Brussels, not Beijing, holds key to untangling knot on textile quotas

PUBLISHED : Monday, 29 August, 2005, 12:00am
UPDATED : Monday, 29 August, 2005, 12:00am

IT IS NO SURPRISE that talks between Europe and China over easing Europe's clothing import quotas have proved so tough. The premise of the negotiations was absurd, to begin with.

The European Union only agreed the quotas with China in June in a move aimed at protecting Europe's textile workers from fast rising imports of cheap Chinese clothes.

At the time, EU Trade Commissioner Peter Mandelson presented the agreement as a triumph of diplomacy. If he had paid more attention to market realities and less to internal European politics, he would have realised that slapping quotas on Chinese-made clothes was asking for trouble.

Sure enough, the quotas were soon filled. Impounded imports of Chinese sweaters, T-shirts, brassieres and seven other categories of clothing and textiles began piling up on Europe's quaysides, prompting protests from retailers afraid of empty shelves in the run-up to Christmas. Now, less than three months after they were congratulating themselves for clinching the quota deal, European trade officials are back in Beijing, trying to find a face-saving formula.

If that is difficult, it is because the European approach is wrong-headed on several levels. Europe sought the imposition of the June quotas in response to the sharp rise in imports from China which followed the abolition of an earlier quota scheme at the beginning of this year.

Over the first quarter, Europe's imports of Chinese sweaters shot up by 534 per cent compared with the first quarter of last year, while imports of eight other classes of clothes and textiles rose more than 50 per cent.

After some tense negotiations, Europe and China hammered out an agreement limiting this year's imports and restricting import growth from China for next year and 2007.

The first problem with these quotas is that they will do little for textile producers in Europe who have had 10 years to prepare for the end of quotas. If European clothes makers are threatened today, it is because they are too expensive to compete with lower-cost producers elsewhere in the world.

Slapping temporary quotas on China will not suddenly enable European companies to compete with Bangladesh, Vietnam, or anywhere else in the developing world.

Secondly, the surge in imports from China at the beginning of this year was largely an illusion. Under the old scheme, clothes made in China were routinely shipped through third-party centres like Hong Kong to circumvent the quotas. Following its abolition, the clothes were simply shipped directly.

A glance at the chart reveals that China's overall textile exports have not risen appreciably this year. The rise in exports to Europe and the United States has been largely offset by a decline in exports to third-party transshipment hubs.

Moreover, there is no evidence that US or European imports of clothing have risen significantly.

So, the people hurt most by the new quotas are European clothes retailers who placed their orders with Chinese producers months ago, only to see their shipments impounded after the limits were reimposed. And then, of course, there are the European consumers, who naturally enough want to buy their T-shirts and bras as cheaply as possible.

Here lies the real problem with quotas. Chinese clothing exports to Europe are being driven by European demand. This is not a case of China unfairly dumping artificially cheap goods. By imposing quotas, European officials are interfering with the market's efficiency and penalising their own retailers and consumers. That is why striking a new deal with China has proved so tough: the solution lies in Brussels, not Beijing.

Jake van der Kamp is on holiday



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