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Toh Han Shih

The latest Sino-EU textile agreement will  be a relief to  European retailers crying for their millions of Chinese  garments blocked at EU customs, but challenges remain for the rag trade of the EU and China, industry players say.

Prior to this agreement, tension among EU retailers had been running high, with retailers in Germany and the Netherlands taking legal action to claim compensation for financial losses from the EU embargo of Chinese textiles.

An estimated 87.5 million pieces of Chinese clothing  are  held up because they had exceeded quota limits agreed by EU Trade Commissioner Peter Mandelson and Chinese Commerce Minister Bo Xilai in Shanghai on June 10.

On Monday in Beijing, Mr Mandelson and Mr Bo announced a solution to the problem. The solution was ratified by  EU member states yesterday.

'Solving this problem was necessary to ensure the Shanghai agreement had credibility,' an EU official in Brussels told the South China Morning Post.

If the problem was not solved, the agreement might not have lasted, the official suggested.

Even with this solution, the businesses of both the EU and China would suffer, industry players said.

'The whole trading system gets messed up because of these quotas,' said Douglas Sheridan, owner of BKMS Trading.

China  would have fewer quotas next year, because Monday's agreement required nearly half of the 87.5 million  items to be counted against next year's quota, he said. 'This will hurt China for sure.'

Although EU buyers were sourcing from other countries, the production capacity of these countries was not enough to meet EU demand, Mr Sheridan said. 'The EU needs China. China is a reality that must be faced in the world textile trade.'

Neeraj Sawhney, director of Topnet International, a Hong Kong trading firm, said EU buyers were finding textile products from other countries  such as India and Sri Lanka more costly with longer delivery times compared to China.

China had faster delivery times because it had a large domestic supply of raw materials, Mr Sawhney said.  Topnet has had to ship raw materials from China to garment factories in India, resulting in longer delivery times for Indian producers.

Mr Sawhney said European importers were sourcing a lot of textile products from China because  'not all countries are capable of doing similar quality'.

Cynically, a Hong Kong textile executive predicted the problem of blocked Chinese textiles would not recur next year because a lot of Chinese  garments would be shipped under false country of origin papers to get around the quotas.

When global textile quotas were in place for decades until the end of last year, it was common practice to  declare Chinese  products  originated from places  such as Hong Kong and Vietnam, the executive said. One reason   Chinese textiles  far exceeded the EU quotas this year was their country of origin was  truthfully declared, he said.



Deal leaves loose ends in Sino-EU rag trade