Bridges Weekly Trade News Digest • Volume 9 • Number 14 • 27th April 2005
EU Launches Textiles Safeguard Investigations
EU Trade Commissioner Peter Mandelson announced on 24 April that he had decided to launch investigations into surges in Chinese textile exports to the EU. The process could potentially culminate in the imposition of restrictions on certain Chinese imports.
The decision was triggered by data showing that increases in imports from China range from 51 percent to 534 percent since the start of 2005 in nine categories of textiles, thus exceeding the "alert levels" for Chinese imports established by the EU earlier this month (see BRIDGES Weekly, 6 April 2005). Countries around the world have been struggling with the effects of the 31 December 2004 elimination of trade quotas in the textiles and clothing sector. "Europe cannot stand by and watch its industry disappear," Mandelson said. "Chinese exports should, of course, be allowed to grow at a normal speed following the removal of quotas. But we must also extend protection to European industry if it is faced with a ruinous surge of unprecedented proportions."
China’s terms of accession to the WTO included a ‘textile specific safeguard clause’ that allows WTO Members to impose quantitative restrictions on imports of Chinese textiles and clothing if they are found to disrupt markets. Under the safeguard, Members can limit specific products to an increase of 7.5 percent above the preceding year’s import levels.
The EU will hold informal consultations with China for the length of the two-month investigations, which could begin as early as 29 April. During the first 21 days of the process, the EU will hear opinions from interested parties. If the investigation confirms that there has indeed been a surge in imports in the specified categories, and China has not taken any voluntary action to rectify the situation, the EU could request a three-month formal WTO consultation process with China as per the terms of the textile safeguard process. During the formal consultation process, China would be expected to impose quantitative export restrictions on its textile exports to the EU that hold them to a level no more than 7.5 percent higher than that for the first twelve of the fourteen months prior to the launch of the investigation. If no action is taken by the end of the three months, the EU will be free to impose import limits retroactive to the beginning of the formal consultations.
Thirteen of the 25 EU member states, including France, Italy, Spain, Portugal, Greece, and Belgium, have called on the EU’s executive European Commission to skip the five-month process and instead impose restrictions within weeks. France formally asked Mandelson on 26 April to impose emergency measures, saying that support from Brussels would bolster French enthusiasm for the EU constitution ahead of their 29 May referendum. The Commission responded that such action could trigger a trade dispute with China at the WTO, but added that they were closely monitoring trade in eleven additional textile categories.
WTO Director-General Supachai Panitchpakdi, on the other hand, has said that countries struggling with a surge in Chinese textile exports should wait at least a year before taking any protectionist measures. After only a few months of evidence, he suggested, the final impact of the trade rules remains unclear.
Effect on other developing countries central to EU’s decisions
The European Commission has said that the impact of increased Chinese imports on "textile producers in developing countries with an historic dependence on exports to the EU market" was another of their key concerns. The April 9 guidelines for investigations into Chinese imports pointed to the new competitive pressures facing "vulnerable developing countries like Bangladesh," as well as countries such as Morocco, Tunisia and Turkey. The guidelines noted that "a sudden, steep and sustained surge in Chinese textiles exports could be highly damaging" for industries in these countries.
Preliminary data indicate that some African countries have been strongly affected by the phase-out. Asian firms which had invested in Southern Africa to take advantage of preferential access to the US market under the African Growth and Opportunity Act (AGOA) have pulled out, according to Agrina Mussa, president of the Association of Southern African Development Community Chambers of Commerce and Industry. In addition, Kenyan Trade and Industry Minister Mukhisa Kituyi said that six export processing zone-based textile companies have shifted production to China and India in the past four months. Similarly, South Korea’s textiles and finished clothing exports for the first quarter of 2005 were 6.1 percent lower than last year. Asia News reports that that South Africa has lost as many as 30,000 jobs.
Chinese export taxes may increase
In its indignant response to the EU decision to launch the investigations, the Chinese government warned that European limits on Chinese textile imports would hurt wider trade relations. A spokesman for China’s Commerce Ministry said the investigation violated basic WTO provisions and "goes against the EU’s consistent free-trade position." After talking with officials in Hong Kong on 26 April, Mandelson renewed his call for China to take the initiative and voluntarily slow textile shipments. "It is in China’s interest to take the necessary action to avoid formal safeguard measures," he said.
China is reportedly considering increasing the export taxes on certain categories of textiles announced in December 2004 by as much as a factor of ten (see BRIDGES Weekly, 15 December 2004). Although no export tax increases have been confirmed, Chinese textile industry representatives expect a decision on the extent of the rise within the next month. US textile importers suggest that China could announce a decision in early May and impose the additional duties by mid-month.
While the EU has indicated that it would welcome such a move, Assistant US Trade Representative Charles W. Freeman said that the US would prefer to use the textile specific safeguard clause rather than leave it up to China to restrain its textile and clothing exports. Nonetheless, apparel importers and retailers have said that an increased export tariff would be unlikely to have a short-term impact on China’s exports to the US or the EU, because prices for textile and garment orders are fixed several months before shipment.
"A warning from China on textile trade curbs," INTERNATIONAL HERALD TRIBUNE, 27 April 2005; "Beijing may raise textile tariffs to curb exports," FINANCIAL TIMES, 15 April 2005; "EU warns on threat of China Textiles," FINANCIAL TIMES, 15 April 2005; "Citing Early Statistics, EC Moves To Investigate Chinese Textile Imports," WTO REPORTER, 25 April 2005; "US Importers, Textile Makers Weigh Impact of Rumored China Export Tariffs," WTO REPORTER, 25 April 2005; "Africa’s Textile Firms Fight for Survival," IPS NEWS, 23 April 2005; "European Commission launches investigations into sharp surge in Chinese textiles imports," EU PRESS RELEASE, 24 April 2005; "Guidelines for the use of safeguards on Chinese textiles exports to the EU," EU PRESS RELEASE, 6 April 2005; "13 EU Members Seek Emergency Action, Not Long Probe Into Chinese Textile Surge," WTO REPORTER, 26 April 2005; " South Africa : Sh2.6b US aid under AGOA to rescue garment industry from Comesa region," FIBRE2FASHION, 27 April 2005; "Textile exports down after global curbs lifted," ASIA TIMES, 27 April 2005; "Chinese textile tsunami hits Africa and Asia," ASIA NEWS, 26 April 2005.