South-Westerns' Economic News Summaries
Chinese Textiles Still in Dispute
Topic International Trade
Key Words

Quotas, Trade, and Blockade

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Reference ID: A135777212
News Story

Chinese clothing exports to the United States and Europe soared in 2005 after a longstanding quota system was abolished on January 1, 2005. In June, 2005, Beijing agreed to a new set of quotas set by the European Union. As opposed to a tariff, which places taxes on imported goods, an import quota specifies the maximum amount of goods (in this case, Chinese textiles) that can be imported into another market (in this case, the European Union.)

European retailers placed large orders for Chinese textiles before the quota agreement was approved, inviting China to produce and ship millions of items. As the new quotas quickly filled, an estimated 75 million Chinese-made items of clothing have stacked up at the borders of European nations. The goods caught in the blockade including trousers, T-shirts, sweaters and other cheap textiles from China.

European trade commissioner Peter Mandelson stated, “I still want and expect member states to agree to unblock the goods.” Mr. Mandelson has warned of clothing shortages and higher prices without some kind of a deal to break the blockade.

The conflict comes between countries with strong retail interests that do not produce their own clothing, like the Nordic states and Germany, and the textile producing countries like France, Italy and Spain. The retail interests want the quotas removed so goods can flow freely. The producing countries want the quotas to remain as a source of protection for their textile industries.

The European Union’s producing countries want China to cut its import quotas for 2006 and 2007 if China is allowed to increase the quotas now, in 2005. “We said to Mr. Mandelson that we can go only so far,” said a European Union diplomat form one of the countries that opposed releasing the blocked goods unless China agreed to relinquish some of its future European Union quotas.

Mr. Mandelson faces a difficult task. He must balance producing countries’ interests with the concerns that arise from countries with retail interest, while at the same time getting Beijing to agree to a compromise.

Questions
1.

Explain why retail prices are expected to increase if the stranded Chinese goods are not allowed to enter the European markets.

2. Discuss the difference between a quota and a tariff.
3. Discuss the notion of protectionism as it relates to this article.
Source Reuters, “Europeans Remain at Odds on Chinese Textile Quotas”, The New York Times Online, September 3, 2005.
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