HONG KONG — The quota deal signed in June between the European Union and China was supposed to provide some certainty to the flow of textiles and apparel between the two trading partners, but the situation has instead led to confusion.
The EU-China agreement replaced more stringent safeguard measures and avoided a petition process. But the pact still sets quota limits of 8 to 12.5 percent on 10 textile and apparel categories through the end of 2007.
The crux of the problem is that manufacturers were unable to anticipate what the deal would include and the agreement did not allow time for them to react, putting their sourcing and exporting in a state of limbo. The U.S. and China are negotiating a similar long-term deal.
Some shipments that were en route have been unable to clear EU customs because quota levels were reached in the interim in key categories such as trousers and sweaters. Many firms have shipments on the way and aren’t sure what to do with them once they arrive in Europe, or are trying to figure out how manufacturing contracts signed before the EU-China deal should be handled.
“We have a very urgent issue,” Eden Woon, chief executive officer of the Hong Kong Chamber of Commerce, said during a breakfast meeting on Tuesday
Acknowledging the situation, the EU and China will hold talks today in Beijing to consider allowing companies to borrow from next year’s quota to help clear some of the merchandise being stockpiled in warehouses due to embargoes.
There are more than 58 million trousers and 75 million pullovers stuck at EU customs or in transit, said Michalis Rokas, first secretary for the Hong Kong bureau of the Trade & Economic Affairs Office of the European Commission.
“We thought initially, once [the EU] reached an agreement with the Chinese in June, it would be a win-win situation for everyone,” Rokas said. However, he conceded that “we wouldn’t be here [at the breakfast meeting] if things were rosy and great, and if things worked out … We are in a situation of crisis.”
Rokas emphasized there have been no summer holidays for officials in Brussels who have been working to find a solution to deal with the growing stockpile of quota-exhausted garments at customs. Some of the options being considered include:
- An advance on next year’s quota, allowing this year’s cap to expand to 9 or 10 percent on select categories.
- Intercategory transfers, such as using surplus quota from the bed linen category, which is only about 30 to 35 percent filled, to accommodate overloaded categories.
- Exempting imports on contracts that were signed before restrictions were put in place in June.
Rokas described the last option as “chaos” because of the manpower required to check each contract. Borrowing next year’s quota also isn’t the best option, he said, because growth for next year would be stunted if based on the restricted figure and not actual growth due to borrowing from another category.
Nonetheless, talks are ongoing. He anticipated the issue would be clarified by the end of this month once an agreement has been reached between the 25 EU member states and Chinese authorities.
Another issue is how to obtain quota, which is controlled by the government and handed out based on the previous year’s export quantities. The Chamber of Commerce has written a letter to China’s Ministry of Commerce with some proposed changes to make getting quota easier. They included allowing quota to be transferred from company to company and a possible auction system.