Business Alert - EU
Business Alert - EU |
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EU ups pressure on mainland China in textile safeguard case On 17 May 2005, EU Trade Commissioner Peter Mandelson proposed the launching of formal consultations with mainland China for two of the nine categories of textile imports which are currently being investigated, i.e. T-shirts and flax yarns. According to Mandelson, quick action for both categories of textile products is required in view of the clear signs of market disturbance for these two categories. In consequence, a formal request for consultations was made on 27 May 2005. For T-shirts, the initial results of the investigation show that import volumes from mainland China increased by 187% from January to April 2005 compared to the same period in 2004. Over the first four months of the year, Community imports of T-shirts originating in mainland China reached 243 million pieces, an increase of 159 million compared to the same period in 2004, which represents an increase of over half the annual production of T-shirts in the Community. This increase in Chinese imports is linked to a decrease in the production of T-shirts in the EU, mainly in Greece (-12%), Portugal (-30% to -50%) and Slovenia (-8%). The sudden surge of imports is also felt to be damaging the textile sectors of third countries which traditionally supply the Community T-shirt market, such as Morocco, Tunisia and Romania, which have seen their exports dropping respectively by 8%, 22% and 29%. Similarly, exports of T-shirts from Pakistan, Sri Lanka and Bangladesh dropped by 36%, 25% and 9% respectively since the beginning of the year. As a result, the Commission notes that mainland China's share of the EU T-shirt market has risen from 7% in 2004 to 18% in 2005. For flax yarn, the investigation shows an increase in imports from mainland China of 56% from January to April 2005 compared to the same period in 2004. Indeed, while in 2004 the EU imported 9,924 tons of flax yarn of which 27.5% came from mainland China, in the first quarter of 2005, imports from mainland China already amounted to 1,788 tons. Chinese market share has increased from 7% in 2004 to 13% in 2005 over a three-month period. This increase in the import volume of flax yarn from mainland China led to a drop in Community production, turnover and employment by 25%, 25% and 13% respectively, during the first quarter of 2005. The EU countries most affected by this surge in Chinese imports are said to be France and Italy. In addition, this increase in Chinese imports of flax yarn came at the expense of India (-67% of exports to the EU in the first quarter of 2005) and Morocco (-30% of exports to the EU in the first quarter of 2005). When Mandelson announced his proposal to start formal consultations, Chinese Commerce Minister Bo Xilai reacted quite vigorously, saying that the EU's action was "unfair" and "protectionist". He argued that the 1995 Agreement on Textiles and Clothing which provided for the end to quotas gave the EU enough time to gradually lift textile quotas in order to avoid a surge in imports. Bo Xilai has criticised the use of "double standards" whereby developed countries claim global standards on free trade where they enjoy absolute advantages but argue in favour of restrictions when it threatens their trade interests. Defending Chinese producers and exporters, Bo Xilai said that the integration of the textiles trade is a right which mainland China gained through its accession to the WTO. However, Hong Kong traders should note that Beijing's reaction in no way weakened the European Commission's determination, as underlined by the President of the European Commission Jose Manuel Barroso, to pursue its actions for the protection of the EU against Chinese textile imports. However, the Commission also indicated the importance to act with a certain sense of balance. As underlined by Barroso, it is essential for growth and employment in Europe to ensure that the Chinese market is open to exports from the Community. Although they welcomed the Commission's initiative, some EU Member States, including the most important textile producers of the EU such as France and Italy, consider that the action proposed by the Commission is insufficient. France is surprised that the Commission's move towards formal consultations only concerns two categories of textile products. Similarly, the Italian Minister for Productive Activities, Claudio Scajola, has written to Mandelson underlying that Italy was the EU country which suffered the most from this surge in Chinese textile imports. Obviously, these countries have supported the Commission's proposal the most when it was discussed in the EU Textiles Committee on 23 May. In fact, during that meeting, the Committee gave its support by qualified majority to the emergency actions proposed by the Commission. However, not all Member States were in favour of the emergency measures. In particular, Nordic countries including Sweden, and the Netherlands, have never hidden their position that they consider the proposed emergency measures to be "protectionist". Meanwhile, despite an earlier announcement that mainland China would impose new limits on textile exports, the Chinese authorities' latest move to eliminate export tariffs on 81 categories from 1 June 2005 will likely anger the more heated Member States. Mainland China will need to, pursuant to the applicable WTO rules, take self-limiting measures on its exports of T-shirts and flax yarn. Indeed, on receipt of the request for formal consultations, mainland China must hold its shipments to the Community at a level no greater than 7.5% above the amount entered during the first 12 months of the most recent 14 months preceding the month in which the request for consultations was made. If mainland China does not comply with its obligations, the EU can, 15 days after the request for consultations, act to remedy the situation by itself imposing interim import growth restrictions at the same level. Formal consultations would last no more than 90 days. At the end of the consultation period, if no mutually satisfactory remedy is achieved, and if it has not already done so, the EU can impose safeguard measures. As regards footwear, which is another commodity over which quotas were lifted at the end of last year pursuant to the EU's WTO commitments, the Commission has stated that no concrete plans exist thus far to instal safeguards. However, speculations persist that such measures are being planned: as Hong Kong's trading community will be only too aware, Commission behaviour can, at times, be markedly influenced (depending on import statistics combined with the pressure from Member States and industry). As such, although Hong Kong's footwear manufacturers with Chinese mainland interests do not have cause for immediate concern, the position may become quite different on their trade front -- even in the near future. | ||||||||||||||||||||||||||||||||||
