GENEVA — The European Union and China agreed on a deal Friday to limit the growth of exports of Chinese textiles and apparel to the 25-member country block in 10 sensitive categories to between 8 and 12.5 percent until the end of 2007.

“Today’s agreement will be fair on both sides. It provides clarity, certainty and predictability and will also provide relief for developing country textile exporters to Europe,” said Peter Mandelson, EU Trade Commissioner, in a statement in Shanghai released by his office. “It is an agreement that helps everyone’s interests. It is a win-win-win agreement.”

The accord hammered out between Mandelson and China’s Commerce Minister, Bo Xilai, after 10 hours of talks late Friday in Shanghai, averted the possibility of Brussels slapping trade sanctions on two categories of Chinese shipments — T-shirts and flax yarn — that faced a June 11 deadline.

The safeguard measures would have limited export shipments to 7.5 percent over the amount exported in the last 12 months if no deal was reached.

Mandelson said the growth rates “will apply immediately and for the remainder of 2005. The rates will be adjusted upward for 2006 and 2007 to provide a smooth transition to full liberalization.”

The base year for the export caps under the Shanghai deal —which kicked in Saturday — are the EU import levels between the period April 2004 to March 2005. However, for T-shirts and flax yarn the base period is from April 2004 to February 2005.

In sensitive categories like pullovers, men’s trousers and blouses, the agreed growth rate for the remainder of 2005 is 8 percent, followed by a growth rate of 10 percent each year for 2006 and for 2007.

However, the initial export growth cap is higher for T-shirts, dresses, brassieres and flax yarn, starting with 10 percent and continuing with the same level of increases in 2006 and 2007.

Moreover, for the remaining three categories — cotton fabrics, bed linen and table-kitchen linen — the cap is initially set at 12.5 growth in export shipment and the growth rate is kept at the same level for 2006 and 2007.

“This is a good deal from the Chinese exporters point of view,” said a trade diplomat close to Beijing.

This story first appeared in the June 13, 2005 issue of WWD. Subscribe Today.

The Sino-EU deal was also lauded by Chinese exporters and by senior trade envoys from other Asian textile exporting countries.

A spokesman for the China Textile Industry Council said the deal would ensure a relatively stable trade environment in Europe for Chinese textile goods, according to state-owned news agency Xinhua.

“We welcome this accord,” said a top trade envoy from a large Asian country, which is a direct competitor of China in many product lines in the EU market.

But the envoy, who spoke on condition of anonymity, cautioned it remains to be seen whether Chinese makers will switch production to the other 130 textile and apparel categories that are not subject to export caps.

As part of the deal, the EU also agreed to a peace clause that covers all categories.

“In principle, the agreement should be a once-and-for-all agreement rather than a salami-slice approach that forces us to look at and haggle over every product on a category-by-category basis, as was being threatened without this agreement,” Mandelson noted. In 2008, both sides “will work together closely in the hope that trade can be conducted without further interference in the sector.”

But a few global trade envoys were apprehensive about what some described as “a de-facto managed trade deal,” which in this case is allowed under the special entry terms China had to sign as a precondition for joining the World Trade Organization in December 2001.

Mandelson said China is entitled to reap the comparative advantages of its WTO accession, but stressed that it should do so “while managing its integration into the global economy in a way that avoids fear of China, and that does not provoke a protectionist backlash by European industry and the general public.”

In this regard, Mandelson, a former senior minister in the British Labor government of Tony Blair, also suggested that the Beijing leadership revalue the Chinese currency — the Yuan is pegged at 8.28 to the dollar — to help stem protectionist moves.

“I happen to believe that a more flexible exchange rate, one that’s pegged not just to the dollar but to other currencies, including the euro, will be better for China,” the EU chief said in an interview with the Associated Press, according to Chinese press reports. “I think it would ward off some protectionist responses and attitudes toward China.”

Some industry analysts reckon, however, that while the Shanghai deal might silence China’s critics in Europe for a while, the growth rates in the package are substantial and this could put more pressure on the troubled European industry.

The accord brokered in Shanghai is subject to final endorsement by EU member states.

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