China And The EU Step Back From The Brink

by Mary Swire, for LawAndTax-News.com, Hong Kong

13 June 2005

After an emergency dash to China last Friday, EU trade commissioner Peter Mandelson agreed a cease-fire with Chinese Commerce Minister Bo Xilai in the row over China's booming textile exports.

The two sides agreed to limit the increase in Chinese textile exports by staggering their level in each of the next three years before the trade is fully liberalised in 2008.

Friday was a crucial day because it saw the expiry of a 15-day cooling-off period following the EU's complaint to the WTO, after which under WTO rules the EU would have been able to take action against China in the absence of voluntary measures to stem the flow of exports. The EU has now suspended planned sanctions against two categories of exports, flax yarn and tee-shirts which had been due to come into force on Saturday.

"I am going to China either to agree a way of dealing with the dramatic textile import surge or, if necessary, to explain, face to face, why the EU needs to introduce measures of its own," Mandelson said Thursday. "My preference is for an enduring agreement which brings predictability for traders in China and Europe and stability in our wider relations," he added.

Mr Mandelson said that Friday's deal was an overall agreement which would avoid a salami process of haggling over every product. He said: "This is a significant demonstration of China's entry into the global economy as a responsible and valued partner".

Mr Bo said that by signing the agreement over textiles China was showing it was taking a responsible attitude, and in remarks clearly directed at the US, which has adopted an altogether more hawkish stance, he praised the EU for seeking to solve problems in a friendly manner. Washington will come under pressure to copy the EU's compromise; but the US administration is far more open to pressure from producer lobbies than is Brussels.

Two weeks ago, the US announced restrictions on the growth of imports of Chinese-made cotton pants, underwear, synthetic fiber shirts and other goods to an annual rate of 7.5%. US Commerce Secretary Carlos Gutierrez said there had been a surge in shipments from China since global quotas were lifted on Jan. 1. The decision was made by the Committee for the Implementation of Textile Agreements. "Today's action by CITA demonstrates this administration's commitment to leveling the playing field for U.S. industry by enforcing our trade agreements," said Gutierrez. According to Commerce Department statistics, imports of Chinese textiles were up 54% in the first quarter on a year earlier.

Mr Gutierrez also visited China ten days ago and had talks with Mr Bo, who said that despite the problems over textiles, China wanted healthy trade relations with Washington. "There are areas where we can seek mutual benefit," he said. "So we are quite optimistic about the future of this bilateral trade relationship."

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