The Hindu Business Line : Europe to go into huddle on Chinese textiles quota

Realisation that the quota system on Chinese textiles has backfired, has led European officials to "drastically review" the situation. Traders are faced with mounting and, perhaps, unwanted inventory and banks are under pressure to call back overdraft facilities.

(In London)

THE EUROPEAN Union's Trade Commissioner, Mr Peter Mandelson, is scheduled to hold "crises talks" with European officials and business leaders soon. This follows the realisation that the European quota system on Chinese textiles has "backfired" amid mounting inventories. Some European companies are facing bankruptcy, severe financial loss and many jobs are likely to be lost.

Import restrictions on some Chinese products came into effect on July 12 and the Chinese suppliers have been in "extra hurry" to export maximum quantities.

According to current estimates inventory worth Rs 300 crore is lying in Britain's ports. Items most affected are jumpers and trousers, imported last month.

The spectre of mounting,and perhaps unwanted, inventory coupled with loss of sales in high-end shops and super markets because of "adverse" trading conditions, have prompted European officials to "drastically review" the Chinese quota situation.

According to the latest data, European traders are faced with the prospect of storing some 12 million excess items. The financial outlay in many cases is "unmanageable" as most importers have borrowed heavily from banks to finance their imports.

The banks, closely monitoring the situation of poor sales and mounting inventory, are under pressure to call back overdraft facilities.

London's tourist and retail trades are also grappling with the fallout of last month's terrorist attacks.

Mr Ken Livingston, the Mayor of London, is busy launching schemes to revive the city's retail and tourist trade. Retail sales in central London have dropped nine per cent. Department stores are reporting poor sales and "tourist traffic" has declined substantially.

Many European companies today outsource manufacturing. They, however, still control design, presentation and finances. Many companies have done well with this model.

While China has been the favourite region to outsource from, in recent months India, Sri Lanka and Malaysia have benefited. Indian companies have an edge because of "easy communication" facilities.

The trade atmosphere has changed dramatically since the World Trade Organisation put an end to European Union's textile quota system in January.

Now it is an "open market" for importers in the European Union (EU) and suppliers in the developing world. Indian exporters could do better by honing their marketing skills and establish communication links with European importers who travel to the sub-continent regularly.

British importers are transferring production to India, Sri Lanka and even Turkey, which are fast emerging as major suppliers of manufactured garments.

Turkey has applied for EU membership, but is unlikely to get it in the near future. Some Turkish intellectuals and businessmen argue that Turkey may be better off "outside" the EU, and could consolidate its trading and investment links with the oil-rich Central Asian countries.

EU members are still divided on quota restrictions against China, as they realise that current European quota system has backfired — China's trade surplus with the EU is now almost record high.

China's trade with Europe and the rest of the world is growing at an impressive pace. It has increased forty fold since 1978. The EU is China's largest trading partner, its fourth largest capital source and its largest technological exporter.

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