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Textile Free For All
Laissez Faire: Free trade. When I was in college, this was explained as one of the pillars of the American economy. With true free trade, government intervention is non-existent, borders are porous in both directions and the market sets its own price. In actual fact, unbridled free trade has all kinds of problems. Without government intervention there would be no limits imposed on what could be sold. Imagine the corner store selling grenade launchers and Viagra of questionable origin from Thailand.

The American government has grown more and more involved in the oversight of trade for several reasons. In limiting what can and cannot be sold it often serves as a safeguard for the public against dangerous items like grenade launchers and harmful drugs like heroin. Perhaps equally important, government regulation of imports helps to protect American business. Goods coming into the US are checked for copyright protection, false labeling (UL listing for example) and are classified by category for duty and quota purposes.

In addition, our government and the governments of other countries has placed limits and protections on items it deems worthy of protection. A good example of this is steel. Steel is now produced cheaply in countries like Korea and China. Were steel allowed unhindered entrance into the US, the US steel industry (already on the ropes) would collapse in the face of foreign competition. As a protection for American business, our government limits the quantities of foreign steel that may be imported in any given year. It also levies a duty on imported steel that artificially increases the price to effectively make American steel competitive in price. The government may also subsidize certain segments of the economy (peanut farmers, for example) to help them remain economically viable.

The up side of this is that American jobs in all sorts of industries from agriculture to manufacturing are protected from cheap foreign imports that rely on cheap foreign labor. On the down side the American consumer pays more at the cash register because government duties ultimately increase the retail price of everything from cotton t-shirts to automobiles.

In January, the US followed through on its commitment to the World Trade Organization to eliminate quotas on textile goods from abroad. In fact, textile quotas were eliminated among all of the WTO members, including China and India. Duties remain in effect, so the effect on prices may be somewhat limited at least initially. The average duty on textile products is about 25%. It has been estimated that American consumers pay an extra $50 to $60 billion dollars a year as a result of import tariffs.

For our company, the elimination of quotas is a huge plus. We have had problems in the past getting goods into the country. As the end of the year approached, quotas from India for certain categories like women's cotton skirts would be full. If we wanted to bring in items that were over the quota, we either had to source from another country or wait until the next year's quota to open up.

There were also more barriers imposed by the quota in terms of paperwork and regulation. We were forced to pay extra in the country of origin and in the US to our customs broker in order to process the quota paper work.

It should be noted that the quotas were not given up without a fight from the American textile industry. Ultimately, after court battles and intense lobbying, the US mandated the elimination of the quotas per the agreement with the WTO. Had the US not complied, it would have faced sanctions and intense pressure from other WTO countries.

Consumers can expect to pay less at the cash register for clothing as cheap Chinese and Indian textiles, no longer limited by quotas, supplant more expensive alternatives from within the US and from "middle class" countries like the Philippines and Malaysia. Duties will remain in place for the foreseeable future, but even that may change: there is growing pressure on "rich countries" like the US and EU countries to eliminate duties and subsidies. If that happens, expect to see a substantial drop in wholesale and subsequent retail prices.

For more info, see this article by Edward Gresser, Director of the PPI Project on Trade and Global Markets

(This article written by Mike McGinnis and published originally on indiasilver.com. We allow republication provided the piece is copied in its entirety with links and attribution.)

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