US and Chinese negotiators are still ironing out differences but more quotas may be likely if they fail to reach agreement Both the United States and China have a stake in settling their trade spat and reaching a comprehensive textile agreement covering the next few years, although talks now underway in Washington have so far produced no dramatic breakthroughs. Negotiations between the two trading partners were continuing in Washington, according to US Special Textile Negotiator David Spooner and had produced some positive results so far, although more time was needed. 'We have made good progress in our discussions over the past couple of days and, although we still have differences, we feel that additional time to work on the issues would be beneficial,' he said. The fact that the parties continued to talk, said Peter Shay, managing director of MMG Asia, an investment banking and consulting firm, was encouraging. 'It seems positive the talks are continuing. If there was no agreement and the Chinese delegates flew home, that would not be a positive result,' he said. If this round of talks fails, the US government will make a unilateral decision on whether to impose quotas on four more Chinese textiles items, namely sweaters, dressing gowns, wool trousers and knit fabric, a US official was quoted saying on the website of the China Chamber of Commerce for Import and Export of Textiles. 'It's essential both sides come up with an agreement. It's in the interest of all parties,' said Mr Shay. 'If there is no agreement, the solution is for US buyers to source from non-China production and [outward processing arrangements in Hong Kong and Macau], which will be more costly. 'The cost will be borne by US consumers,' he said. Willy Lin Sun-mo, vice-chairman of the Hong Kong Textile Council, said China was seeking an agreement with the US similar to its accord with the European Union of June 10, which set known limits on certain Chinese textile items from June 11 until the end of 2007. Under the Sino-EU agreement, the EU will not unilaterally impose further restrictions on Chinese textiles. This creates certainty for the rag trade as exporters and buyers know what restrictions to expect and plan accordingly. If the US and China failed to reach a similar agreement, the central government might not place any domestic control on exports, which would result in every Chinese exporter rushing to ship their goods at the beginning of every year, said Mr Shay. Under the decades-old regime of global textile quotas, every textile exporting nation including China had domestic controls regulating exports, which ensured orderly trade. These domestic controls were abolished with the lifting of global textile quotas on January 1. The abolition of export controls resulted in 87 million pieces of Chinese textiles piling up at EU custom points between June and this month, causing losses to European retailers who had paid for the imports but were unable to take delivery due to the trade spat that ensued. The mountain of Chinese clothes was eventually let into the EU after a second Sino-EU textile agreement this month. Something similar happened with the US this year, although not as severe as the EU situation. Currently, seven of the 10 US quotas on Chinese textiles are over limit for the year. 'We believe a temporary bilateral agreement will be better for all parties than the costly period of uncertainty and chaos that has marked the current process,' said Kevin Burke, president of the American Apparel and Footwear Association, which represents major US importers and retailers. The challenge, however, was that the US government was motivated by political considerations, according to Neeraj Sawhney, director of Topnet International, a Hong Kong trading firm. 'The US government is under pressure to show it is looking after US industry. The US government wants the yuan to further appreciate, as one of the major issues is China's trade surplus with the US,' said Mr Sawhney. 'My customers [Hong Kong textile manufacturers] feel the US government has been stubborn and inflexible in its requirements.' Mr Lin added: 'The Chinese don't want to give more favourable terms to the US than the EU, otherwise the EU will look stupid.'