October 9, 1997

      China is one of the most important exporters of textile/clothing and the first supplier of the EU. It ranks first in clothing and second in textiles and its exports represent 16% of world trade (exclusive of intra EU trade). Hong Kong and Macao will undoubtedly be important springboards for China in spite of assurances to the contrary given by the Chinese government.
      The entry of China into the World Trade Organisation (WTO) should not, theoretically, alter trade patterns immediately. China and Hong Kong combined fill most of their quotas and nothing much could happen so long as the quotas, even slightly increased, are maintained at least for the most sensitive categories.
      In this context, much will depend on the conditions of China's entry which should determine inter alia the period during which transitional measures would be enforced.
      China's track record as a trade partner is far from satisfactory. At one time or another, China has been involved in major cases of transshipment or counterfeiting, official denials or indications of cooperation notwithstanding. Forced labour utilisation is repeatedly reported and the announced privatisation drive should not hide the still important public sector and government interference through various agencies. Through recent years, Hong Kong Customs admitted having had considerable difficulties in containing illicit trade.
      EURATEX is of the opinion that seven objectives must guide the EU negotiators:
      - prevent major world market disturbances (the EU would not be the only market affected) through a generous interpretation of the Agreement on Textile and Clothing (ATC),
      - establish a strict schedule for the implementation by China of the WTO rules particularly those concerning intellectual property rights, subsidies and dumping,
      - assort concessions with enforceable market access commitments, both in terms of tariff and non-tariff barriers,
      - maintain safeguard mechanisms during a sufficiently long period to confirm China's commitment to fair trade practices,
      - address the issue of Chinese raw materials exports (not covered in the ATC)
      - agree on measures aimed at effectively preventing fraud through Hong-Kong and Macao,
      - ensure non-discrimination between national enterprises and those controlled by foreign interests.

1. Duration of the transition period.
      EURATEX disagrees with the March 1996 position of UNICE on the subject. First because the ATC imposes its own agenda which may conflict with the five years advocated by UNICE, secondly because much will depend on the willingness and ability of the Chinese government to abide by its commitments on matters that are critical for the textile and clothing industry, particularly market access and GATT 1994 disciplines.
      Should entry be before 1 January 1999, it would be unacceptable that China would benefit from the provisions of the ATC ahead of other textile and clothing exporters. Nor would it be reasonable that China benefits from all provisions of the ATC as if it had been a member of the WTO on 1 January 1995.
      EURATEX considers that whatever the conditions regarding the phasing out of quotas, the restrictions for sensitive products on which the growth rates will apply (Art. 2, par. 14 of the ATC) will be those, lower than currently applied, annexed to the 1995 EU-China bilateral Agreement.
      The industry's position on whether China would automatically benefit from the ATC clauses as if it had been a member of the WTO as of 1995 will depend on the acceptance by China of the conditions below, particularly those concerning market access (by 2005) and rules and disciplines. Should such benefit be granted, the quota levels to be taken into account would be those that would have been effective on January 1, 1995.

2. Developing country status.
      EURATEX believes that the United Nations criteria for developing countries and based on GDP per capita cannot apply to China, at least when it comes to textile and clothing. China's market share in these products is such that it should not benefit from the extended transitional periods in GATT 1994 which were aimed at facilitating the industrial development of certain countries.

3. WTO rules
      As for the ATC, timing is critical. The agreed upon transitional periods were, in specific cases, three to seven years for subsidies (presumably seven years in the case of China), two years for Trade Related Investment Measures (except for the Balance-of-Payments provisions) and 5 to 10 years for Trade Related Aspects of Intellectual Property Rights.
      EURATEX considers that, regardless of the status of China, a schedule that would be out of phase with that applicable by other signatories would be extremely damaging and would be an encouragement to further distortions of trade. The eventual occurrence of dumping, for instance, would depend on whether or not the WTO rules on subsidies would be enforced by China.
      EURATEX is particularly insistent on the protection of intellectual property rights which is a major asset of the European industry. As for the ATC, compliance by China to WTO rules should correspond to that imposed on other signatories (i.e. initial date to be 1.1.1995).

