China Signs Textile Pact; Narrowly Averts U.S. Penalties : Trade: Last-minute agreement allows American inspectors into plants to investigate mislabeling and other export violations.

BEIJING â€”  China averted a looming, multibillion-dollar battle over illegal textile imports on Monday, agreeing to allow U.S. inspectors into textile plants to investigate mislabeling and other export violations as part of a last-minute agreement signed by senior Chinese and American trade officials in Beijing.

The negotiators concluded the compromise on the very day that stiff, U.S.-imposed penalties were to take effect against Chinese textile manufacturers.

American customs officials claim that last year China illegally exported more than $2 billion worth of textile products to the United States, mostly by mislabeling goods or “trans-shipping� them through other countries to hide their Chinese origin.

Among the many examples cited by U.S. investigators, one Chinese company labeled its products “Made in the United Arab Emirates� to avoid having its clothing items counted in the U.S. import quota.

In retaliation for such violations, U.S. Trade Representative Mickey Kantor threatened on Jan. 6 to slash China’s textile quotas by 25% to 35%. The move was applauded by the American textile industry and would have cost the Chinese more than $1 billion in lost trade.

Textiles are China’s most important export; the United States is, by far, China’s biggest market. China accounts for 20% to 25% of all clothing purchased in the United States.

At a Washington news briefing, Kantor called the pact “a very important new bilateral agreement� that was reached “after three days of intensive negotiations.�

A senior American trade official in Beijing said Monday’s agreement--a three-year renewal of a U.S.-China textile pact that expired on Dec. 31--will substantially reduce the growth rate of Chinese textile exports to the United States.

“China will continue to have good access to the market,� the official said. But following a pattern established in other countries, notably South Korea, China will get two warnings on illegal imports before a punitive reduction in China’s textile quotas will be enforced. The penalty under the agreement would by a reduction equal to three times the amount of goods illegally imported to the United States.

In 1993, the U.S. official said, American customs officials discovered more than $581 million worth of illegal imports, about a quarter of the amount officials contend illegally entered the country.

China exported $7.2 billion worth of textiles to the United States in 1993, including an increasing array of silk goods not covered in the expired textile pact between the two countries. For the first time ever, the new agreement will also cover silk imports. American officials characterized this as a breakthrough.

Kantor said that “this silk apparel has been used because it’s become so cheap a substitute for cotton and other apparel. . . . The growth in that from $900 million to $2.6 billion in just 24 months has had a serious effect upon the U.S. textile and apparel industry.�

The Chinese were able to claim a victory in the negotiations because they avoided cuts in their textile quotas.

The biggest concession gained by the Americans was a pledge by the Chinese to allow China-based U.S. customs officials to examine textile manufacturing plants in surprise inspections.

Under the agreement, said the senior U.S. trade official, American customs officers will be required to notify the Chinese government that they intended to inspect textile plants and indicate the city or region where the scrutiny would occur; they would not be required to divulge the name of a targeted company or its specific location.

Times staff writer Robert L. Jackson in Washington contributed to this story.