Europe
EU, China Strike Agreement to End Textile Stalemate (Update6)
Sept. 5 (Bloomberg) -- The European Union and China reached an agreement to end a stalemate that has left 400 million euros ($502 million) of Chinese garments stranded at European ports.
``The EU and China will share responsibility for the goods which are blocked,'' Simon Fraser, chief of staff to European Trade Commissioner Peter Mandelson, told journalists in Brussels. ``Fifty percent will be taken by the EU and 50 percent will be counted against 2006 quotas.''
Today's accord must win the backing of the EU's 25 governments, which on Sept. 2 postponed a decision on whether to unblock the 80 million sweaters, pants and bras now languishing at the EU's borders. Southern European textile-making nations resisted Mandelson's plan to raise the 2005 import quota without any concession on China's part about scaling back future exports.
Releasing the blocked products could prevent clothing shortages and save European importers such as Sweden's Hennes & Mauritz AB and France's Carrefour SA hundreds of millions of dollars in orders and other costly shipping and storage fees. More purchases from China may hurt European producers such as Italy's Marzotto SpA and Spain's Tavex Algodonera SA that want to prevent a surge of cheap imports.
U.K. Prime Minister Tony Blair, who holds the six-month rotating EU presidency, told a Beijing news conference he is confident the bloc's governments will back the deal. EU governments are meeting today to discuss it.
Expecting Success
``I never plan for failure,'' Mandelson told journalists in Beijing when asked what he would do should the bloc reject today's accord.
Chinese Commerce Minister Bo Xilai agreed in June to rein in import growth of 10 categories of textiles following the end of four decades of World Trade Organization limits on exports of these goods. The backlog stems from garments that were already in transit when the June accord was struck and from a rush in orders immediately afterward. The agreement to curb growth in imports to between 8 percent and 12.5 percent, fixed for three years, came into effect on July 12.
Clothing such as sweaters, which far exceed the limit, will be counted against unfilled quotas for 2005 for other goods, such as cotton fabric and table linen. China also pledged not issue any new export licenses on categories that have reached the limit and the two sides agreed to set up a panel to tighten monitoring of the June accord and today's add-on, Fraser said.
`Not Perfect'
``It's not a perfect agreement,'' he said. ``But this is an agreement people should be happy with because it represents a way without confrontation with China of resolving what has become a very difficult issue.''
The EU should compensate China for making a concession to solve a problem the Asian nation didn't create, said Sun Huaibin, spokesman at the state-backed China National Textile & Apparel Council.
``I had expected the EU to raise the quotas to absorb all the blocked goods because it is EU who faces the business crisis, not China,'' he said. Instead, ``European importers will reduce purchases from China next year.''
That means Chinese clothing makers will have to find new markets for their goods, said Chen Xiaodong, executive deputy manager at Jiangsu Guotai International Group, which last year sold a third of its $16 million of clothing exports to Europe.
Fear of Shortages
European retailers fear today's deal may cause Chinese textile imports to dry up next year, said Kevin Hawkins, director of the British Retail Consortium.
``This could lead to shortages of Chinese clothing products and higher prices for the consumer,'' he said in a statement. ``While most larger retailers have a broad spectrum of suppliers and are not unduly exposed to China, other retailers will be forced to look at sourcing from other low-cost countries.''
The swift filling of EU quotas, imposed to shield clothing makers from a flood of cheap Chinese imports, caught Mandelson and European governments by surprise. The Netherlands, Germany and Sweden were among countries that sided with importers and pressed Mandelson to raise the limits while southern nations such as Italy, Spain and France -- seeking to protect European jobs --sparked calls for the restrictions to remain in place.
``I feel very regretful about the strong tendency toward protectionism adopted by some EU member states,'' Bo told journalists.
Surging Exports
Chinese textile and apparel exports to Europe climbed 57 percent to $8.65 billion in the first half, Chinese government data show. Total Chinese exports to the EU soared 39 percent in the first six months while the bloc's exports to China rose by 2 percent, Mandelson said yesterday.
The U.S. and China failed last week to reach an accord on a quota system similar to the one the Asian nation has with Europe. The U.S. responded by widening a series of one-off restrictions on imports from China to cover bras and synthetic filament fabric.
The new U.S. restrictions supplement caps the Bush administration put in place in May that affect about $2 billion a year in imports of yarn, men's and boys' shirts, man-made trousers and knit shirts, cotton shirts, cotton trousers and underwear. China is the world's largest textile exporter.
Bo today said he's ``optimistic'' that China will reach an agreement with the U.S. on textiles ``soon.''
China and the European Union agreed to unblock 80 million pieces of Chinese textiles impounded at European ports. The deal was announced during a one-day EU–China summit in Beijing by Tony Blair, prime minister of the United Kingdom, which is currently holds the EU presidency, and Chinese Prime Minister Wen Jiabao.

According to the agreement, 50% of the impounded clothing will be allowed into the EU unconditionally, while the rest will be counted against 2006 quotas.

Today's deal ended the so-called European–Chinese "bra wars", which have split the EU member states: those with a strong retail sector support the agreement, while those with large clothing industries want to set up a protectionist policy against China.

The agreement now must be approved by the 25 EU members.