LexisNexis(TM) Academic - Document

Copyright 2005 The Financial Times Limited
Financial Times (London, England)

August 23, 2005 Tuesday
London Edition 1

SECTION: COMMENT; Pg. 14

LENGTH: 457 words

HEADLINE: Blair gives Mandy a Chinese burn CATHY NEWMAN - NOTEBOOK

BYLINE: By CATHY NEWMAN

BODY:


An e-mail from the prime minister to the European Union trade commissioner Peter Mandelson has been handed to the FT. In the public interest, we reproduce it here in full.

Tony Blair 22/8/05

To: Peter Mandelson

cc: David Hill, Kim Darroch

Subject: China textile quotas

Peter,

Barbadian communication being what it is, I've lost track of where we are on Chinese quotas. As far as I understand it, millions of trousers, shirts and bras are piling up in warehouses because the EU has breached the ceiling on Chinese imports agreed by you in June to protect the European textiles industry.

Dave tells me the Mail are onto the story - and your role in it - and are about to run a campaign about a shortage of M&S bras. (Cherie's not too happy either. She says, what with our exorbitant mortgage, she can't afford to splash out on European- made lingerie. I'm just hoping this has all blown over by the time we get back, so Paul Dacre doesn't catch her mouthing off about it.)

Anyway, this is fast becoming abig problem. You've simply got to

sort it out. I know you wouldn't give Chinese garments wardrobe-room, but as one who does, let me tellyou those stockpiles spell bad news.

Digby's already been onto me about businesses going to the wall - he reckons the stock shortage is going to cost retailers millions in lost sales. And the broader point is that for all our banging on about modernising Europe, the deal you did in June smacks just a little of old-fashioned protectionism. No wonder Jacques and Silvio have been keeping mum about the whole thing.

Have you done your homework on this Peter? It pains me to admit it, but I don't think Gordon would have under-estimated the level of demand for Chinese goods in the way you seem to have done. (OK, so maybe his intimate knowledge of Chinese textiles stems from the fact that he buys his suits from Primark.)

So here's what I think: I know that while we're hosting the EU presidency, we've got to observe the niceties of diplomacy blah blah, but really I think it's time to take on the French again.

After all, what have we got to lose? Our textiles industry isn't up to much, so letting in some more Chinese pullovers and bras isn't going to hurt UK plc . . .

We've got to be seen to be doing something. It's only a matter of time before the press realises that you, I and all the ministers responsible have been topping up our tans rather than getting ourselves briefed up on this.

Anyway, final word: get this sorted within the fortnight. (Yes I might be sipping a banana daiquiri, but I haven't forgotten the joys of the impending EU-China summit. An ongoing spat over textiles is the last thing I need.)

When I wangled you the EU job a year ago, I knew I could rely on you. Don't prove me wrong, please.

Tony

LOAD-DATE: August 22, 2005

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Financial Times (London, England)

August 24, 2005 Wednesday
London Edition 3

SECTION: INTERNATIONAL ECONOMY; Pg. 5

LENGTH: 532 words

HEADLINE: Limits force Chinese clothing makers to tighten their belts

BYLINE: By ALEXANDRA HARNEY

DATELINE: HONG KONG

BODY:

Wang Yongjun has a message for European Union negotiators as they head into talks with Chinese officials over the dispute that has stranded millions of pullovers at European ports this summer.

"It's no good limiting (the export of) Chinese goods. Nobody benefits - neither retailers nor consumers," says the general manager of Shenzhen Yiqingxiang Industrial Development, a children's clothing manufacturer that is based in the southern Chinese city of Shenzhen.

Mr Wang is not alone in his discontent. Some Chinese manufacturers have been as inconvenienced as European retailers by the EU's decision to prevent any goods shipped after mid-July from entering the bloc. Not all of the manufacturers whose goods have been stranded in Europe have been paid.

While many were able to ship their goods early enough to avoid the delay, it has forced some Chinese producers to reconsider their strategy.

In June, China agreed to limit its exports in 10 textile categories to the EU for the next three years. When the quota for pullovers and trousers filled, the EU stopped issuing import licences, though more garments were en route from China.

The question of how the export quotas will affect domestic industry is foremost in the mind of Chinese negotiators. China's textile sector comprises about 22,000 companies, employing an estimated 19m people.

Willy Lin, vice-chairman of the Hong Kong Textile Council, said many companies had shifted production to countries such as Thailand, India, Pakistan and Sri Lanka as a result of the restraints on China.

"Since last year, the textile council has been telling manufacturers: don't give up your offshore manufacturing yet." But he added some of these countries' textile factories were "extremely unreliable".

