1. European Union and China Bilateral Trade Relations: An Analysis
Sung Man Choi, Matthew Conger,
Roberto Custodio, and Jennifer Liu
European Union Trade Group
December 7, 2004

2. Objective
Our objective was to evaluate the impact of the European Union’s January 1, 2005 removal of tariff barriers. We set out to develop alternative approaches to dealing with the fears of the EU textile and clothing industry, identify potential issues surrounding any alternative approaches and to develop proposals for fair and equitable competition in the marketplace for textile and clothing products

3. MFA (Multifiber Arrangement)
What is MFA?
MFA is the arrangement regarding international trade in textiles negotiated by about 50 governments under GATT in 1973.
Why MFA?
* To impose quota on imports from developing countries
* Typically, developing countries have comparative advantage in the textiles and clothing industry.
The effect of the MFA
* The imposition of trade restriction
* It is estimated that some developing countries have lost billions of dollars of foreign exchange due to the imposition of trade restriction.

4. Uruguay Round and WTO What is the Uruguay Round?
The Uruguay Round is the last and largest GATT round which was lasted from 1986 to 1994 and led to the WTO’s creation.
Why WTO?
* GATT – mainly covered trade in goods
* WTO - To cover trade in services, and in traded inventions, creations and designs (intellectual property)
Textiles and clothing under the Uruguay Round
During the Uruguay Round negotiations, the WTO was established, and an agreement was reached to phase out the MFA through the implementation of Agreement on Textiles and Clothing (ATC)

5. ATC (Agreement on Textiles and Clothing)
What is ATC?
This was created by the negotiations of the Uruguay Round to put an end MFA.
The objective
The objective of the ATC was to secure the eventual integration of the textiles and clothing sector into the GATT rules by January 1st, 2005.

6. ATC (Agreement on Textiles and Clothing)
The process
a. The integration of products into the world trading system
b. The progressive raising of quotas
- Stage 1: 16 percent higher than the growth rate established for the previous MFA restriction.
- Stage 2: 25 percent higher than the stage 1
- Stage 3: 27 percent higher than the stage 2

7. Quota Removal in the Footwear Industry
China’s Ascension into the WTO
Quotas were lifted
Lift was an incentive for China to join WTO
Footwear imports from China exploded
From 1999 to 2003 there was a 71.7% in capital growth of Chinese footwear imports
There was a 83.9% rise in the pairs of shoes imported from China

8. Concerns of The European Union
Loss of Market Share
Unemployment
Lack of Transparency
Regulations on FDI
Customs Duties and Additional Import Taxes
Human Rights Abuses
Environmental Issues EU
Loss of markets and market share
An increase in the amount textiles into the world market is believed to decrease the EU market share, due to lower prices and availability…this means less earnings for EU member nations and leads to the next concern
Unemployment
The EU is concerned that the introduction of unrestricted trade with countries such as China will inevitably lead to closures of manufacturing facilities, thus increasing unemployment
Lack of transparency
The EU is concerned that the lack of transparency in the Chinese market, domestic subsidies, counterfeiting and the artificially low rate of the yuan…There is concern about such issues because China’s continuing changes to the rules regarding imports do not allow the EU to plan ahead
Regulation on FDI
The EU is concerned about Chinese state regulation on foreign direct investment limiting the types and size of businesses allowed to enter China…if there was more openness, or transparency, these concerns may be alleviated
Customs Duties and other Taxes
Currently, China imposes customs duties and additional taxes on the imports from the EU. This is common for countries as a type of protectionist measure. However, Chinese lack of transparency concerns the EU as to how the duties and taxes are calculated and what they are collected for.
Human Rights Abuse and Environmental
Human Rights and environmental abuses concern the EU as well. The EU believes that the opening of the market to China will perpetuate the abuses perpetrated by the manufacturers within China…The EU is also concerned with environmental issues such as certain chemicals used in the processing of textiles

