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EU/CHINA : TEXTILES: MANUFACTURERS AND IMPORTERS PREPARE FOR WAR.

Six months away from expiry of European Union quotas on Chinese textiles imports, EU producers and importers are getting their arguments together and upping the pressure on the EU's Trade Commissioner Peter Mandelson. Once again,aMandelson is caught in a tug of war between the European textile industry and big distributors who disagree on the strategy for 2008 oncea the quotas established by the 2005 bilateral agreement with Beijing on incoming Chinese textiles are no longer applicable. Mandelson clearly indicated his will to put a stop to quotas but wants to negotiate a "soft transition" with Beijing to avoid a new crisis. This position satisfies EuroCommerce, which represents distributors but it does nonetheless worry Euratex, the textile industry lobby.

MANUFACTURERSWORRIED

To China's Minister for TradeaBo Xilai, the EU's trade negotiator repeated his wish to completely reopen the 27-strong common market to imports from China but demanded that his counterpart show flexibility. In exchange Bo Xilai committed to talks in July between the two economic partners in an effort to find a compromise solution. A welcome gesture but one qualified by Euratex as being inadequate, with the lobby believing that millions of jobs are threatened by a new wave of Chinese products.

"For the first time Mandelson, recognises something must be done. But he doesn't seem able to grasp the urgency of the situation. We don't understand why the Commission isn't taking any action," Francesco Marchi, economic affairs director confided to Europolitics. Market operators need to prepare themselves and answers to the problem should already have been found back in March.

European producers condemn the price war declared by their Chinese competitors, calling it unfair because it is the position of over-supply that pushes the country to invade EU markets. Euratex asserts that since 2007 the phenomenon has been exacerbated and risks reaching crisis proportions as soon as the quotas are lifted. The textile industry, made up of mainly small and medium sized enterprises (SMEs), complains that it has been neglected by the European Commission in favour of big multinationals or other heavy industry sectors like steel.

This alarmist line of argument was heard before in 2005 when, within the framework of the Multi Fibre agreements, import quotas caused a sharp increase in Chinese exports and forced the Commission to negotiate with Beijing.

DISTRIBUTORS LOOK FORWARD

Distributors refute this view. They support Peter Mandelson's line of argument and warn against any emergency measures which could call into question the "predictability" issue central to importers in determining a party's liability.

Ralph Kamphoner, international commerce adviser at EuroCommerce, says "We have nothing to reproach either the Commission or China for. They are talking to each other in good time". He is obsessed with avoiding another crisis on the scale of events in 2005. Here measures agreed by EU and China in June disrupted distributors' supply to such a degree that in September the European Commission was forced to backtrack and beg for import gates to be reopened. Provisions for the future winter season are decided on at trade fairs held the previous March and "by then most companies have signed their (supply) contracts" warns the EuroCommerce expert. Seen in this light "asking to continue quotas comes rather late".

But operators are on their guard faced with the "lingering doubt" hanging over the situation so they have decided to be proactive and stick to the diversified supply course set out for 2008. To reduce dependence on China and ward off any risks, major contracts have been signed with suppliers in South East Asia and Bangladesh. "No company wants to relive any unpleasant surprises," said EuroCommerce. Such foresight could limit the consequences of any eventual crisis.

MANDELSON SEARCHES FOR COMPROMISE

Avoiding a repetition of the 2005 scenario is also the European Commission's priority. It wants to find a quick compromise solution with Beijing. But the textile business is just one of a number of contentious issues poisoning bilateral trade relations and Peter Mandelson, who very much covets his relationship with China, does not intend to get his fingers burnt. In exchange for cancelling all restrictive measures, he aims to persuade the Chinese authorities to take the necessary measures to rein in exports themselves. This is revealed in an internal document seen by Europolitics on the eve of Bo Xilai's visit to Brussels. It reads: "We are committed not to extend quotas in 2008 but we expect China to take it on itself to do part of the work: to take, for example, effective measures to mitigate exports in the sector so as to achieve a soft transition".

Put bluntly, the idea is to avoid a spectacular influx of products onto Europe's doorstep on 1 January 2008 and any possible disastrous political effect this might have such as the risk of feeding protectionist sentiments already prevalent in some member states. And Mandelson knows full well that his actions may come back to haunt him. There are deep divisions between the member states. The Mediterranean in particular, including France, is pitted against more liberal countries like Sweden and the UK, where all the textile production has been delocalised and where the tendency is towards openness.

It is a touchy issue for the future Portuguese presidency of the EU, with Lisbon, which traditionally defends European producers, possibly finding itself in a position where it has to tone down its position.
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Publication:European Report
Date:Jun 22, 2007
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