Easyknit International Holdings, a Hong Kong company, moved production of ladies' clothing from China to Malaysia and Vietnam months before goods began getting stuck at European ports.

"I knew sooner or later (shipments to Europe) would be embargoed," said Koon Wing-yee, president and chief executive.

The move to south-east Asia has raised his costs 2-3 per cent.

Not all Chinese manufacturers can afford to invest in factories abroad. Mr Wang of Shenzhen Yiqingxiang says he is mulling a move overseas. For now, he plans to increase production of clothes for children under the age of two because this category has not been affected by the textile trade dispute.

Other Chinese producers have been forced to look closer to home. Run Xing Fa Garment has very few orders from Europe these days, as its customers have turned to suppliers in Vietnam, Cambodia and elsewhere.

Although exports generate 50 per cent of the group's revenues, Ma Wenguang, the general manager, says he will be focusing on the Chinese market from now on.

Not all Chinese textile makers have as many options. Guangzhou Panyu Jieyi Garment, whose products include jackets and casual wear, shipped its products to Europe early enough to avoid the embargo, but because all of its customers were in eastern Europe, it was forced to halt production earlier this month.

"Now, I have nothing to do," said a company official. "It might be another two or three weeks before I get busy again."

LOAD-DATE: August 23, 2005

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Financial Times (London, England)

August 24, 2005 Wednesday
London Edition 3

SECTION: INTERNATIONAL ECONOMY; Pg. 5

LENGTH: 878 words

HEADLINE: How EU textile quotas became a Chinese puzzle: With imported clothing stuck in warehouses and retailers crying out for stock, the trade restrictions have been

BYLINE: By TOBIAS BUCK

BODY:
As sweaters, bras and shirts imported from China continue to pile up in warehouses across the European Union, there is one question on the minds of trade officials and diplomats, retailers and consumers: where did it all go wrong?

It is a question that is perhaps asked most strongly in a glass-fronted building in the heart of Brussels' European quarter.

Known as the Charlemagne building, this is where the European Commission's top trade officials spent the early days of June carefully preparing a deal which they thought at the time would solve once and for all a growing political crisis.

For months, the EU's executive body had been besieged by textiles and clothing manufacturers and politicians from countries such as Italy, with big textile industries.

Since the end of decades-old import restrictions at the beginning of the year, European groups were seeing their market share shrinking in the face of an onslaught by cheaper rivals from China.

The Commission was facing intense pressure, as data poured in suggesting that the rise in Chinese textiles and clothings imports had exceeded European producers' worst fears.

Shipments of shoes alone, Commission figures showed, had risen by almost 700 per cent since the quota regime was abolished in January.

Peter Mandelson, the EU trade commissioner, found himself in a bind. He knew that European producers had been given more than enough time to prepare for the end of the quota regime.

He also knew that - no matter how many obstacles politicians would put in the way of Chinese imports - the country's unrivalled manufacturing prowess would in the long run be impossible to beat.

But there were political forces to consider, too. The EU's draft constitution had just been rejected by voters in the Netherlands and France, plunging the Union into turmoil.

Much of the hostility faced by the EU institutions appeared to feed on the perception that the Union had allowed foreign competition to undermine national labour and social standards and caused job losses.

And finally, Mr Mandelson had his political masters to consider. Big EU member states were telling him to take action and curb the influx of Chinese goods. The Commission, they demanded, had to act fast or Europe's once-proud textiles industry would face annihilation.

Mr Mandelson favoured a voluntary deal with the Chinese rather than imposing trade defence measures unilaterally, and on June 10 he pulled off such a deal.

Ten categories of textiles would now be subject to voluntary import restrictions, which were expressed in quotas. As soon as the agreed level of imports had been reached, no further product could be shipped to Europe.

At the time, it all sounded simple enough, and speaking in Shanghai the commissioner hailed it as a "once and for all, overall agreement".

He also heaped praise on his Chinese interlocutors: "This is a significant demonstration of China's entry into the global economy as a responsible and valued partner," he said.

Back in Brussels, the deal met an overwhelmingly positive response. Only Sweden and Denmark - traditionally the Union's staunchest defenders of free trade - voted against it. Yet hopes that Mr Mandelson had brokered a lasting peace faded quickly. On July 21, less than two weeks after the agreement took effect, the first category was filled.

Any importer who had not yet secured a licence to import sweaters from China would from now on be unable to sell the goods he ordered on to the European market.

By yesterday, the number of pullovers which are blocked either on ships, at customs points in Europe or back in China exceeded 48m.

Five further categories have since been filled and retailers are warning that the shortfalls will be felt on store shelves across the EU. Shirts, trousers, bras, blouses and flax yarn have all been affected. Retailers and importers, meanwhile, are angry that their long- placed orders cannot be delivered.

