News Releases

Peter Mandelson

No. 62/05
June 13, 2005

DETAILS OF EU – CHINA TEXTILE AGREEMENT

The EU and China have agreed on a deal that will manage the growth of Chinese textile imports to the EU until 2008. The agreement on 10 product categories of concern limits the rate of imports while allowing fair and reasonable growth for Chinese exports. By finding a wide and balanced agreement, the EU and China ensure a period of adjustment for textile industries in the EU and developing countries, provide greater predictability for importers and retailers and preserve the prize of market liberalization for China.

The agreement

The European Commission and the Ministry of Commerce of the People’s Republic of China, pursuant to the WTO principle of encouraging its Members to settle their differences by way of consultation, engaged in consultations on the export of certain Chinese textile and clothing products to the European Union until the end of the year 2008 in Shanghai, China, on June 10, 2005. They reached the following understanding:

Chinese textile exports to the EU in 10 categories of concern will be limited to agreed growth levels until the end of 2007.

This agreement will cover 10 of the 35 categories of Chinese imports liberalized on 1 January 2005: pullovers, men’s trousers, blouses, t-shirts, dresses, bras, flax yarn, cotton fabrics, bed linen, table and kitchen linen. It covers the categories of serious concern, including most of the categories identified by the European Textile Association (Euratex) and the 2 categories for which the EU had already launched formal WTO consultations with the Chinese: t-shirts and flax yarn (see tables below).

The EU agrees to end the ongoing investigations concerning these product categories.

The agreement limits growth in imports in the 10 categories to between 8 and 12.5% per year for 2005, 2006 and 2007. These levels will be calculated on a base that includes either two or three months of post-quota trade levels (see tables below). In those categories for which growth is initially set at 8%, agreed growth rates will rise over the 3-year period.

Quantitative levels will apply from June 11, 2005. Both sides will at once put in place the necessary administrative arrangements for the management of agreed import levels.

In categories not covered by the agreement, and for 2008, the European Union will undertake to exercise restraint in the application of its rights under Article 242 of China’s Protocol of Accession to the WTO.

The 2 sides stand ready to discuss promptly any aspect regarding the implementation of this agreement.

This agreement takes the form of a Memorandum of Understanding between the European Commission and the Chinese Ministry of Commerce. It will now be submitted to Member States and the competent authorities in China for endorsement or approval.

Import data for the 10 categories covered by the agreement (Jan-March 2005):

What the agreement achieves

The agreement reached with China represents a common, broad and forward-looking strategy for dealing with textile imports from China.

Whereas EU unilateral safeguards under the Textiles Specific Safeguard Clause in China’s WTO Accession Protocol would have provided limited protection in some categories only until the end of the year, this agreement gives wider coverage over a longer period. It gives the EU textile industry 3 years in which to adapt to changed market conditions.

The agreement’s limits on growth for Chinese exports are higher than the 7.5% growth that would have been permitted under safeguard measures. This reflects the fact that they were reached by agreement. They allow China fair and reasonable growth, at levels which in some cases increase over the 3-year period.

The agreement allows importers and retailers to plan and purchase in China in conditions of maximum predictability and minimum market distortion.

The agreement preserves the strong and constructive wider trading relationship that Europe prizes with China. It preserves the prospect of market opening in China for EU businesses. It is a strong signal that China takes its international trading responsibilities seriously – and that Europe respects China’s right to benefit from trade liberalisation.

The agreement also provides a window for adaptation for producers in developing countries whose textiles exports to the EU were being displaced by a surge in imports from China. This is particularly important for textile industries in the EU’s Mediterranean neighbors.

Context

With the expiry of the WTO Agreement on Textiles and Clothing on January 1, 2005, all WTO Members were required to lift their remaining quotas on textiles trade. The Uruguay Round provided for the gradual liberalization of this trade over a period of 10 years from January 1, 1995 to December 31, 2004, allowing time for adjustment.

The European Commission believes that the removal of quotas in global textile trade is an important prize for progressive trade liberalization. Free trade in textiles will provide global competitive disciplines that will improve productivity and lower prices for consumers.

This competitive pressure is being driven chiefly by China, whose formidable production and export capacity will quickly reinforce its status as one of the world’s largest producers and exporters of textile and clothing products.

Managing this transition presents a challenge both for China and its trading partners, many of whom have textile industries of their own. European textile producers face tough competition from China. European industry has a huge capacity for innovation and adjustment, but a sudden, steep and sustained surge in Chinese textiles exports could be highly damaging.

The agreement between China and the EU reflects this by providing a 3-year breathing space where growth in Chinese imports in sensitive categories will be capped at reasonable levels. These caps will nevertheless be high enough to allow China to benefit from liberalization, as it has a right to expect. EU Trade Commissioner Mandelson has described such measures as an attempt to “manage change and adjustment, rather than manage trade.”

EU Trade Commissioner Peter Mandelson's statement to the press at the end of negotiations. Shanghai, June 10, 2005

"From the beginning of this year the issue of Chinese textiles has been very firmly on my radar screen. This is not surprising. The explosion in imports of Chinese textiles and clothing has created alarm in many European Member States, and the issue has threatened to mushroom into a major trade dispute between Europe and China.

"Without wishing to turn back the clock on the elimination of quotas in the textiles trade I concluded that economically and politically I had to propose action to manage what was becoming a combustible situation in a number of our Member States. I am a believer in free trade. But I am equally sensitive to the need to be able to adjust and find transitional arrangements in the event of sudden developments and unexpected shocks.

