Bridges Weekly Trade News Digest • Volume 9 • Number 19 • 1st June 2005

Textiles Row Deepens As China Revokes Export Tariffs

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The Chinese government on 30 May revoked export tariffs on several categories of textile and clothing products in retaliation against import restrictions imposed by the US, as well as an EU move to impose similar restrictions. The Chinese move came just ten days after it announced that it would raise export tariffs five-fold on 74 categories in an attempt to prevent the US and EU from restricting imports. The government had said at the time that it would remove export tariffs from any categories subject to import restrictions (see BRIDGES Weekly, 25 May 2005).

According to the Customs Tariff Commission of the Chinese cabinet, the decision to revoke export tariffs was made "in the wake of the EU’s decision to impose quotas on imports of Chinese textiles, as well as the US decision to re-impose restrictions on seven kinds of Chinese textile and clothing imports recently." Chinese Commerce Minister Bo Xilai said that all 81 categories for which export tariffs were cancelled were threatened by US and EU import restrictions.

The US and the EU have justified import restrictions as part of the ‘textile specific safeguard clause’ that is part of China’s WTO accession agreement. The clause allows WTO Members to impose quantitative restrictions on imports of Chinese textiles and clothing products if they are found to disrupt markets.

On 27 May the EU formally requested WTO consultations with China on two categories of textiles and clothing products, although they had earlier said that they would give China until 31 May to resolve the issue through informal discussions. Under the EU process, China now has until 10 June to limit its exports to the EU to no more than 7.5 percent above the amount that entered the EU market during the period from March 2004 to February 2005 — equal to the extent to which Members are permitted to limit Chinese textile import increases under the safeguard clause. If China should fail to do so, and formal discussions on an alternative method of addressing increased Chinese imports into the EU do not bear fruit, the EU at that time will be able to invoke the clause to impose equivalent import quotas.

The US has already imposed seven safeguard import restrictions, using the ‘textile-specific safeguard clause’ to justify them. The first three were imposed on 13 May after a US government body found that market disruption was indeed occurring. (see BRIDGES Weekly, 18 May 2005). The import restrictions on four additional categories announced on 27 May, however, were based upon a finding that the ‘threat’ of market disruption existed, i.e., that continued imports from China threatened to impede the orderly development of trade in the textile products in question.

A US appeals court ruled in April that safeguards could indeed be imposed upon the sole basis of the "threat" of market disruption, according to the terms of China’s ‘textile specific safeguard clause.’ The clause itself states that safeguard measures against certain products can be taken if Chinese imports "due to market disruption, [were] threatening to impede the orderly development of trade in these products." However, it stipulates that governments must give the Chinese authorities data showing "the existence or threat of market disruption" to justify imposing safeguards.

Bo said at a 30 May press conference that the US and EU measures were "groundless," arguing that they had failed to meet the requirements of the safeguard clause. "We believe that not only have Europe and the US failed to provide detailed data to China," he said, "but also that on these matters there is a big discrepancy between their and our analysis of the specific facts." In addition, he said that the short period of time that the US and the EU have used to gather data is an "unreasonable and unscientific" basis for justifying the safeguards.

According to Bo, countries invoking the safeguard clause needed to prove that Chinese exports were responsible not only for "market disruption" but also for forcing down the prices of affected goods and threatening the "orderly development" of domestic industries in the importing countries. Data cited by the minister, however, showed that prices have increased somewhat for t-shirts and flax yarn, the two products for which the EU is considering safeguards. The EU rejected Bo’s comments, saying that it had demonstrated that the surge in Chinese exports posed an "immediate risk" to European manufacturers.

China had proposed on 20 May to introduce an export tax on flax yarn to address EU concerns regarding its increased exports, but decided to scrap the idea in its revocation of such duties.

Export tariffs will be revoked effective 1 June on 81 categories including 74 of the 148 categories in which such tariffs were introduced on 1 January and 3 categories that were to be subject to new export tariffs according to the 20 May decision.

Although a senior official with the Chinese Ministry of Commerce told state-run television there on 26 May that the government was preparing to launch a WTO complaint against the EU and US textile import restrictions, Bo has said that he will resist such retaliatory action for the moment, seeking instead to pursue further talks. However, he added, the US and EU actions could be challenged at the WTO and "whether we will resort to it and when we will do that is completely up to us."

"Beijing To Revoke Tariffs In Retaliation," INTERNATIONAL HERALD TRIBUNE, 31 May 2005; "Announcement of Request for Bilateral Textile Consultations," COMMITTEE FOR THE IMPLEMENTATION OF TEXTILE AGREEMENTS, 26 May 2005; "EU, US Moves To Limit China Textile Exports Have No Basis - Bo," AFX NEWS, 30 May 2005; "China To Scrap Export Taxes," REUTERS, 29 May 2005; "EU Takes Textiles Dispute With China To The WTO," ASSOCIATED PRESS, 31 May 2005.