NEW YORK — Importers and the government battled in court on Monday over whether the U.S. has the legal right to make a preemptive strike to keep quotas on some products from China.
With global textile and apparel limits set to expire Jan. 1, the Court of International Trade heard oral arguments on the volatile issue but did not issue a ruling. The U.S. Association of Importers of Textiles and Apparel had requested a preliminary injunction, while the Committee for the Implementation of Textile Agreements asked for the suit to be dismissed.
A coalition of domestic companies, concerned over the potential flood of Chinese exports next year, filed a series of petitions in recent months asking the government to invoke a safeguard procedure to help save textile and apparel jobs.
Importers responded this month with a lawsuit alleging that by considering the preemptive safeguard quotas, CITA, which was set up to oversee government textile policy, is threatening their livelihoods.
Senior Judge Richard W. Goldberg summed up the position of the USA-ITA this way: “So what you’re saying is the government has the gun at your head, but they haven’t pulled the trigger yet.”
The USA-ITA is seeking to strike down CITA’s review of safeguard petitions that are based on the threat of market disruption. Government lawyers argued that since the commission hasn’t ruled on the 12 safeguard petitions covering $1.9 billion in imports, the importers have nothing to complain about.
However, Brenda Jacobs, an attorney for the USA-ITA, said when CITA accepts petitions for review — even before it decides them — there is a chilling effect on importers’ operations.
“Companies cannot wait to find out what the final decision is,” she said. “Companies change plans entirely based upon the mere acceptance.”
Goldberg said USA-ITA hadn’t submitted tangible proof that its members had been hurt by the review. “We need to have hard evidence,” he said. “I need to look at contracts they lost, goodwill that they’ve lost.”
China agreed to the safeguard measure when it joined the World Trade Organization in 2001. The 148 WTO nations are set to drop their quotas on textiles and apparel Jan. 1, but China will remain subject to temporary, one-year safeguard quotas through 2008 in categories where its shipments cause or threaten to cause market disruption.
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The U.S. imposed safeguards last year on shipments of Chinese bras, robes and knit fabrics — three categories that have already been freed of quota restraints. This year, a coalition of domestic industry groups and the UNITE HERE union filed a series of petitions concerning categories that are still under quota based on the threat of market disruption, rather than waiting to see the actual fallout after the quotas are lifted.
The USA-ITA argued there is no legal basis for safeguard petitions based on threat rather than actual damage. Jacobs charged that CITA broke the law when it began to review those petitions without issuing procedures explaining how and why it would do so. Jacobs noted that in May 2003, the committee — which includes representatives of the Departments of Commerce, State, Labor and Treasury, and the Office of the U.S. Trade Representative — had said it would not accept petitions based on threat.
Michael Panzera, a Justice Department lawyer who represented CITA, said the committee was under no obligations to publish its policies.
“CITA has the authority to implement this textile agreement in the manner it deems fit,” Panzera said. “It has a broad grant of authority.” CITA was established by executive order in 1974.
Goldberg questioned why, after saying that it would only accept safeguard petitions based on actual market disruption, CITA did not explain its change of position. “They ought to be a little bit consistent,” the judge said.
Jacobs, of the Washington law firm Sidley, Austin, Brown & Wood, argued there is an important material difference in whether safeguard quotas are imposed preemptively based on threat or after market disruption can be measured and proven. The safeguard measure calls for a cap limiting shipments in a given category to a level 7.5 percent higher than they were the year before for most goods, or 6 percent higher for wool.
If CITA applies safeguard quotas now, it will have to use data for the year ended in November — a period entirely regulated by quotas for the products in question. If it waits until March, it will have access to January import figures, which could show a spike and would allow for a larger base level. She asserted that in many of the categories covered by the petitions, China hasn’t filled its quota this year.
“You end up with a quota level in 2005 that is substantially less than the 2004 level,” by using the November numbers, Jacobs said.
Goldberg indicated court would reconvene after the USA-ITA submitted proof of its members’ suffering.