By and  on August 7, 2007

The Chinese government's announcement that the country's wool quota for the year had been filled has taken the global wool industry by surprise and raised concerns there could be sharp increases in tariffs on its raw wool imports.

The Chinese Ministry of Finance & Commerce said July 17 that it was halting applications for wool quota from Chinese importers and mills until September and, as a result, the country said it would impose tariffs that could reach as high as 38 percent for shipments through the rest of the year.

The news had an immediate market impact, with many wool growers withdrawing their wool from national sales when they resumed last week and wool prices plunging by 7 percent. Uncertainty over quotas was not the only factor influencing growers. The Australian dollar reached an 18-year high against the U.S. dollar of 88.11 cents last month, causing discomfort for many Australian exporters.

China's move blindsided the global wool industry, which believed it was operating well within quota levels that have remained unchanged for more than two years. According to statements from Australian Wool Innovation and the American Sheep Industry Association, China's annual wool quota has stood at 632.7 million pounds of raw, also referred to as greasy, wool since 2004. At the end of May, China's Ministry of Finance and Commerce said 324.1 million pounds of the quota remained to be allocated to importers. However, only six weeks later, the Chinese government agency said only 33.1 million pounds remained.

Government and wool industry officials haven't received any clear explanations from the Chinese as to why or how the remaining quota had been filled so rapidly. Rita Kourlis Samuelson, marketing director for the American Wool Council, a division of the American Sheep Industry Association, said she believed China had mistakenly made its calculations using data for clean wool instead of greasy wool. The numbers could be off by as much as 30 percent as a result, she said.

"It's never happened this early and it was so sudden. No one was seeing that the quota was filled," said Samuelson. "It's unsettling when a government can make such a huge decision so unexpectedly."

The U.S. is the sixth-largest exporter of wool to China, shipping 11.6 million pounds of wool, valued at $15.6 million, to the Asian nation in 2006. The situation isn't serious for the U.S., since the domestic shearing season has concluded and the majority of wool supplies have already been sold. But for Australia, China's largest wool supplier, high tariffs could significantly impact not only the global industry, but the country's economy.

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