The Hindu Business Line : How many Chinese garments equals an Airbus?

BEFORE attending a soccer master class and a dance session in Beijing, Mr Tony Blair had important work on his hands — help end the `bra wars' between China and Europe. And it seems to have ended, surprisingly too quickly, because there are already happy pictures in the media of the European Union (EU) Trade Commissioner, Mr Peter Mandelson, shaking hands with the Chinese Commerce Minister, Mr Bo Xilai, after signing the textile accord.

Some of the headlines read: Bra wars breakthrough marred by fake goods row (The Independent), PM says `bra wars' can be resolved (This is London), Storm in a D cup (http://lkcn.net), British bosses blast `Bra Wars' (Manchester Evening News), CBI to send delegation to `Bra Wars' talks in Beijing (Telegraph.co.uk), Hurricane keeps prices high as bra wars hit importers (The Scotsman), Bra wars rage on as US-China talks stall (Asia Times Online, Hong Kong), and The `bra wars' unwinnable (eTaiwan News).

If you are asking what the war was about, it's necessary to start from scratch and come to grips with the most recent dispute in international trade.

Rewind, therefore, to September 17, 2001, when the World Trade Organisation (WTO) announced, `WTO successfully concludes negotiations on China's entry', paving the way for the text of the agreement to be adopted formally at the WTO Ministerial Conference in Doha, Qatar, in November, as an archived press note informs on www.wto.org.

"During a 12-year period starting from the date of accession there will be a special Transitional Safeguard Mechanism in cases where imports of products of Chinese origin cause, or threaten to cause, market disruption to the domestic producers of other WTO members," said the WTO about its 143rd member that had waited for about 15 years before it got a berth on December 11, 2001.

About `textiles', it was mentioned that upon accession, China would become party to the Agreement on Textiles and Clothing (ATC) and would be subject to its rights and obligations. Thus, though quotas on textiles were to end on December 31, 2004, the WTO put in place a safeguard mechanism to be valid till the end of 2008.

`Protocol on the Accession of the People's Republic of China' on the WTO Web site notes that in cases where products of Chinese origin are imported into the territory of any WTO member in such increased quantities or under such conditions as to cause, or threaten to cause, market disruption to the domestic producers of like or directly competitive products, the WTO member so affected may request consultations with China with a view to seeking a mutually satisfactory solution, including whether the affected WTO member should pursue application of a measure under the Agreement on Safeguards.

"The Textile-Specific Safeguard Clause (TSSC) in the Chinese Protocol of Accession to the WTO can be invoked by any WTO member able to show market disruption by Chinese textile imports serious enough to `impede the orderly development' of its textile trade," notes www.eurunion.org, calling the clause `an exceptional provision of a transitional nature'.

On its roots, a quote by Mr James Leonard III, Deputy Assistant Secretary for Textile, Apparel and Consumer Goods Industries with the US Department of Commerce should offer some clue: "A special textile safeguard for China was specifically negotiated into our textile bilateral agreement with China, and subsequently folded into China's WTO Accession Agreement". One learns that in August, 2003, the Committee for the Implementation of Textile Agreements (CITA) accepted requests from four US textile industry associations "to consider safeguard action on bras, dressing-gowns/robes and knit fabric" imported from China.

What had rattled Uncle Sam was that the imports of knit fabric from dragon-land increased more the 20,000 per cent between 2000 and 2003, even as imports of bras increased by 276 per cent, and of dressing-gowns and robes by 1,271 per cent over the three-year period!

An interesting paper on the issueis `Beyond the phase-out of quotas in the textile and clothing trade: WTO-plus rules and the case of US safeguards against Chinese exports in 2003' by Huan Liu and Laixiang Sun in Asia-Pacific Development Journal. And, for a list of disputes in the field of international trade, check out www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htm, though it currently shows for China only `VAT on integrated circuits' and `steel safeguards'.

Let us now move to April 6, when the European Commission (EC) agreed to publish guidelines to clarify under what circumstances it would consider safeguard action against textile and clothing imports from China. For the purpose, the EC established `alert zones' for each category of Chinese textiles imports, to reach which Chinese exports needed to show `a rapid and sustained rise over a defined period'.

Once the thresholds are reached, the EC could undertake an investigation and work for `sufficient remedy'. If the remedy were to prove inadequate, there would be the more potent last resort of invoking safeguards, in the form of quantitative import restrictions applicable for a year, at least till 2008.

Two months later, on June 10, the `EU-China textile agreement' was drawn up to `manage the growth of Chinese textile imports to the EU until 2008'.

This covered `10 product categories of concern' and limited the rate of imports `while allowing fair and reasonable growth for Chinese exports', that is, growth limited to between 8 and 12.5 per cent per year for 2005, 2006 and 2007.

EU's data on http://europa.eu.int for January, February and March shows that, compared to the same quarter the previous year, actual imports had registered big percentage jumps in the ten specified categories: Cotton fabrics (60); T-shirts (164); pullovers (534); men's trousers (413); blouses (186); bed linen (164); dresses (139); brassieres (63); table/kitchen linen (61); and flax or ramie yarn (51). The June agreement was seen as "a common, broad and forward-looking strategy for dealing with textile imports from China". It was supposed to give the EU textile industry three years to adapt to `changed market conditions', and allow importers and retailers "to plan and purchase in China in conditions of maximum predictability and minimum market distortion".

But those fond dreams were not to be because within two months, China had crossed the quota, and so its exports were getting trapped at the Customs, denied entry into the EU. "More than 75 million sweaters, trousers, bras and other garments are stuck in European ports," wrote Mr Chris Buckley in International Herald Tribune. And Mr Mandelson called the problem `a serious glitch'.

Both the Chinese exporters and the European retailers pressed the EU "to let in the shipments waiting in European ports, asserting that the quotas had taken effect earlier than announced", indicating that the June formula was defective. For instance, "An association of German retailers warned on Friday that it might demand monetary compensation from the EU if the blocked Chinese garments were not released", www.eubusiness.com reports.

Feverish talks were on between the EU and China. On Monday, the Chinese Premier, Mr Wen Jiabao, was quoted on www.forbes.com as saying that the textile row is only a `temporary difficulty'. And People's Daily Online reported Mr Wen's happiness that EU-China trade would exceed $200 billion this year, "eight years ahead of his target". Though the Joint Statement of the 8th EU-China Summit on September 5 is silent about `textile', news of `a satisfactory and equitable solution' came sometime later, when Mr Mandelson had signed the agreement with Mr Bo. Accordingly, China has agreed not to export any more pullovers, trousers and bras this year and to count around half the blocked items against its 2006 quota.

Meanwhile, a cheeky bit of trivia on China Knowledge Weekly Newsletter is a poll question that asks, "Approximately how many pieces of made-in-China garments would it take to equal the purchase of an Airbus? Make a guess now! 100 million, 500 million, or 800 million?" The right answer is...

ZeroBase@TheHindu.co.in

D. Murali

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