Commission officials stress that it is neither surprising nor undesirable for the quotas to fill up. They point out that if quotas simply reflected European demand, there would be no reason for their existence.

However, in some categories at least, it appears that the Commission miscalculated.

With more than four months to go until the end of the year, Brussels has already been asked for licences to import pullovers enough to fill the quota twice. But in cotton fabrics, for example, the quota is nowhere close to being filled.

Brussels will this week try to address such mismatches, and is expected to propose that quotas be juggled to allow those goods on to the market that are currently being kept in warehouses in the EU.

However, officials insist that the Commission is unlikely to go beyond short-term fixes.

While the retail lobby is flexing its muscles and is receiving support from a growing number of governments, diplomats say that positions have not shifted much.

There would, Brussels officials and diplomats say, be no majority among EU member states for abandoning the June 10 agreement.

Any move in that direction, they add, would simply restart the fierce lobbying campaign that led to the deal in the first place.

As the Commission has found out so often in the past, when jobs and politics are at stake, there is rarely a majority for free trade.

LOAD-DATE: August 23, 2005

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Financial Times (London, England)

August 26, 2005 Friday
London Edition 1

SECTION: INTERNATIONAL NEWS; Pg. 5

LENGTH: 474 words

HEADLINE: EU and China renew talks in bid to end dispute

BYLINE: By TOBIAS BUCK, LESLIE CRAWFORD, RICHARD MCGREGOR and GEORGE PARKER

DATELINE: BEIJING, BRUSSELS and MADRID

BODY:

Chinese and European Union trade officials will today attempt in a second round of talks to settle an embarrassing dispute over stockpiles of Chinese clothing impounded in Europe for exceeding quotas set by the two sides this year.

The emergency talks, which opened in Beijing yesterday, centre on an EU proposal for the sides to juggle the different clothing quotas to allow the core of the original agreement to stand, while releasing the stockpiled goods to the retailers who had ordered them.

A solution could be based on a mixture of adding some stockpiled goods to the quotas agreed in the bilateral deal signed in June, and by transferring some to next year's quotas, a Commission official said yesterday.

The Chinese government has made no public comment on its negotiating position, but the state-controlled media have demanded an end to the quotas, which were re-introduced after curbs were abolished in January as part of long-agreed trade liberalisation. "The EU kicked up a pile of stones and has ended up hurting its own feet," said the Shanghai-based International Finance News.

Seven out of the 10 categories of textiles covered by the agreement have been filled - dresses yesterday became the latest product to be stockpiled. China may argue that the quotas themselves must be enlarged to accommodate the surge in imports, because increasing next year's quotas alone will not be enough, a Chinese official said last night.

Despite concerns over the impact of EU restrictions on Chinese textiles imports, there was still a solid majority among member states in favour of retaining the quota regime, diplomats and officials in Brussels said. Officials from several EU countries supported the position of Peter Mandelson, the EU trade commissioner, who insisted on Wednesday that "the agreement stands".

"We are willing to find a specific solution for the Chinese garments that are piling up in European ports, but we think the agreement signed with China is still valid and should not be altered," said a representative of the industry and commerce ministry of Spain, whose textile industry employs 226,000 people.

At a meeting of national trade officials this week, only Denmark was willing to accept a solution outside the June 10 deal that introduced the quotas, one official said.

The 24 other countries, including Britain, Germany and the Netherlands, made clear they wanted the deal negotiated by Peter Mandelson to remain in place. But a solution had to be found to release the millions of sweaters, trousers and other Chinese textiles imports stockpiled across Europe. A diplomat from Britain, holder of the rotating EU presidency, said: "As the presidency of the EU, the UK of course supports the agreement reached by member states."

Richard McGregor in Beijing, Tobias Buck, George Parker in Brussels and Leslie Crawford in Madrid

LOAD-DATE: August 25, 2005

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Financial Times (London, England)

August 29, 2005 Monday
London Edition 1

SECTION: FRONT PAGE - FIRST SECTION; Pg. 1

LENGTH: 509 words

HEADLINE: Mandelson urges textile quota truce

BYLINE: By EDWARD ALDEN, BEN HALL, RICHARD MCGREGOR and GEORGE PARKER

DATELINE: BRUSSELS, BEIJING, LONDON and WASHINGTON

BODY:


* EU trade chief backs formula to free customs-held Chinese goods

* Backlash by European producers feared

* Tories criticise 'absurd protectionism'

Peter Mandelson, European Union trade chief, will this week urge EU states to unblock millions of Chinese garments from customs warehouses as he seeks to force the pace towards a resolution of an increasingly acrimonious dispute.

