By GREG RUSHFORD
October 18, 2007

Old-style textile protectionism suddenly has a new look. With the European Commission's announcement last week of a new "licensing" scheme for Chinese clothing exports, Brussels has woven a new knot into free trade, and consumers will bear the cost. Even worse, the European Union bureaucrats are only echoing what Washington has already pioneered; namely, innocuous-looking substitutes for classic trade quotas. And none of it will likely ease the burden on uncompetitive Western rag-makers in the long run.

At first blush, it all sounds reasonable. The European Commission's new scheme, announced last Thursday, aims to slow down imports of big-ticket Chinese clothing exports like trousers, blouses and bras to give European companies a chance to upgrade their production systems and price competitiveness. The so-called "double checking" system will require European businesses to apply for import licenses issued by the EU's 27 member countries. Beijing will also require Chinese exporters to get licenses.

The program will increase costs for the chosen European importers, who have to pay the EU's 27 member countries for the licenses. It also puts enormous power in the hands of unelected EU bureaucrats, who can choose who gets a license and who doesn't. The idea is to help uncompetitive garment makers from France and Italy to the Mediterranean rim, while penalizing major European garment manufacturers who source globally.

"This is clearly an administration burden, but business can live with it," notes Emma Ormond, an international trade consultant with PricewaterhouseCoopers in London. The alternative, Ms. Ormond observes, was a continuation of the EU's remaining clothing quotas on China that are scheduled to expire at the end of this year -- which EU Trade Commissioner Peter Mandelson refused to extend. That's good, but ultimately a small comfort, given that Mr. Mandelson didn't have the political capital to block the licensing scheme, which is a quota in another form.

None of this matters much for Chinese exporters, who can easily shift lower-end production to places like Bangladesh that are not subject to trade restraints. At the same time, the Chinese have incentives to restrict their own exports and focus on higher-end products. The resulting higher prices might not be good for European consumers, but that's not China's problem. Nor does the prospect that consumers will pay more for their T-shirts bother the Brussels-based European Apparel and Textile Organization (Euratex), which represents textile and apparel concerns in southern Europe. Euratex is happy to have the protection -- for now, at least.

But happy for how long? The most recent available data shows that China -- despite quota restrictions that will end in December -- sold Europeans more than $28 billion worth of clothing and fabric in just the first nine months of last year, and remains the EU's top supplier. When Brussels slapped tighter quotas on China to rein in surges of popular clothing lines -- including undies -- in the famous 2005 "bra war," the Chinese more than made up their losses by exporting nearly 30% more brassieres to the Americans. When Europe curtailed Chinese imports of cotton bed linen in 2005, Egypt and Bangladesh found lucrative sales opportunities.

Had the EU only observed the results of U.S. protectionism against Vietnam, perhaps its textile gurus would've thought twice about "monitoring" cheap Asian exports. On Jan. 11 this year, U.S. Commerce Secretary Carlos Gutierrez announced that the U.S. would start "monitoring" Vietnamese-made clothing exports. In time, Commerce could build a database for stiff antidumping tariffs, should import "surges" occur and "hurt" U.S. producers. Mr. Gutierrez, a former CEO of Kellogg Co., presumably knew enough about global supply chains to understand that the monitoring would cause turmoil, as importers would have to adjust their business plans to the possibility of subsequent high duties.

But as in Brussels, politics trumped economics. The monitoring program was a favor to Republican senators Elizabeth Dole of North Carolina and Lindsey Graham of South Carolina. The lawmakers demanded the import restraints in return for releasing holds on legislation aimed at clearing the path for Vietnam's accession to the World Trade Organization. The president of the National Council of Textile Organizations, Cass Johnson, was happy to take the credit. Meanwhile, major American importers, manufacturers and retailers -- household names like Levi Strauss & Co., Liz Claiborne and J.C. Penney -- cried foul.

As well they should have. The globally sourced manufacturers had to scramble to rejig their sourcing lines. There's uncertainty, too, about what will happen when the monitoring program expires in January 2009. The move also enraged the Vietnamese, who saw their U.S. exports for the targeted clothing lines decline sharply this year. U.S. cotton sweater imports from Vietnam are down 11%, various wool sweaters by 23-90%, and wool trousers, 95%. Meanwhile, Vietnam's exports to Europe have risen sharply, benefiting European consumers, who can now buy cheaper duds.

Amid all this turmoil, the more enlightened parts of the American and European apparel industries are busy making money by embracing globalization, not shunning it. New York-based entrepreneur Wilbur Ross, for instance, bought out the bankrupt Burlington Industries, long a stalwart of the domestic textile lobby, formed the aptly named International Textile Group, and set up operations in China and Vietnam -- and preserved U.S. jobs in the process.

Even some key members of the U.S. textile lobby who have pressed for restraints on Asian trade have also -- without much fanfare, to be sure -- been trying to adjust to global market realities. Unifi, Inc., a textile maker based in Greensboro, North Carolina, has announced a joint venture with a Chinese partner in Jiangsu province. And Glen Raven, Inc., another North Carolina fabric maker, proudly announced last month that it had built a new, 190,000 square-foot facility near Shanghai that will serve as the headquarters for Glen Raven Asia.

Europeans are also catching on. In the run-up to last week's monitoring deal, Mr. Mandelson flew to Italy and urged manufacturers there "don't be frightened" of competing with Asian suppliers. He has reason to think Europeans can compete: The venerable Ballantyne Cashmere, founded in Scotland in 1921, proudly points to its Scottish workers who make upscale sweaters from imported cashmere from China. "The world of Ballantyne," the company proclaims on its Web site, "is now international."

The textile lobbyists have had a long run. Protectionism has been woven into the American fabric since 1789, when the first Congress erected high tariffs to protect the domestic cotton crowd. In France in the 1600s, traffickers in imported calicoes risked public hanging, or a turn on the wheel. In more recent decades, the Europeans and Americans inflicted quota restrictions that limited economic growth in more than 40 mostly poor countries, while hitting consumers hard.

The beginning of the end came in 1995, when the rag trade was finally brought into the trading rules administered by the WTO. Textile quotas were phased out for WTO members in 2005, leaving only special cases like China and Vietnam vulnerable to the current harassment, which is gradually winding down. The newfangled monitoring programs and licensing schemes are likely to face a similar fate. For those manufacturers and importers who still refuse to modernize, the day of economic reckoning is fast approaching.