European Union And China Agree To Limit Textile Imports

In order to short circuit what could have been a contentious, ongoing controversy over textile and
apparel imports, the European Union (EU) and China have reached an agreement that will limit
imports through 2008. The action came after the EU was threatening to follow the US governments
actions and impose unilateral quotas on textiles and apparel using the safeguard mechanism
contained in China’s World Trade Organization accession agreement. The new agreement covers 10
product categories and will limit annual growth to between 8 and 12.5 percent between now and the
end of 2007. The final year will be subject to a somewhat vague phase-out plan. Products covered by
the agreement are pullovers, mens trousers, blouses, T-shirts, dresses, brassieres, flax yarn,
cotton fabrics, bed linen and table/kitchen linen.

In announcing the agreement, the EU Commission said the removal of textile quotas last
January was an important prize for progressive trade liberalization, adding that free trade in
textiles will provide global competitive disciplines that will improve productivity and lower
consumer prices. It said the competitive prices are being driven by China, whose formidable
production and export capacity will quickly reinforce its status as one of the worlds 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, the Commission reported. 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 textile exports could be highly
damaging.The Commission said the agreement allows importers and retailers to plan and purchase in
China under conditions of maximum predictability and minimum market disruption, factors that appeal
to US importers of textiles and clothing who have strongly opposed to this country’s use of the
safeguard mechanism to impose new quotas on Chinese imports. The commission also said the agreement
provides a window for adaptation for producers in developing countries whose textile exports to the
EU were being displaced by a surge in imports.

Shortly after the announcement was made, Chinese Vice-Premier Wu Ti praised the EU for
reaching the agreement and criticized the US government for placing unilateral quotas on imports
before a voluntary agreement could be reached.Cass Johnson, president of the National Council of
Textile Organizations, said the EU-China agreement could pave the way for a comprehensive agreement
with the US government along similar lines.

June 2005