Mr Mandelson will argue that importers and retailers have the right to receive goods ordered before a new EU quota system for Chinese imports was in place.

He said: "If the member states co-operate, I believe we will be able to unblock all the goods currently held at customs at the middle of next month." But he could face opposition from textile producers such as France, Italy, Spain and Portugal if a deal unleashes millions of extra pullovers, trousers, bras and blouses on to the European market.

Although Mr Mandelson is determined to clear an estimated 70m Chinese garments from EU ports, there is still no agreement with Beijing on how the unlicensed goods should be treated under the June 10 quota deal.

Chinese and EU negotiators begin a fifth day of talks today amid signs Beijing is using its position to drive a hard bargain.

European negotiators in Beijing propose a combination of three solutions on how to treat goods ordered by retailers that exceed import quotas:

* Exclude some blocked goods from this year's quotas on the grounds they were ordered in good faith before the quota system was fully operational

* Transfer some oversubscribed goods, such as pullovers or bras, to undersubscribed quotas for items such as cotton fabrics

* Deduct some blocked goods from next year's Chinese quota.

Chinese negotiators oppose the third option because it would lead to substantially less growth for Chinese textile manufacturers in 2006. They also argue there is little scope to use the second option since most quotas for the 10 textile categories covered by the June 10 deal are now full.

Releasing blocked textiles by removing them from this year's quotas could trigger a backlash from EU textile producers.

But Mr Mandelson is backed by free-trade member states Sweden and Denmark and by countries including the UK and Germany where retailers have a stronger voice than textile producers.

The trade commissioner, under fire in the UK press for handling the dispute from his holiday in Italy, wants a deal soon - not least to stop it overshadowing an EU-China summit next week. The talks must be finished by tomorrow when China is scheduled to re-open textile talks with the US.

Mr Mandelson's handling of the crisis was criticised by the Conservative party. David Willetts, shadow trade and industry spokesman: said: "He is clearly completely out of touch when he says this is just a glitch. Tens of millions of items of clothing are impounded all across Europe.

"And this is all because of absurd European protectionism which the British Government and Peter Mandelson should never have agreed to."

Additional reporting by Ted Alden in Washington Beijing piles on pressure, Page 4

LOAD-DATE: August 28, 2005

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Copyright 2005 The Financial Times Limited
Financial Times (London, England)

August 29, 2005 Monday
Asia Edition 1

SECTION: LETTERS TO THE EDITOR; Pg. 10

LENGTH: 498 words

HEADLINE: Careful planning by textile importers is the only solution

BYLINE: By TUNCER KAYALAR

BODY:


From Mr Tuncer Kayalar.

Sir, The transformation of global production and sourcing patterns in the post-Agreement on Textiles and Clothing era is a cause of serious concern for many countries. The complexity of challenges calls for joint and co-ordinated efforts by the international community and leading trading partners.

Discussions in this framework have especially focused on the sudden surge of exports from China. As a matter of fact, the measures already taken by some countries, and initiatives of others take into account this problem and try to make possible a smooth transition to the quota-free trading environment for all players.

The present situation in the European Union market seems to prove that these countries have not been engaged in these practices for nothing: import volumes from China for January-April 2005 have risen by up to 500 per cent compared with the same period of 2004. Moreover, attention should be given to the fact that the agreed quota levels have been calculated based on these inflated figures. Currently, five of the 10 categories covered by the China-EU textiles agreement are likely to exceed the 2005 quota levels and two of them already have. Thus, China even surpassing the limits of such a generous agreement seems to prove the prediction that, with an estimated share of 50 per cent or more, it will monopolise the global textile and clothing trade.

This very fact brings about a problem - whether this situation is an example of "manifestly unfair trade practices" or not. The common view is that trade in this sector has been subject to the use of trade-distorting practices, including deliberate currency undervaluation, state subsidies and the proliferation of non-performing loans and rebate schemes originating basically from China. In the light of the figures and what was argued above, the pressures from the importers of some EU countries should not prevent the Commission from abiding by the terms of the agreement, which was an outcome of long-term deliberations. Moreover, within the framework of the agreement in question, the quotas will be increased by up to 12.5 per cent annually, which is already assumed to be a reasonable amount by both China and the EU.

Textiles and clothing - one of the most global industries in the world today - is a significant source of income and export earnings for many countries. This sector plays a crucial socio-economic role in many countries' development efforts, by offering entry-level jobs for unskilled labour and especially for women.

In this respect, the sudden surge of exports originating from China has had - and will continue to have - damaging effects on the other countries' development efforts. The situation should in no way lead to an overthrow of the agreement between China and the EU. The solution is to be attained by careful planning by EU importers next year.

