CHINA has threatened to retaliate against the European Union if it fails to remove quotas on toy imports, the Toy Manufacturers of Europe (TME) said yesterday. Wu Yi, China's Minister for Foreign Economic Relations and Trade, told a delegation of European and Hong Kong toy manufacturers in Beijing that she was determined to see the quotas abolished. It was the first time that China has publicly declared it would fight the quotas. The Chinese Government has remained largely silent over the issue ever since the EU announced in March this year that it would limit imports of three kinds of toys from China. Ms Wu plans to raise the issue with French Minister of Trade Gerard Longuet when she visits France in early September. Ms Wu did not say what measures she would take if her efforts failed to convince EU leaders to annul the quotas. ''She was quite emphatic. She didn't suggest any kind of deal,'' said Peter Waterman, a TME representative who met Ms Wu earlier this week. ''In trade negotiations, China has lots of leverage these days,'' he added. Following the EU's decision last month to increase the toy quota for stuffed animals by 24 per cent but leave the quotas for human-like figures and die-cast toys unchanged, the TME decided to take its concerns to top Chinese officials. The TME, which represents most European toy companies, together with the HKTC, told Ms Wu that if she adopted a harder line on the toy issue she would almost certainly be able to force the EU to rescind its toy quotas. Britain and the TME have already filed separate law suits against the EU council of ministers, charging that it failed to act with proper discretion when sounding out the European toy industry. According to Mr Waterman, the quotas on Chinese-made toys were imposed on the false assumption that import restrictions would increase jobs and factory output across Europe. He added, however, that low labour costs and the high quality of toys made in China would prevent Europe from ever gaining a competitive edge in the market. Mr Waterman also pointed out that inexpensive toys from China allowed for brisker sales in Europe, which meant more retail jobs in more stores for Europeans. The EU council will have another opportunity to alter or reverse the quotas when it meets again in October, but this year the damage has already been done because all Christmas orders must be placed by September. Toy manufacturers in Hong Kong said that about 80 per cent of Europe's toy imports were shipped from Hong Kong after assembly in the mainland. The quotas will reduce Europe's toy imports from China by about 750 million ECUs (about HK$7.12 billion), equivalent to 25 per cent of all EU toy imports and six per cent of China's annual exports to the EU.