Worsening Sino-US trade ties feared as Washington invokes safeguards against rising Chinese imports Hong Kong trading and textile firms are bracing for worsening Sino-United States trade ties, after the US reimposed import quotas on three categories of Chinese textile imports over the weekend. Major US textile buyers, such as JC Penney, had slashed their orders for cotton shirts, cotton trousers and synthetic underwear from China - imports of which had already exceeded the annual growth caps of 7.5 per cent imposed on Saturday - and for other garments that appeared likely to attract quotas, industry sources said yesterday. 'US buyers have known [the safeguard quotas] would happen,' said Willy Lin Sun-mo, the vice-chairman of the Hong Kong Textile Council. . 'China's textile exports to the US in the second half are likely to slow considerably.' Global textile quotas under the decades-old Multi Fibre Agreement expired on January 1, but WTO rules allow members to impose temporary safeguard quotas if imports pose a demonstrable threat to domestic industries. Andrew Leung, representing the Federation of Hong Kong Industries in the Legislative Council, said China was likely to file a challenge against the quotas with the World Trade Organisation, as there was little factual evidence to support the claim that mainland imports were harming US industries. 'Chinese garment imports, which were heavily restricted for decades, are growing from a very small base, and that is why you see the surge in import growth numbers,' Mr Leung said. The US Department of Commerce reported last month that imports of mainland trousers soared 1,519 per cent year on year in the first quarter, while knit-shirt imports rose 1,250 per cent and underwear imports more than 300 per cent. 'The surge was no surprise, and Chinese exports to the US are already dropping to an acceptable level,' Mr Leung said. 'The absolute quantity of Chinese imports remains quite small.' Mainland garment firms, many of which are Hong Kong-invested, will feel the impact. The three import categories targeted account for 9 per cent of the mainland's textile exports to the US, according to Mr Lin. 'That will hurt Hong Kong a lot. If all the other 'hot' categories attract new quotas, this will be a very worrisome picture.' Mr Leung said that some Hong Kong-invested textile firms might move production back to Hong Kong in light of US trade friction with China, while others would set up operations in countries such as India and Vietnam. 'The impact on Hong Kong will be neutral, and we might even win some on the trading side,' he said. 'But remember, China also has a lot of buying power. Hong Kong does not want to see its No1 and No2 trading partners in an all-out trade war.' Several observers expressed surprise at the speed with which the US investigation into the targeted import categories - initiated by the Department of Commerce last month without a formal request from domestic textile industries - was conducted and concluded. 'What amazed me is that the [department's] public consultation just closed on May 8,' Mr Leung said. 'How could they have gone through the comments so quickly before making a reasonable decision? 'I'm left with the impression that they had decided beforehand to impose the quotas as soon as possible.' US guidelines specify a three-month investigation and consultation process before safeguard measures can be imposed. 'This was a purely political decision,' said Henry Tan, chief executive of garment manufacturer Luen Thai Holdings. About 10 other categories of mainland textile imports were under consideration for US safeguard quotas, including jumpers and synthetic trousers, and quotas might be imposed on some of these items within 40 days, Mr Lin said. 'I'd say there's a 99.99 per cent chance that we'll see more quotas,' he said. Hong Kong textile firm Topnet International says its business has fallen 20 per cent in the past six weeks as international buyers began sourcing from other countries. 'We're being asked to source from India, Bangladesh and Vietnam,' said Topnet director Neera Sawhney.