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Safeguard Showdown

So far Turkey and Argentina have activated their safeguard mechanisms, which will allow their imports of select Chinese products to rise no more than 7.5 percent this year.

GENEVA — While Chinese apparel and textile manufacturers face the potential for enormous growth now that their business has been freed of quota restraints, they still face one major wild card.

That is the question of which nations will act to take advantage of the safeguard provision that China agreed to when it joined the World Trade Organization in 2001. That measure allows importing countries to impose temporary, product-specific limits on Chinese products through 2008, if China’s shipments are causing market disruption in the importing country.

So far Turkey and Argentina have activated their safeguard mechanisms, which will allow their imports of select Chinese products to rise no more than 7.5 percent this year.

But all eyes remain on the the biggest importers — the U.S. and European Union — to see whether those parties opt to restrain their trade with China.

In the U.S., a court fight over the safeguards has been going on since late last year, when organizations representing domestic manufacturers suggested the Bush administration slap safeguard restraints on China on Jan. 1 — the day the old quotas expired — based on the threat that Chinese imports would hurt the U.S. market.

That battle drags on, though earlier this month the U.S. released the first trade data of 2005, showing that in January imports of Chinese textiles and apparel were up 29.4 percent — a faster rate of growth than the 25.4 percent recorded last year. With those numbers released, it’s possible that the domestic industry could submit new petitions based on actual data, rather than just threat. But that has not happened yet.

Meanwhile, authorities in Brussels are facing mounting pressure from EU producers to act on China.

This month EU Trade Commissioner Peter Mandelson said a safeguard action would not be “one that should be resorted to lightly or automatically.”

That Brussels is in no rush to act was reinforced Thursday, following EU Commission President Jose Manuel Barroso’s meeting with visiting Chinese Foreign Minister Li Zhaoxing. Barroso said he was concerned about Chinese imports, but that the 25-member bloc “wants to avoid the use of safeguards on textile imports from China.”

On March 10, the European Apparel and Textile Organization filed a request for safeguard action on 12 categories including trousers and women’s and girl’s blouses based on Chinese export data, which revealed sharp increases.

A senior EU official said Mandelson has made it quite clear and is adamant that there has to be “a clear case of market disruption” backed by solid customs data before he decides to act.

According to sources familiar with the preparations of the EU safeguard guidelines, Brussels is expected to give some assurances and predictability to both domestic producers and importers by specifying areas in which it considers there would be no risk of safeguard action.

Trade diplomats said it’s likely that calls for safeguard restraints may emerge in other major capitals as the year wears on. In 2004, trade organizations from some 50 countries formed a last-ditch alliance to call for the extension of the quota system. Their campaign, called the “Istanbul Declaration” was unsuccessful.

It’s easier for poor developing countries to make a case against China than the rich industrialized nations that for decades were shielded from global competition by quotas, diplomats said.

Indeed, on March 17, Mandelson said his mission is to endure “the needs of the poorest are at the forefront of our European policy.”

However, for developing countries that are competing with China, the issue is less the effect of Chinese shipments to the developing world than what happens if apparel-export-dependent economies lose access to the U.S. and EU markets as a result of China’s growth.

On Friday, the Congress of South African Trade Unions in response to plant closures that put 1,000 people out of work in the Western Cape called on the South African government to immediately implement the China safeguard and to mobilize other developing countries to demand fairer terms.