Tuncer Kayalar,

Undersecretary,

Undersecretariat of the Prime Ministry for Foreign Trade,

Ankara, Republic of Turkey

LOAD-DATE: August 28, 2005

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Copyright 2005 The Financial Times Limited
Financial Times (London, England)

August 30, 2005 Tuesday
London Edition 3

SECTION: WORLD NEWS; Pg. 5

LENGTH: 601 words

HEADLINE: Importers tell Washington to heed EU debacle in talks with Beijing

BYLINE: By EDWARD ALDEN

DATELINE: WASHINGTON

BODY:


Citing the European Union debacle over Chinese textile imports, US clothing importers are urging the administration of President George W. Bush to negotiate an agreement with Beijing that would allow for generous annual increases in US imports.

In a letter sent late last week to Rob Portman, US trade representative, the association representing importers and retailers warned the current disruption of the European industry "highlights the high costs to the economy when negotiators do not consider the commercial implications of restrictions on trade".

The US and China meet today and tomorrow in Beijing for a second round of talks, with both sides hoping to craft a deal before the visit to Washington next week of Hu Jintao, the Chinese president.

Industry officials said the two sides still appeared far apart after a first round of negotiations in San Francisco in mid-August. While neither government has disclosed detailed proposals, industry officials said the US was seeking to restrain imports in more than 35 categories to levels at or near the 7.5 per cent annual growth allowed under US "safeguard" mechanisms.

China, in contrast, wants only a handful of categories controlled, and is seeking annual growth rates of 20 to 30 per cent. The EU deal with China, which runs until the start of 2008, set quotas on 10 categories of imports, with growth rates ranging from 8 to 12.5 per cent.

The US has already re-imposed quotas on seven large categories of Chinese clothing imports - including cotton trousers, shirts and underwear - using special safeguard procedures agreed by Beijing when China entered the World Trade Organisation in 2001.

Washington is threatening to slap safeguards on another half-dozen categories if no deal is reached by tomorrow, though such actions might be delayed until after President Hu's visit.

In spite of reimposing quotas, the US has managed to avoid the supply disruptions that have plagued Europe. Unlike the EU-China agreement, which was imposed with little warning to European importers, US clothing buyers were well prepared for the safeguard actions.

Most clothing importers had expected quotas to be reimposed by the middle of this year and had diversified sourcing in preparation. Nonetheless, quotas have already been filled this year for all the categories under safeguard, and some companies had to use expensive air shipments to get their goods into the US in time.

Brenda Jacobs, Washington trade counsel for the US Association of Importers of Textiles and Apparel, said the European stand-off showed the danger of imposing new restraints without careful consultation with the industry. "If you don't know what's out there, you can't negotiate a number that's manageable," she said.

US importers say any deal cannot just be another temporary measure that will overly restrict trade and generate a new backlash from US textile makers after the end of 2008, when the US can no longer impose safeguards against China.

Ric Long, president of Helly Hansen, the US outdoor clothing retailer, told Mr Portman last week any deal must "serve as an effective transition programme to normal trade in textile and apparel products, and not as another 'cliff' that will create yet another crisis down the road in 2008".

Importers say such a deal should include a sizeable increase in quotas each year, and should only cover categories where China is directly competing with US manufacturers.

US textile makers, however, want a much broader deal that would set restrictive quotas on most large categories of imports until the end of 2008. Lesson from textiles stitch-up, Page 15

LOAD-DATE: August 29, 2005

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Financial Times (London, England)

August 30, 2005 Tuesday
London Edition 1

SECTION: COMMENT & ANALYSIS; Pg. 15

LENGTH: 857 words

HEADLINE: Lessons from the China textiles stitch-up GUY DE JONQUIERES

BYLINE: By GUY DE JONQUIERES

BODY:


After all the criticism and ridicule heaped on the European Union over the fiasco of its quotas on Chinese textiles imports, it is time to speak up in its defence. Perversely and unwittingly, it has done the cause of free trade a favour by showing up the manifest absurdity of the alternative.

The economic benefits of open markets, although real, are hard to quantify precisely because they are long term and widely spread. But the costs of trade protection, for its practitioners as well as its targets, are easier to identify. Seldom have they been exposed with more brutal clarity than since the EU sealed the deal, amid much self-congratulation, in June.

Instead of delivering market certainty, as it was supposed to do, the deal has created chaos, as blocked Chinese shipments pile up at European ports. It penalises Europe's healthy retail sector, while generating no new jobs in its sickly textiles industry. Indeed, the quotas may prove largely futile, because imports from China will in time be replaced by imports from other developing countries, not by products made in Europe. Nonetheless, with the retail trade in turmoil and EU members feuding over the measures, last week saw the bizarre spectacle of Brussels pleading with Beijing to help resolve its self-inflicted problems by agreeing to relax the curbs.

