Tension Escalates Between China, U.S. and EU

China abolishes its tariff plan as the U.S. and European Union institute safeguard quotas on six apparel and textile categories.

WASHINGTON — China, facing renewed quota restrictions on its apparel and textile exports, abolished a plan to increase tariffs on 74 of its own categories Monday as trade tensions between Beijing and the U.S. and European Union escalated another notch. The latest move by China came as the U.S. and EU instituted safeguard quotas on six apparel and textile categories Friday in an effort to stem a surge of Chinese imports.

“If some countries have imposed restrictive measures upon China’s textile goods, then China needs to revoke export tariffs on these goods, because the country cannot make its textile export shoulder double pressures,” said Bo Xilai, China’s minister of commerce Monday afternoon at a press conference, according to a news report by the Chinese news agency Xinhua and a statement posted on the Chinese embassy’s Web site.

Beijing announced the tariff hike plan on 74 categories last week in an effort to dampen tensions between the U.S. and EU and persuade them not to impose new quotas on Chinese apparel and textile exports that have flooded their markets since the elimination of global quotas on Jan. 1. However, the U.S. and EU both announced they would impose a new round of quotas Friday and Beijing immediately rescinded its tariff plan, which was slated to take effect on June 1. The Bush administration requested consultations with China on $690.4 million worth of goods in four categories, including man-made fiber trousers, a required prelude to quotas being imposed.

These come on the heels of restrictions on three other categories issued on May 23. A total of $1.31 billion of Chinese imports to the U.S. are now to be held to growth limits of 7.5 percent for the rest of the year, calculated from the 12 months ended Feb. 28.

Separately, the EU requested consultations on imports of flax yarn and T-shirts, which would activate quotas within 15 days, according to a spokeswoman for EU Trade Commissioner Peter Mandelson. The spokeswoman said “a mutually satisfactory agreement” could still be concluded through negotiations between the EU and China during the period.

Also on Friday, the U.S. Trade Representative Office rejected a Section 301 Petition on China’s currency filed last month by 35 members of the House and Senate charging it constituted an unfair trade practice. A USTR spokesman noted that the administration is taking steps to urge the Chinese to reform its currency, but said “we do not believe that a Section 301 action is an appropriate or a productive way to achieve that goal.” The safeguard quota provisions were agreed upon by China as a stipulation for the country entering the World Trade Organization in 2001.

This story first appeared in the May 31, 2005 issue of WWD.  Subscribe Today.

In addition to the man-made fiber trousers, the new U.S. restrictions include combed cotton yarn, man-made fiber knit shirts and blouses and some men’s shirts. Now U.S. and EU importers will try to determine how quickly the quota categories will fill, shutting off flow of those goods from China for the year. Given the dramatic influx that has spurred the quotas — imports in the knit shirt category are up 328.1 percent by quantity in the first quarter — it shouldn’t take long.

“They’re going to close sometime during the summertime or sooner,” said Stephen Lamar, senior vice president of the American Apparel & Footwear Association. “What happens if people speed up their shipments? You could see these fill rates accelerate.”

“Having the consultation request come down in May as opposed to June is very significant,” said Missy Branson, senior vice president of the National Council of Textile Organizations, one of the organizations that filed the threat-based petitions. She said several more filings are expected within the next few weeks.

— With contributions from John Zarocostas, Geneva