EU: Mandelson warning to China on cheap textiles

Peter Mandelson warned China yesterday not to flood Europe with cheap textiles when quotas are lifted at the end of the year and called on Beijing to take more aggressive measures to open up its own market to imports.

The EU Trade Commissioner is coming under pressure from France, Italy and Spain to extend the quotas that limit the annual growth in imports of Chinese textiles. These were introduced two years ago to bring a truce in the “bra” war as European manufacturers were undercut by their Chinese competitors.

However, Mr Mandelson has rejected the French demands. “We do not propose to extend the export restrictions,” he said yesterday.

At the same time, Mr Mandelson insisted that Beijing had a key role in ensuring a smooth transition to normal trade when the restrictions are lifted. “I am sending a clear signal that I expect China to show a joint sense of partnership and responsibility in handling these difficult trade issues,” he said.

Under the agreement between the EU and China, the annual growth rates of exports of ten categories of clothing and textiles were capped at 12.5 per cent for two years.

Instead of prolonging the quotas, the Trade Commissioner has proposed to monitor closely Chinese textile exports, aware that if these rise too sharply he will face further demands from Paris to take tougher measures.

While calling on Chinese exporters to show restraint, Mr Mandelson rejected calls from President Sarkozy of France for a revaluation of China’s currency, the yuan, in order to reduce price differentials.

Mr Mandelson said: “On average over the last ten years, Chinese goods are three times cheaper than their European equivalents. Even if the Chinese currency is revalued by 50 per cent, Chinese products will still be cheaper. We have to look to our own price competitiveness. That is the real way forward.”

Against the background of the EU’s growing trade deficit, Mr Mandelson called on China to remove domestic technical barriers, ranging from testing to licensing, to European exports. “These result in € 20 billion (£13.4 billion) of lost exports by Europe every year,” he said. “This is simply unsustainable.”

Despite the repeated failure of negotiators to achieve a breakthrough in the Doha Round of trade liberalisation talks, Mr Mandelson believes the chance of a successful outcome in autumn has increased in recent days.

The source of his optimism comes from the reaction from key players to the latest negotiating texts tabled by the World Trade Organisation on agricultural and industrial concessions.

“No one has been pulled beyond their limits by the range of numbers,” he said. “The boundaries for the final discussion are now fairly clear. No one has reacted by rejecting them and we now have a basis for the end game.”

The EU will give its first formal reaction to the latest proposals in Geneva tomorrow before ministerial negotiations resume in mid-September.

Postal VAT battle

The Government and Brussels regulators were squaring up for a legal battle yesterday over the imposition of valued added tax on postal services.

Laszlo Kovacs, the EU Taxation Commissioner, warned Britain that it risked being taken to court if it continued to exempt postal services from VAT.

Although this was permitted for former postal monopolies that had to offer a high-class, universal service, Mr Kovacs argues that with liberalisation the concession gives former monopolies a competitive advantage against new market entrants.

“The VAT exemption should be applied in a way that minimises distortions of competition,” he said.

Despite the European Commission’s criticism, the Government is convinced that it is respecting EU legislation and will fight to prevent VAT being charged on postal services.