structural differences of the current Chinese and Korean textile industries.

For example, the production technology threshold of garment processing is low, but only when the overall level of industrialization reaches a certain level, can a country have the ability to produce capital and technology intensive high-end textile fiber products.

The elasticity of product substitution between Chinese and Korean clothing categories is higher, indicating that the level of Chinese garment production technology has been able to compete with Korean products at the same time, which is in good agreement with the conclusions drawn from similarity comparison.

While China and South Korea show no substitute in the fifty-fourth and fifty-fifth chapter of chemical fiber products, it reflects that Chinese chemical fiber can not replace Korean products. There is still a big gap between their functions, quality and market positioning.

High value-added products still need to enhance competitiveness

Through the interpretation and quantitative study of the textile clauses of the US Korea agreement, it is expected that the implementation of the agreement will have a substantial impact on our textile and apparel exports to the United States. Therefore, China's export enterprises need to make adequate preparations.

From the current situation, China's textile and apparel exports to the United States need to be further upgraded through industrial upgrading and product mix.

Compared with Korea, China's exports still rely heavily on clothing products, but the textile fibers which represent higher technological content and added value have not yet had strong competitiveness.

In fact, China still needs to import textile raw materials such as fiber and fabrics worth up to US $15 billion per year from developed countries or regions such as Korea and Japan. The shortage of local supply capacity is one of the important factors.

Research data also show that there has been no substantial structural change in China's textile and apparel exports to the United States in the past 2005~2010 years, which indicates that a long-term and arduous process will be needed to achieve the upgrading and pformation of the textile industry.

Besides, the industry should be right now.