CEO TV Interview: EU-China Summit & Textiles Trade War

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Jeremy Gordon, Chief Executive of China Business Services, appeared on ITV, CNBC, and BBC news channels to provide comment on the EU-China Summit in Beijing, and on issues relating to the current textiles trade war. Key points included:

EU-China Relationship

  • The EU is now Chinas biggest trading partner, and China is the EUs second largest trade partner, after the US.
  • China accounts for 5% of EU exports (E48 bn), and 12% of EU imports (E127 bn).
  • The EU trade deficit with China was E64 bn. In 2004.
  • Trade issues, including textiles trade, are part of a wider strategic dialogue. Engagement with China includes issues of investment, economic development, global warming, international security and other important matters.
  • China should not be seen simply as a threat to EU businesses it is also as an opportunity, and many EU companies are already operating there successfully.
  • Over half of Chinas exports are already made by foreign-invested companies operating in China.

Textiles Trade

  • Textiles quotas were removed on 1 Jan 2005, under the WTO schedule.
  • EU textile imports rose 46% (and US imports 75%) in January 2005. Increases in some categories rose by 500%.
  • WTO rules allow for temporary measures to help stable market development. Pressure from southern EU member states resulted in quotas being imposed.
  • However, blocking Chinese imports will not save EU jobs in the long run, as most production is likely to move within Asia.
  • Under the China-EU textile agreement signed in June, 10 categories of textiles products were put on quotas. Under the agreement, import growth was limited to 8-12.5% a year to 2007. Some quotas were already full by August.
  • The EU negotiators did not account for commercial process & timeframe, leaving many companies with pre-quota orders that could not be delivered. Over E400 million of textile goods was stuck in customs.
  • The imposition of quotas is a short-term measure that has disrupted trade, and created problems for EU retailers and consumers while seeking to protect uncompetitive textile businesses.
  • Both the EU and China have strengths in the trade relationship, but these strengths lie in different areas. Bo Xilai, the Chinese trade minister, has stated that while China has a competitive advantage in the manufacture of low-cost textiles, the EU has an advantage in high-tech industries. China needs to sell 800 million shirts to buy 1 Airbus A380.
  • An agreement on the textiles issue was reached on September 5th in Beijing. The agreement (which needs approval from EU member states) allows for half of the impounded garments to be let in outside of the quota limits, and half to enter under quotas for 2006.
  • The agreement effectively reduces the rate of growth in Chinese imports in 2006.
  • EU textile companies need to make difficult strategic decisions in order to be competitive in the long term. Some companies have already invested in production facilities in China, outsourced production, or moved up the value chain to avoid direct competition.

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