That is not all. The EU-China textiles stitch-up, soon to be emulated by the US, marks a return to the discredited "managed" trade policies of the 1980s, of which Japan was the main target. Far from blunting Japan's competitive challenge, those policies sharpened it, fattening Japanese exporters' margins and spurring them to move upmarket.

The Uruguay round world trade agreement outlawed many types of managed trade. The textiles quota deals flout the spirit, if not the letter, of that ban. But their legality is unlikely to be tested, because nobody has a strong incentive to challenge it.

Glaring as the lessons of the EU fiasco are, it would be optimistic to assume they will be learnt quickly. US plans to strike a similar deal suggest the reverse. Rather, the signs are that in the near term, the struggle between the forces seeking to keep western markets open and those pushing to close them may become more intense.

Massive excess production capacity in many of China's industries, and its producers' frenzied striving to maintain output at any cost, are set to keep its exports rising for the foreseeable future. Hu Jintao, China's president, will doubtless try to soften the blow by handing out some big export orders when he visits Washington next week. That may please the likes of Boeing and General Electric but it is unlikely to impress weaker US producers unable to cope with Chinese competition.

China's World Trade Organisation membership agreement gives thema potentially powerful weapon.It entitles other countries legally to restrict until 2012 all types of Chinese exports, not just textiles, on the basis of less rigorous criteria than WTO rules would otherwise require. So far, the weapon has not been fired. But trade history suggests that when such options are created, so are pressures to use them.

However, the push will not be all one way, or on all fronts. Some products of which China is a big exporter, such as inexpensive television sets and DVD players, are hardly produced in the US or EU any more. In those industries, the west no longer has any jobs left to protect.

More important, expanded trade and foreign direct investment, and the growth of global sourcing and cross-border supply chains, are changing the dynamics of trade politics. By strengthening the mutual independence of national economies and industries that operate within them, those trends have made many producers more sensitive to the costs of import restrictions and created new incentives to oppose them.

That is why makers of semiconductors and information technology equipment, which undergo different stages of processing at plants all over the world, persuaded governments in the 1990s to eliminate duties on their products. Similarly, George W. Bush's imposition of steel tariffs three years ago triggered an unexpectedly loud outcry among US steel users that led to their repeal.

But globalisation has gone only so far to re-define commercial self-interest. The current climate of Sinophobia in Washington has sent many US companies that manufacture in China running for cover, because they fear they could become its target. That has reduced to near-silence a once vocal lobby against curbs on Chinese imports.

Furthermore, there are still times when it suits multinational companies to embrace protectionism - even when they have been victims of it. Witness Japanese car companies' stealthy support a few years ago for EU measures limiting their South Korean rivals' inroads into Europe.

In the ebb and flow of these complex cross-currents, the great EU textiles debacle certainly does not mark a watershed. Nor will it reduce the vigour with which protectionist-minded producers press their case. But it will at least have done some good if it prompts politicians to think twice before succumbing to their demands.

LOAD-DATE: August 29, 2005

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Financial Times (London, England)

August 30, 2005 Tuesday
London Edition 1

SECTION: LETTERS TO THE EDITOR; Pg. 14

LENGTH: 208 words

HEADLINE: Paying more for textiles will help relieve poverty

BYLINE: By ELENA BONNY

BODY:


From Ms Elena Bonny.

Sir, Far be it that we should meddle in the "Tangled web of textile protection" !

Nevertheless, on reading your editorial (August 19) a question comes to our mind: Are the retailers in the US - and I presume in the European Union also - not the ones who, in their eagerness to lower prices to their consumers back home, have flocked to China (not to mention other Asian countries) in search of "new sourcing opportunities", as your editorial calls them?

Are they not, in fact, the ones responsible for pressuring the outsource to lower their costs, which in the labour-intensive garment industry means mostly keeping wages below poverty level? No wonder there are 600m Asian kids who live in poverty as reported by PLAN, a humanitarian organisation that focuses on children.

Your editorial took the stance that "there is no reason why European and American retailers and consumers should have to suffer for even longer". We are touched by your humanitarianism but we would be a lot more moved if instead it urged the Europeans and Americans to help relieve some of the Asian poverty by paying more for the goods they buy from China and elsewhere.

Elena Bonny,

President and Chief Executive,

SoftLooms International,

Columbus, OH 43221, US

LOAD-DATE: August 29, 2005

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Financial Times (London, England)

August 30, 2005 Tuesday
London Edition 1

SECTION: LETTERS TO THE EDITOR; Pg. 14

LENGTH: 392 words

HEADLINE: Risks to importers with just one source of supply

BYLINE: By JAMES E SUGDEN

BODY:


From Mr James E. Sugden.