9. Concerns of The Peoples Republic of China
Non-Tariff Barriers
Anti-dumping Regulations
Anti-subsidy Regulations
Safeguard Measures by the EU
Social Clause
Most Favored Nations Status within the EU
China
Non-tariff barriers
Anti-dumping Laws
China has concerns that they will be unable to compete due to anti-dumping provisions that may be put in place by the EU. These procedures would limit the amount of products imported to the EU because of claimed artificially low prices, similar to the current subsidy dispute between the EU and the US
Anti-subsidy Regulations
The Chinese are also concerned that their low prices will be construed as subsidized and not allow the goods to enter the EU. This is a sticky subject because the Chinese market is a state planned economy and subsidies are intertwined within the make up of China to a certain extent
Safeguard procedures amounting to implementation of tariffs
Social Clause
Implementation of a social clause concerns China as well. A social clause is about ensuring that working people have their fundamental human rights honored everywhere. The Chinese believe the EU will impose such restrictions to limit imports under the guise of human rights. Also, China is concerned that the EU’s technical barriers concerning environmental issues will amount to a barrier against trade.
Most favored nation status
China is concerned that measures currently being taken as well as those that may be taken, amount to discrimination against Chinese textiles which affects the Most Favored Nation Status

10. Current Measures Being Taken to Ease Concerns
Social Clause
“Made In” Labeling Requirements
Intellectual Property Regulations
Textiles Trade Dialogue between EU & China
Generalized System of Preferences
Social Clause
To alleviate the concerns against human rights and environmental abuses, the EU is proposing a social clause which would require China to abide by the WHO and environmental restrictions
“made in” Labeling
EU labeling regulations and standards need to be carefully monitored. Imports fail to meet marking and labeling requirement will be refused for entry and much of the
Intellectual Property rights
Currently the EU is requiring imports to adhere to copyright, trademark, and patents, disallowing any goods that violate or infringe on such intellectual property rights
Textiles Trade Dialogue between EU & China
Currently the EU and China are conducting talks regarding trade concerns to try to alleviate such concerns
GSP

11. Generalized System Tariff of Preferences (GSP)
1968 created by UNCTAD
Non-reciprocal tariff reductions to developing nations
Goal- help developing world industrialize
Exception from GATT Art. I to MSN principle
GATT/WTO members cannot discriminate b/w imports from different sources

12. GSP and the E.U. 1971- E.U. first to implement GSP
One GSP regulation for all products and arrangements for a period at least 3 yrs
GSP is implemented following 10-yr cycle
2001 GSP package was the most generous yet- will end in 2005

13. GSP/EU continued… The GSP Regulation has the following features:
Restores preferential margins
Enhances effectiveness of GSP as a tool for sustainable development and
Simplifies the scheme’s management, harmonizes procedures, makes rules clearer, and improves predictability
More simple- sensitive and non-sensitive product categories

14. Proposed GSP for 2006-2008 Doesn’t apply to countries w/
More than 15% EU market share or
“ “ 12.5% in textiles
Purpose- benefit the most needy countries
more benefits for sustainable development
Will expand product coverage
China (30% EU market share) no longer benefits
Tariff rate will inc. -- 9% to 12%
Hit to China outweighed by protection of countries like Bangladesh and Sri Lanka

15. Recommendations Better Surveillance of the Textile Market
Anti-Dumping Measures
Require More Transparency
Shift Focus to Markets with Comparative Advantage
Maintain Import Quotas from Non-WTO Countries
Require China to Abide by WHO and Environmental Requirements
Better surveillance system of the Textile Market
GSP
use escalating alert system to monitor most sensitive goods
Anti-dumping Restrictions
If dumping occurs, can impose quotas
Get other countries involved in anti-dumping campaign
Require more Transparency
Maintain relations with China; establish more communication
Shift Markets to those with a Comparative Advantage
Concentrate on luxury goods and maintaining competitive advantage of trademarks
Maintain import quotas from non-WTO members
If necessary, can impose quantitative restrictions on imports b/c of China’s late entry to WTO
Require China to Abide by WHO Requirements for Human Rights

16. Recommendations Continued…
Transitional Review Mechanism
Continue good relations w/ IMF and World Bank and ask for support if necessary
Maintain legitimacy by abiding strictly by WTO/GATT rules
Transitional Review Mechanism
Continue good relations w/ IMF and World Bank and ask for support if necessary
Maintain legitimacy by abiding strictly by WTO/GATT rules