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China Tangles With EU, U.S.On Textile Front

Talks Aimed at Capping Garment Exports Wind On; Too Many Wool Trousers

By MEI FONG in Hong Kong and JULIANE VON REPPERT-BISMARCK in Brussels Staff Reporters of THE WALL STREET JOURNAL
August 30, 2005; Page A9

As millions of Chinese-made garments remain stranded on European docks, China today resumes negotiations with the other huge market trying to come to grips with this year's flood of Chinese textile imports: the U.S.

Talks between the U.S. and China will restart on the heels of an inconclusive round of negotiations between Beijing and the European Union. A negotiating team from Brussels, which has been struggling to get Chinese authorities to amend an agreement they made in June, left Beijing yesterday after several days of talks.

The situation in Europe is causing widespread frustration, as some 80 million pieces of Chinese garments that exceeded the limits of the June quota agreement have piled up in European ports.

European trade chief Peter Mandelson yesterday said he will release the Chinese textiles at EU ports, but declined to give details. "I have ... set in motion procedures to unblock the goods," he said.

Negotiators are preparing a set of proposals on how to release the goods; the suggestions were to be presented to European governments yesterday, Mr. Mandelson said.

But tensions rose late yesterday among diplomats in Brussels as Mr. Mandelson's office delayed a formal proposal despite mounting pressure for a quick solution. The EU and China are holding a summit next Monday, and European and Chinese diplomats say they want the row resolved before then. Mr. Mandelson's office is holding talks with individual governments before presenting a formal proposal Friday.

China's negotiations with its chief trading partners come in the wake of a surge in its garment exports following the demise of global quotas at the end of last year, which triggered demands for fresh restraints.

Today's Sino-U.S. talks in Beijing follow a round of negotiations in San Francisco in early August aimed at capping Chinese garment exports to the U.S., which rose 47% during the first half of the year.

While the agreement Beijing and Brussels struck in June set caps of between 8% and 12.5% for import growth on 10 Chinese garment categories until 2008, the U.S. is in a position to push for stricter terms, analysts say.

According to people familiar with the matter, U.S. trade negotiators are pushing for caps on a broader range of Chinese clothing categories and for calculating import growth differently -- using a narrower base -- from the way it was done in the Sino-EU deal.

The relatively short gap between the San Francisco talks and the coming negotiations in Beijing suggests China is prepared to come to an agreement with Washington, analysts say. President Hu Jintao's visit to the U.S. in early September also is expected to improve the chances of a speedy and successful conclusion. Mr. Hu is scheduled to meet President Bush in Washington on Sept. 7.

Unlike their European counterparts, U.S. trade lobbyists have been more active in filing petitions asking Washington to impose "safeguard" quotas on imports of a variety of Chinese clothing categories. These actions have increased pressure on the Chinese to hammer out a more comprehensive agreement that would reduce sourcing uncertainties.

Additional safeguard decisions by the U.S. government are scheduled to be made tomorrow on cases covering wool trousers, sweaters, brassieres, dressing gowns, knit fabric and other synthetic filament fabric. The U.S. also has accepted for review petitions on Chinese curtains, socks, woven blouses, skirts, nightwear and swimwear, with decisions pending in the coming months.

Under China's agreement with the World Trade Organization, trading partners can implement safeguard quotas until 2008 on China's textile exports if they are shown to be disruptive to their markets.

In the case of China's exports to the EU, European negotiators have been lobbying Beijing to agree to use up part of its 2006 quota allowance to let Chinese imports be brought in, but Chinese negotiators instead are holding out for a one-time dispensation.

Yesterday, Mr. Mandelson dismissed speculation in Europe that some stores there won't be able to get needed clothing to sell. "The idea that there are likely to be shortages and shelves going empty is rather far from the truth," he said at a news conference. "Assuming the member states agree to my proposal ... the goods will be unblocked."

Write to Mei Fong at mei.fong@wsj.com and Juliane von Reppert-Bismarck at juliane.vonreppert@dowjones.com

posted by Henry @ 11:48 PM