Sir, I was pleased to see global textile issues elevated to your main editorial in Saturday's paper. This must be a first, since textiles has long been regarded as both unfashionable and expendable by successive governments and indeed the City. The standard economic thesis you advance is irrefutable, but does not tell the whole story.

The main driver behind the imposition of new quota ceilings is the US, assisted in these endeavours largely by Italy and France. The UK textile industry, and particularly the Scottish cashmere and tweed sector, faced these realities many years ago, accepting without demur or government support large-scale winding down of the industry, and repositioning ourselves as high added-value producers in niche areas with a big export turnover. This has not been easy, particularly since government has little real interest in our future; but nonetheless in Scotland alone we still employ more than 22,000 people, and our greatest threat just now is a shortage of young trainees in the industry.

My company sells expensive jumpers to several members of the cabinet - presumably they do not make these purchases just to salve their consciences - our quality and design is better. The point your editorial does not make, however, is the risk run by importers that opt for a single, offshore source of supply. China is still a command economy, it is a long way off, and in the modern textile industry proximity to market is important. Transport costs, integrity and individuality of design, speed and ability to repeat orders in season are vital factors. The true costs of outsourcing are often ignored. That is why one managing director of a large UK chain, and a customer of mine, told me recently that he would never risk more than 75 per cent of his purchases offshore, preferring like any prudent businessman to hedge his bets.

This would surely be good advice to the government, for when China, now in the World Trade Organisation, is forced to face up to health and safety issues, environmental costs, ethical trading issues and so on, mothers will not be able to go to Matalan to buy their children a complete back to school outfit for Pounds 8, and "Jermyn Street" shirts will not be Pounds 25.

James E. Sugden,

Managing Director, Johnstons of Elgin

Chairman, Scottish Textile Manufacturers Association

LOAD-DATE: August 29, 2005

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Financial Times (London, England)

August 30, 2005 Tuesday
London Edition 1

SECTION: WORLD NEWS; Pg. 5

LENGTH: 702 words

HEADLINE: Mandelson calls on China to help solve Europe's textile crisis

BYLINE: By RICHARD MCGREGOR and GEORGE PARKER

DATELINE: BRUSSELS and BEIJING

BODY:


Peter Mandelson, Europe's trade commissioner, yesterday told China it had a "moral and political obligation" to help solve the textiles dispute with Europe, amid fears the dispute could escalate.

Four days of negotiations between the EU and China have ended in stalemate, with Beijing giving little ground to help Mr Mandelson end the crisis, which has left up to 80m items of Chinese clothing blocked in European ports.

Yesterday an exasperated Mr Mandelson attempted to deflect the blame for the fiasco, which has denied retailers access to clothing ordered for the autumn season. He said he resisted imposing new quotas on Chinese clothes in the first place - a deal he negotiated with Beijing under pressure from France, Italy and other EU textile producers.

"I have never disguised the inherent difficulties in introducing restrictions to trade," he said. "My caution was well known."

He said the European Commission, EU members and China should all take their share of the blame for the botched implementation of the June 10 deal, which restricted exports of 10 categories of Chinese clothing.

Nevertheless the failure of talks in Beijing and the growing anger of retailers has left Mr Mandelson exposed to criticism.

This week he will urge EU states to unblock all Chinese garments stacked in Europe's customs warehouses, ordered by retailers before the new quotas came into force. "I cannot accept that EU retail businesses should be penalised unfairly by the introduction of the agreement we made in China," he said.

Germany insisted yesterday textile imports blocked at ports should be released as soon as possible, as many were ordered in good faith before the June agreement. German officials indicated that any solution to the crisis which involved reducing next year's quota for textile imports would not be desirable.

"We haven't seen any proposals yet, but if we can find a solution that is good for our firms then there is a possibility for a truce," said Thomas Ostros, minister of industry of Sweden, which along with Denmark voted against the June 10 agreement.

"There are small and medium-sized companies that are under great pressure, and we need a quick solution that is non-bureaucratic. Secondly, any solution must not create further difficulties next year. There's an important discussion right now about borrowing from next year's quotas and that is not wise," Mr Ostros said. But Mr Mandelson admitted it was "possible" some EU members would oppose unblocking the clothing backlog, without an agreement with China on how they should be counted in relation to the agreed quotas.

Poland is standing fast by its coalition partners such as France and Spain which are reluctant to let in the Chinese clothing, said Marcin Kaszuba, Poland's deputy economy minister.

