TRADE: by Peter WestmoreNews Weekly
EU and US try to force China to cut textile exports
, May 7, 2005
The European Union and the United States are putting up barriers against the flood of cheap Chinese exports. But there is another danger to world trade if there is a sudden slump in China's economic growth, writes Peter Westmore.Faced with a flood of cheap textiles from China, the United States and European Union (EU) - which have pushed the global free trade agenda - are looking urgently at measures to cut imports of Chinese-manufactured cloth and clothing.
As part of China's accession to the World Trade Organization in December 2001, China agreed to let WTO members reimpose quotas if imports caused market disruption.
EU guidelines say increases of between 10 per cent and 100 per cent over a year would trigger a probe and informal talks with the Chinese on possible protection measures.
The European Commission said increases in the volume of imports have ranged from between 51 per cent to 534 per cent since the start of the year.
T-shirt imports, for example, rose 164 per cent in the first three months of this year compared to the same period last year. The increase caused a 26 percent drop in T-shirt prices in the EU.Trade rules
China has defended its surging textile exports, saying the increase was due to changes in international trade rules and that Beijing has imposed its own measures to control the boom.
At the same time, the US textile industry has petitioned the Bush administration to impose caps on textile imports from China.
After an international quota system for textiles was abolished at the start of 2005, US clothing imports from China rose 62 per cent in the first quarter, according to a US Commerce Department report.
The department now releases preliminary data on textile and apparel imports fortnightly, ahead of the monthly trade report, to allow the US Administration "to more quickly analyse the impact of imports on the US market", according to Commerce Secretary Carlos Gutierrez.
Luxembourg Deputy Foreign Minister Nicolas Schmit, whose country holds the EU Presidency, said all 25 EU Trade Ministers backed the launch of a 60-day investigation by the European Commission into the impact of surging Chinese textile imports.
"We have to deal with this urgently," he told reporters. "We don't exclude safeguard measures."
The EU trade ministers met with EU Trade Commissioner Peter Mandelson after he announced he was launching the investigation into the cheap Chinese imports.
Mandelson said the EU could impose limits on Chinese imports if his probe reveals disruption, but urged Beijing to voluntarily lower exports to avoid a trade dispute.
Mandelson said the European Commission would investigate nine categories of clothing and textiles, including T-shirts, pullovers and women's overcoats, because statistics from the first four months of this year showed there "was cause for serious concern".
At the end of the EU's investigation, a formal three-month consultation process will be launched at the World Trade Organization unless China voluntarily imposes restrictive measures, he said.
Mandelson said a cut in imports would give Europe's textile industry "breathing space" to restructure and become more competitive, but acknowledged the EU could not impose permanent restrictions under world trade rules.
Luxembourg's Nicolas Schmit said the EU would like to see imports drop permanently to a manageable level, and argued that the problem was also damaging poorer producers in Northern Africa and in Asia who have been squeezed out of the European market.
Apart from making efforts to limit China's exports, the US and the EU have also increased pressure on China to increase the value of its currency, the yuan. The yuan is pegged at about 8.3 to the US dollar, enabling low-cost Chinese exports to dominate Western markets.
The US Senate is considering legislation that would impose a 27.5 per cent tariff on Chinese goods unless China moves to float its currency within six months.
However, economists are uncertain whether the floating of the yuan will necessarily cause its value to shift significantly and, even if it does, whether it will stop the flood of exports which are hammering the textile industry in the US and Europe.
The case has parallels with the steel industry.
Six years ago, rapidly increasing steel imports forced the closure of some of America's largest steel mills, and the loss of thousands of jobs. In response to pressure from the industry, the US Commerce Department agreed to release steel import figures weeks before the national trade figures.
Three years later, President Bush imposed tariffs of up to 30 per cent on a range of imported steel products - tariffs which were only recently removed.
The US currently has a trade deficit with China of over $200 billion a year, contributing to America's mounting balance of payments deficit and growing foreign debt. The total US trade deficit exceeded $800 billion in 2004, and recorded a monthly high of nearly $80 billion last February.
The danger is that a sudden slump in China's economic growth - which could be triggered by a rising currency, rising oil prices or Western protectionism - could lead to a global economic downturn, with serious consequences for the US and European economies.