'Analysing the global production chain and trade in textiles and apparel products, I think the developed world still controls the core business and is in a dominant position to gain the fattest profits from the development of the industry.' Liu Yingkui Trade Point Beijing WHEN TEMPERS FLARE in an international trade dispute, both sides quickly resort to staking out their claim to the aggrieved position. Let us deal first with the European side to the latest dispute in the rag trade. The first chart should set it in perspective. A 30-year system of international quota restrictions on garment exports was finally abolished in January this year, and just look at how even Beijing's figures concede that mainland producers took massive advantage of it. It is not fair, said Europe's garment producers, and they quickly won European Union support for surge controls to limit this flood of imports. These controls have just as quickly unravelled again. Europe's producers no longer have enough capacity to meet domestic demand. European retailers and consumers went short. They protested that needed imports were locked up in warehouses and they then succeeded in unlocking those warehouses. One point to Beijing. When you are the world's biggest producer you swing some clout, particularly when you can also bring lower prices to previously controlled markets. But Mr Liu has a point when he says that it is not really China that makes all the money from the garments and textiles it produces. He estimates that 55 per cent of global textile industry profits go to brand owners, 25 per cent to traders and retailers, and less than 10 per cent to manufacturers. Those figures sound about right. If anything, this 10 per cent for manufacturers could still be too high. Official figures from Beijing are sketchy and not entirely reliable, but the bar chart suggests that the textile industry's total profits in the mainland could be less than 5 per cent of total industry sales. And the figure fell last year. Note also that these are profits as a percentage of sales value within the mainland. By the time retail prices are slapped on these goods in European or American shopping centres, the producers' profit as a percentage of final sales prices would be much lower still. Of course, a contributing reason for this is that mainland producers have a habit of understating their sales prices, and thus their profits, in order to evade mainland taxes. They then mark up the prices when the goods have crossed the mainland's borders. But the point is that in most cases it is not they who get the benefit of the mark-up. It is the foreign brand owners and distributors to whom they sell, Hong Kong middlemen being prominent among these. And this is the dilemma for Beijing. It is not hugely difficult to become a cost-efficient producer of labour-intensive goods when you have an enormous labour force looking for work and many strategies to keep wages down. This only gets you to the workshop stage, however, and there are many other stages in the entire chain of production, from product concept to final delivery into the customer's hands, most of them yielding a much higher level of profit than the workshop does. How do you go up that value-added chain to take a slice of those profits too? Answer: You do not without a liberalised economy that sets entrepreneurial talent free. Just for starters, you need an unfettered financial market so that entrepreneurial risk can be properly priced. Even this starting point, however, is not yet in place in the mainland. And this leads to the proper response to European bureaucrats who whinge about the mainland's unfair trade advantages. What are you complaining about, fellas, when it is European distributors and brand owners who make most of the money from the trade? As I recall, the Good Book has something to say about people who should take the beam out of their own eyes before taking the mote out of someone else's.