"I have always hoped that this issue could be resolved amicably, rather than through the EU taking unilateral measures, even if we are legally entitled to do so. I know that not everyone shares this view. But my firm preference has been to seek an enduring agreement with our strategic partner China in view of our relationship and our mutual interest in strengthening our trade and investment ties over the long term.

"I am therefore pleased that it has been possible for the European Commission and the government of China to find a mutually acceptable solution that will manage and ensure a smooth transition through a period extending over the next 3 years. The agreement provides for agreed transitional growth rates between now and the end of 2007, followed by a further year during which both sides will work together closely in the hope that trade can be conducted without further interference in this sector. These agreed rates will apply to the range of product categories that we have investigated. The categories represent the most sensitive for our Member States. They refer to almost all those mentioned in the request for action submitted by the European textile industry association Eurtex, and more.

"Agreed growth rates will apply immediately and for the remainder of 2005. The rates will be adjusted upwards for 2006 and 2007 to provide for a smooth transition to full liberalisation during 2008. In principle the agreement should be a once-and-for-all overall agreement rather than a salami-slice approach that forces us to look at and haggle over every product on a category-by-category basis, as was being threatened without this agreement.

"Today’s agreement will be fair on both sides. It provides clarity, certainty and predictability and will also provide relief for developing country textile exports to Europe. It is an agreement that helps everyone’s interests. It is a win-win-win agreement. The Commission has undertaken to exercise restraint concerning the application of the EU’s rights under paragraph 242 of China’s WTO accession agreement as full liberalization is resumed during 2008. I believe that the overall settlement represents a fair deal for China while giving respite and a much needed breathing space to European textile industry.

"I want to say something more. Today’s agreement is a significant demonstration that China is entering the global economy as a responsible and valued partner. And I say this too. China is entitled to reap the comparative advantages and its WTO accession, while managing its integration into the global economy in a way that avoids fear of China, and in a way that does not provoke a protectionist backlash by European industry and the general public.

"I would like to commend the way in which the Chinese government and Minister Bo Xilai in particular have responded to European concerns in this matter. I think this augurs very well for our future relationship.

"Finally a quick word on next steps. Obviously this agreement will need to be endorsed by the EU’s Member States, but I have already provided them with a first outline of the context of the agreement. I know that this is a difficult issue for many of them and I have been in close contact with several Member State Ministers and I trust that in their final assessment of the agreement from their different standpoints they will show a sense of EU solidarity and unity and a desire to resolve this issue once and for all.”

Annex 1: EU-China textiles negotiations 2005

• 1 January 2005. With the end of the Multi-Fibre Arrangement all remaining quotas in international textile trade are lifted.

• 6 April 2005. The European Commission publishes guidelines for the use of the Textile Specific Safeguard Clause (TSSC) written into China’s protocol of accession to the WTO. These guidelines set alert levels for categories of Chinese textiles imports beyond which the Commission will consider launching market disruption investigations that could ultimately lead to the use of temporary safeguards, as permitted by the TSSC.

• 24 April 2005. Presenting data showing substantial rises in exports in some liberalised categories for the first 3 months of 2005, the Commission launches investigations into 9 categories of textile imports from China: t-shirts, pullovers, blouses, stockings and socks, men’s trousers, women’s overcoats, brassieres, flax or ramie yarn and woven fabrics flax.

• 5 May 2005. EU Trade Commissioner Mandelson meets Chinese Commerce Minister Bo Xilai in Paris.

• 17 May 2005. The Commission requests use of urgency procedure written into the Commission Guidelines on 2 categories of textile products: t-shirts and flax yarn. This allows the EU to request immediate formal consultations with China in these 2 categories.

• 23 May 2005. EU Member States approve urgency procedures in 2 categories of textile exports: t-shirts and flax yarn.

• 24 May 2005. Commissioner Mandelson and Vice Minister and Textile Negotiator Gao Hucheng meet in Brussels and agree to continue and intensify negotiations.

• 27 May 2005. European Commission requests formal consultations on 2 categories of Chinese textiles exports: t-shirts and flax yarn; under the terms of the TSSC China has 15 days to take action to restrain export growth in these 2 categories to the level of the first 12 of the previous 14 months plus 7.5%. If China does not act, the EU is authorized to act to limit exports to the same effect. Negotiations with the Chinese continue and intensify.

• 10 June 2005. Peter Mandelson and Bo Xilai agree a deal that will manage the growth of Chinese textile imports to the EU until the end of 2008.

Annex 2: The wider EU-China trading relationship

• China is the EU’s second largest trading partner. Their trading relationship was worth 174 billion euro in 2004.

• China is the second largest exporter to the EU after the US. The EU imported more than 126 billion euros worth goods in 2004 – 12% of the EU import market. EU imports from China rose by 17% between 2002 and 2003 and 20% between 2003 and 2004.

• EU exports to China have also been growing. China is now the third export partner of the EU. In 2004 the EU exported 48 billion worth of goods to China – some 5% of all EU exports. This is an increase of 16% on 2003. It is estimated that in less than a decade the Chinese market for luxury European goods will have risen to about 250 million people.

• The EU is the world’s second largest textiles exporter after China. In 2004 Europe exported 514 million euros worth of textiles to China. In the same year China exported 16 billion euros worth of textiles to Europe.

• The EU’s main exports to China are non-electrical machinery, transport equipment and chemical products. China’s main exports to the EU are office and telecommunications equipment and textiles and clothing.

• China is a large market for EU foreign investment: some 3.1 billion in 2003. With reform in the Chinese services sector and full implementation of WTO obligations this is a huge market for EU investors.

Please go to Press Releases for Friday, June 10th, Peter Mandelson’s Statement on China Textiles.

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