The “bra war”

CONTENTS

1 Introduction

2 What has happened in detail?

3 What has led up to this situation?

4 What is the legal and economic background?

5 What does that mean for EU trade policy?

6 Sources

1 Introduction

In summer 2005, around 90 million pieces of Chinese clothes^[1] ordered by European importers had to face an involuntary stop on their way to the shops. Newly introduced import quotas did not let them go any further than EU customs. At the beginning of the year, worldwide textile quotas had been abolished under WTO law, which led to an unexpected high increase in Chinese textile imports in the European Union. The EU – between importers and consumers on one side and the textile industry lobby and the countries it is located in on the other – had to take a decision between free trade benefits and industry protection. The resulting quotas and the troubles because of the uncertain situation for the European importers and Chinese exporters – popularly titled the “bra war”^[2] – had to be addressed at the EU-China summit in early September, where a compromise was reached, that meant broadening the quotas, releasing the clothes at the customs, but actually keeping the quotas as long as possible.

2 What has happened in detail?

On Jan 1st 2005 the worldwide textile market was liberalized.^[3] Since China is an enormous and enormously cheap producer of textiles, that meant an increase between 83% and 541% in imports of different textile categories into the European Union – and accompanying that a remarkable average unit price drop.^[4] What seemed a pleasure to importers, shops and customers, was severely offending the European textile manufacturers, which feared to be wiped out of the market. In the European Union, the lobbying activities of interest groups – and especially of the commercial ones – is well developed. And so is the support of member countries for their big industries, because they feel they rather have to care about their citizen’s jobs than free trade and restructuring. So the rather liberal commission set up quotas for the ten most important categories of textiles on July 12th 2005 after having consulted China in June (June 10th: Shanghai Agreement).^[5] In those categories the annual increase in imports should not exceed 8 to 12.5% between 2005 and 2007.^[6] Compared with the figures above, the gap between real free trade and restricted imports is enormous.

As it is obvious, the legal conditions for textile importers changed twice within only seven months. They ordered textiles in spring and early summer righteously believing that they were subject to free trade. Being delivered after July 12th they were not. That is the reason why such a large number of pullovers, dresses, trousers etc. found themselves kept at the customs. The European textile producing countries Italy, Spain, France, Greece and Portugal^[7] opposed the idea of not blocking products ordered before that date, which would have been legal certainty.

Having set up the rules for industry protection, the situation soon became difficult to handle. Retailers worried about empty shops in autumn, importers about huge potential losses and consumer protection groups about high prices. And of course China would also have liked to see the contracts of its producers fulfilled. As a result, the conditions had to be renegotiated and an EU delegation traveled to Beijing on Aug 24th to achieve reconciliation.^[8]

That had not been reached until Sept 5th, when the official EU-China summit took place. After all-night negotiations between the EU trade commissioner Peter Mandelson and China’s commerce minister Bo Xilai, they reached a compromise, which was endorsed by both sides. The Chinese Prime Minister Wen Jiabao called it a “fair and equitable deal”; the president of the European Commission José Manuel Barroso said the burdens were “shared in an amicable way”.^[9] The textile troubles were not on the official agenda of the summit, which was concerned with broader issues like employment and social affairs, space exploitation, science, energy, environment and a maritime agreement. The protocol of the summit comprises only one small paragraph that could be interpreted to belong to the trade issue. EU and China were “determined to honour and implement their WTO commitments”.^[10]

The compromise in detail: The import levels have been modified to provide sufficient amounts to enable the import of all the blocked quantities. Half of that amount is provided by a unilateral increase of the European import level for 2005, the other half is reached by shifting between category amounts of 2005 and shifting quantities from 2006 to 2005. The agreement also includes further flexibility measures of shifting between the different categories of textiles in order to avoid further distortions this year. The deadline for applying for import licenses (if a company wants to import a product under quota, it needs a license) has been extended to Sept 20th, so that the importers can adjust to the new situation. The compromise also introduces an exception for Outward Processing Traffic. That means, part-finished clothes from the EU, which are finished in China, are not subject to the quotas, even though they arrive at EU customs as Chinese imports.^[11]

[...]

^[1] Euractiv.com: Textilstreit: EU-Kommission und China einigen sich über Importquoten.

^[2] Die Presse: EU und China beenden Textilstreit.

^[3] WTO: Textiles Agreement.

^[4] European Union: EU Textile Imports from China: Some important points.

^[5] Times Online: Peace declared in EU's 'bra war'.

^[6] Euractiv.com: Textilstreit: EU-Kommission und China einigen sich über Importquoten.

^[7] Times Online: Peace declared in EU's 'bra war'

^[8] Euractiv.com: Textilstreit: EU-Kommission und China einigen sich über Importquoten.

^[9] Ebd.

^[10] European Union: Joint Statement of the 8th EU-China Summit.

^[11] European Union: European Commission adopts regulation to clear blocked Chinese textile imports.