South Asia Watch on Trade, Economics & Environment (SAWTEE)

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Trade Winds

China and EU reach eleventh hour deal

A deal between China and the European Union (EU) on 10 June ended a dispute between the two trading partners since the expiry of the Agreement on Textiles and Clothing on 31 December 2004. The understanding – reached in an eleventh hour meeting between the EU Trade Commissioner Peter Mandelson and China’s Commerce Minister, Bo Xilai, in Shanghai on 10 June – imposes voluntary export restraints on 10 categories of Chinese textiles and clothing (T&C) exports to Europe, thus saving China from EU’s action to re-impose quotas (see related article on pages 34-35).

The deal gives European T&C makers time to adjust to China’s growing dominance of the global textiles and apparel trade. The EU dropped plans to reimposetextile quotas and forcibly limit China’s surging T&C exports. The agreement has provisions through which China is expected to work with EU officials to manage and limit the growth of certain textiles and apparel exports to Europe to about 10 percent a year until the end of 2008, tempering the rise of some of its largest and fastest-growing exports. According to a statement released by the European Commission (EC), the two sides agreed that Chinese textiles exports would be managed to allow for “reasonable growth” from 2005 to 2007. The trade disputes have pitted China and its booming export trade against the United States (US) and the EU, which are now trying to cope with the consequences of ballooning trade deficits with China. For example, in the first four months of 2005, European imports of Chinese Tshirts rose by 187 percent and of Chinese flax yarn – used for linen – by 56 percent from a year earlier.

During January-April 2005, China’s T&C imports jumped by 82 percent to the 15 countries of the EU before an expansion to 25 members in May 2004; and 78 percent to the US. In an effort to protect some textiles makers, the US has already moved to reimpose quotas on some Chinese textiles products. The EU decided on 25 May to limit imports of Chinese T-shirts and flax yarn unless China took action on its own to limit exports of those two items by 10 June.

Chinese officials had condemned the US and Europe for threatening to reimpose quotas. China revoked export tariffs on several categories of T&C products on 30 May, in retaliation against import restrictions imposed by the US and the EU. This move came just 10 days after it announced that it would raise export tariffs five-fold on 74 categories in an attempt to prevent the US and the EU from restricting imports.

The breakthrough between China and the EU comes as a huge relief even as disputes over other goods like footwear continue to put a strain on bilateral trade relations. The US held its own abortive talks in Beijing earlier in June. In August, Chinese textiles exports exceeded the new quotas to which the EU responded by halting their sales; and requiring renewed talks between China and the EU (NYT, 11.6.05; TE, 27.8.05).

G8 promises aid relief

THE Group of Eight (G8) industrialised nations have agreed on a package of financial help for Africa, which ended with a deal in which the world’s richest countries agreed to provide an extra US$ 48 billion in aid worldwide by 2010. Under the deal, Japan would increase its aid budget by US$ 10 billion over the next five years, while Germany would use a tax on air travel to meet its aid targets. Britain, which chairs the G8, admitted that the deal on Africa was not all that campaigners wanted but represented realprogress. The country had wanted to go further on eliminating export subsidies, which allow rich nations to dump excess produce on global markets, but was forced to compromise. The summit merely committed itself to setting a credible date for scrapping export subsidies, which is expected to be 2010.

Aid to Africa will increase byUS$ 25 billion, more than doubling the flows in 2004. Britain had feared that the G8 leaders would backslide on commitments made by their finance ministers at a meeting in London in June. In the end, however, they endorsed agreement to write off debts owed by 18 countries to the World Bank, the African Development Bank and the International Monetary Fund. The G8 comprises of Canada, France, Germany, Japan, Italy, Russia, the United Kingdom and the United States. However, most of the aid comprises of debt relief for 28 nations qualifying under Heavily Indebted Poor Countries Initiative, in Africa and Latin America (IHT; 12.6.05; TG, 09.7.05).

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