South-Western College Publishing - Economics  
Productivity and Inflation
Topic International Trade
Key Words Import Quotas and Expectations
Full Article

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Reference ID: A135442438

News Story Following months of negotiations, the European Union imposed Chinese textile import quotas, which went into effect this month. The consequence was 75 million Chinese-made sweaters, pants, bras and other garments piling up in European ports.

In anticipation of the quotas, many European retailers had rushed to order the relatively inexpensive Chinese textiles and the import quota limits were reached very quickly. After the quotas were reached, no more textiles could enter the European Union and the clothing-laden ships could not be unloaded. Some retailers are warning European shoppers that they may be facing shortages if a compromise position is not reached soon. Larger retailers, however, do not expect the setback to significantly affect their business.

In an embarrassing reversal, European trade commissioner Peter Mandelson has called a meeting in Beijing to renegotiate the current quotas in an effort to alleviate the current situation. When the quotas were imposed, Mandelson called them a "mutually acceptable solution that will manage and ensure a smooth transition" to a system of quotas.

Mr. Mandelson said Wednesday that the system of quotas imposed on Chinese textiles contained a "serious glitch." However, he did not believe anyone should have been taken by surprise by the implementation of the system. "The agreement was prepared over months, not days, and everyone went into it with their eyes wide open," Mandelson said. "We now need a pragmatic solution that deals with the immediate overshoot, and with good will on all sides, we can do this."

As far as the Chinese are concerned, the "serious glitch" in the trade deal was a bit of a coup. A cartoon published in the Beijing News showed four half-naked Europeans standing on a dock holding up a welcome sign to a Chinese ship loaded with clothing as it dropped anchor in the European port.

Questions
1. Define an import quota.
2. Use supply and demand analysis to explain the "shortages" that might occur.
3. Discuss the notion of "expectations" as it relates to the retailers rush to order Chinese textiles.
Source Thomas Fuller, International Herald Tribune, "European Trade Officials to Renegotiate Import Quotas on Chinese Textiles," The New York Times Online, August 25, 2005.

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