4. Tariff and non tariff barriers.
      EURATEX attaches great importance to reciprocal market access. One way liberalisation is an economic nonsense and a political error, particularly in the case of a country which will be a major contender for dominance in the textile and clothing trade.
      Initial and final tariff bindings, linearly decreasing over the transition period (as defined in 1), would be a sine qua non condition. The period suggested in the July 1997 proposal by China (15 years) is totally unacceptable. A solution, which has the merit of being coherent with the ATC, would be for China to implement the proposed final textile tariffs by 1 January 2005 without distinction. A refusal should be met by the demand to extend specific quotas by as many years as would be required to achieve the tariff reductions.
      The final level of tariffs should be identical to that of the EU and the proposal of July 1997 is a step in the right direction.
      Non tariff barriers prohibited by the WTO should disappear from the date of entry. They concern quotas, special taxes, incoherent or non transparent certification, financial deposits, export licences issued by the Ministry of Foreign Trade and Economic Co-operation and other administrative obstacles.

5. Safeguard mechanisms.
      In the final analysis, one of the most effective instruments against market disruptions will be the provision of safeguards either product specific or general.
      EURATEX considers that a product specific safeguard should extend or replace the transitional measures in the ATC and be applicable to all categories under quota (for China) in 1996 as provided in the annex of the ATC. This would be regardless of the year of China's entry and would be valid for 10 years hence.
      Given China's production capacity, the risks of market disruptions are considerable and there is no reason why the EU should deprive itself of the instruments necessary to ensure an orderly transition to total liberalisation and to the general safeguard rule.
      On many occasions, it has been stated that the life of textile and clothing products is relatively short and that injury may rapidly impact on the existence of the enterprise. For this reason, EURATEX, while in agreement with the wording of the WTO Draft Protocol of China on the product specific safeguard, would like to ensure that there is a clear understanding on the "exceptional circumstances" which would justify remedial action. The adjective "critical", used in Art. 6 of the WTO Agreement on Safeguards would be more appropriate (Art. 11 of the ATC refers to "unusual and critical" circumstances).

6. Raw materials
      China is an important producer of raw materials, some natural (wool, cotton, silk), some man made (acrylic fibers). Their export is regulated and subject to the supply of licenses by government agencies. Further, there are serious doubts expressed by several EU associations as to the existence of a double pricing system which would lead to instances of dumping by providing exporters with raw materials at a subsidized price. According to the EU-China bilateral agreement, this should not be the case for raw materials for which China has a supply obligation to the EU "no less favourable" than that for national enterprises (angora, cashmere, silk).
      The continuing control by government agencies of cotton and silk is a demand of China which should be denied. In fact, the state trading system for raw materials should be rapidly dismantled over, at most, one year.
      Accepting a longer period would allow China to play a significant role in regulating world market supply and prices (although China, largest cotton producer, is not a major exporter). A few years ago, China was in a position to weigh on silk supply through their near monopoly and created serious difficulties for the EU silk industry.

7. Hong-Kong
      The Commission should endeavour to obtain assurances that China will ensure the respect by Hong Kong of all its obligations, particularly those on rules of origin, and will take appropriate measures to prevent circumvention. The management of whatever quantitative restrictions will be in force will be critical: Hong-Kong has developed a formidable commercial network which, in itself, is a competitive advantage for its suppliers.
      By the time China has joined the WTO, the SIGL system designed by the Commission to monitor imports, will function but other measures which could helping identifying the origin of the products should be considered.
      The European textile and clothing industry views the accession of China to the WTO as an opportunity. But it is concerned by its huge trade deficit, the result of trade barriers more than of a low competitiveness (at least in certain market segments). In 1996, EU textile and clothing exports were 4.1% of imports in value and its deficit 4.4. billion ECUs, over a third of the EU's trade deficit with China. Which justifies that textile and clothing receive special attention through the negotiations.
      The opportunity of putting the EU-China textile and clothing trade on a sound basis will not occur twice and EURATEX expects that the EU will have the will to reach with China an agreement which will allow fair and balanced trading conditions.

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