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European Union and China Bilateral Trade Relations: An Analysis

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 Objective MFA (Multifiber Arrangement) What is MFA?

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European Union and China Bilateral Trade Relations: An Analysis

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  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

  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

  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

  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

  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

  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

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