Bra Wars and the EU’s China syndrome

By David Cronin

Date: 01/09/05

The accumulation of Chinese garments in EU ports was a boon to Eurosceptic columnists during August, traditionally a lean month for news. "You might think it odd that Peter Mandelson has the power to stop you wearing your favourite knickers," Stephen Pollard told British readers of The Times. "But he does. And he is exercising it."

The EU trade commissioner has been under attack from several sides over his handling of what he calls a "serious glitch" in managing the textiles trade, the so-called Bra Wars.

As a result of the dispute between Brussels and Beijing, an estimated 48 million pullovers, 17m trousers and 4m bras have been stuck on ships or languishing in warehouses since evidence surfaced in July that China had exceeded the restrictions set in a 10 June agreement on its textile exports to Europe.

While retailers complain that they cannot gain access to items they had ordered in good faith from China, representatives of Europe's own textile industry have accused Mandelson of not being vigorous enough in shielding them from a surge of low-price Chinese imports. Advocates of greater consumer choice allege that Mandelson is conspiring to prevent shoppers from paying less for clothes.

The trade commissioner hit back this week by dismissing predictions of garment shortages in Europe as "scare stories". He argued that the problem lay not with the June accord - known as the Shanghai agreement - per se, but in how its implementation had been overseen by the European Commission, EU member states and by China.

The Shanghai agreement set a ceiling of 8-12% on the annual growth in ten lines of Chinese clothing exports until 2007. But these have already been exhausted for bras, trousers, blouses, pullovers, dresses and T-shirts.

These ceilings were negotiated after a rapid surge in the volume of Chinese exports during the first few months of this year. Quotas on textile imports were scrapped on 1 January under the terms of the decade-old World Trade Organization agreement on textiles and clothing (ATC).

The ATC provided for the progressive liberalisation of the textiles trade in 1995-2005. Given that both industry and politicians had ten years to prepare for international competition in textiles, why was the "serious glitch" not foreseen? There are dark mutterings in Brussels that Mandelson was "badly advised".

The Foreign Trade Association (FTA), which represents many of the chainstores common on the high-streets of Europe's towns and cities, argues that retailers have simply taken advantage of the situation offered by the liberalisation of trade in January.

Stuart Newman, the FTA's legal adviser, said: "The reason why we have a backlog is that the quota levels were set too low [in the Shanghai agreement]. Retailers haven't put all their eggs in the Chinese basket, they are still sourcing from other countries. But they have realised that here is a big country that produces high quality goods at competitive prices. It is only logical to place orders with it."

Global Growth, a free-trade group based in London, has named Mandelson 'Protectionist of the Month' over his handling of the affair. It says that when Mandelson joined the Commission last year, he promised a new era of 'free and fair trade' but that moves to restrict the EU's 450 million people to have access to only 105 million pairs of Chinese trousers jar with that agenda.

Although Mandelson has insisted that the Commission cannot shoulder all the blame for the 'Bra Wars', Europe's clothes-makers see things differently. "The management problem [of the Shanghai agreement] is in the hands of the Commission," said Francesco Marchi from the European Apparel and Textile Organisation (Euratex). "There were 40 days of unmanaged trade and I don't see why the industry should have to pay for this."

Mandelson is hoping that he will be able to break the impasse that has arisen over this issue within weeks. But the deep divisions between EU national governments could limit his room for manoeuvre. Countries with large clothing industries like France, Spain and Italy want him to resist pressure to dilute the Shanghai agreement. On the other side Sweden, Finland, Denmark and the Netherlands are warning of job losses in the retail sector unless items ordered from China for the Christmas shopping season are released.

Tony Blair, the UK prime minister and current head of the European Council, will have a chance to discuss the surrounding issues at the annual EU-China summit in Beijing next Monday (5 September). Trade matters are bound to loom large at this meeting given that China has grown from holding a mere 1% share of global commerce in the mid 1980s to being the world's fourth-biggest exporter today.

David Fouquet from the Asia-Europe Project believes that the quality of dialogue between Brussels and Beijing needs to be enhanced to deal with problems such as the Bra Wars. "The relationship is a complicated one and there are bound to be glitches and mishaps," he said.

"But this is a phase we have to be gone through before it will take both sides to an established mechanism for problem-solving, in the way we have with the Japanese. There are still fundamental problems between the EU and Japan but these tend to be resolved in a businesslike way. We're not there yet with China."

Analysis feature on the dispute between China and the EU on the accumulation of Chinese garments in EU ports after quantitative ceilings of textile imports had been reached in August 2005.