Beijing has rejected EU requests that some blocked goods should be transferred to next year's quota. One Chinese official said that would be like "eating the Year of the Tiger's food in the Year of the Rabbit".

Without any such agreement, Mr Mandelson fears textile producers such as France, Italy and Spain could insist on unilateral new restrictions on Chinese imports next year.

That would be a disaster for Mr Mandelson's policy of constructive engagement with Beijing, and could provoke a round of tit-for-tat trade battles between the EU and China.

Mr Mandelson hopes he can persuade China to accept a deal before the end of the week through telephone negotiations, easing tensions ahead of next week's EU-China summit in Beijing.

Meanwhile some textile companies cannot afford to wait for the EU to stitch together a solution to the current textile crisis.

Henrik Holbech, who owns a lingerie company in the Danish town of Skanderborg, caught the first flight to Asia when the bra quotas ran out last week.

"We have moved production to Hong Kong and Macao. It wasn't easy to find an alternative manufacturer because we weren't the only ones looking," Mr Holbech said. "It cost us about DKr1m, (Pounds 90,000, Dollars 165,000, Euros 135,000) but we couldn't wait for the EU to react or not to react." Additional reporting by Hugh Williamson in Berlin, Clare MacCarthy in Copenhagen, Jan Cienski in Warsaw and Rupini Bergstrom in Stockholm

LOAD-DATE: August 29, 2005

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Financial Times (London, England)

August 30, 2005 Tuesday
Europe Edition 1

SECTION: INTERNATIONAL ECONOMY; Pg. 2

LENGTH: 698 words

HEADLINE: Textile production moves away from China as taste for fast fashion grows

BYLINE: By CLARE MACCARTHY, MARK MULLIGAN and ELIZABETH RIGBY

DATELINE: LONDON, COPENHAGEN and MADRID

BODY:


Some retailers were shifting production from China to eastern Europe, Turkey and India even before the recent EU-China textile row broke out, as customers' appetite for "fast fashion" has forced a fundamental rethink of supply chains.

The sourcing shift has been reinforced by the European textiles crisis, which has prompted large clothing retailers, such as Sweden's Hennes & Mauritz, to find alternative sites that do not face import restrictions.

But it began months ago, triggered by retail chains' need to keep up with stores such as Primark, Zara and New Look, which have defied the consumer slowdown and continued to trade robustly by rushing the latest trends on to display rails faster than their rivals.

Speaking before the Chinese textiles crisis blew up, Philip Green, the retail billionaire who owns a swathe of high street clothing chains in the UK, told the Financial Times he had been moving production away from China since last December.

Mr Green said: "I have been taking quite a lot of stuff out of there for a while because we want to be nearer to home for speed to market. So we are going to Turkey and east Europe.

"In China, price and quality are excellent, but in terms of the fast fashion, some of these things are too far away for what the market is demanding."

A German retailer said Turkey was an attractive alternative supplier in the short term but other Asian suppliers were important in the longer term.

Next, one of the largest retailers in the UK, is also moving production closer to Europe, according to retail sources, though the retailer declined to comment.

If price alone is the yardstick, China wins hands down. According to AT Kearney, a consultancy, a typical blouse costs Pounds 6.50 (Euros 9.50) to manufacture in China, against Pounds 7 in eastern Europe, Pounds 8 in Turkey and Pounds 10 in the UK.

Faced with consumers no longer prepared to wait for their favourite designs, retailers are aware there is a far higher price to be paid from failing to get new designs to their customers quickly enough.

Meanwhile some textile companies cannot afford to wait for the EU to stitch together a solution to the current textile crisis.

Henrik Holbech, who owns a lingerie company in the Danish town of Skanderborg, caught the first flight to Asia when the bra quotas ran out last week.

"We have moved production to Hong Kong and Macau. It wasn't easy to find an alternative manufacturer because we weren't the only ones looking," Mr Holbech said.

"It cost us about DKr1m (Dollars 165,000, Pounds 90,000, Euros 135,000) but we couldn't wait for the EU to react or not to react."

News of the plan by Peter Mandelson, trade commissioner, to re-impose the quota regime some time in the future drew derision in Denmark, one of two countries that voted against the June 10 accord.

"This is just the worst sort of protectionism and in the strongest possible terms I urge the Danish government to get rid of quotas," said Paul Larsen of the Danish Bestseller group.

In Spain, large retailers such as Inditex, Cortefiel and Corte Ingles have been largely unaffected by the blockade because of what one industry official yesterday described as "logistical flexibility".

"Sure, they may encounter problems in one or two items," said Salvador Maluquer, secretary general of the Consejo Intertextil de Espana, which represents manufacturers, "but the whole world is a marketplace for the big retail chains".

"Textile production isn't all about China. We've worked out that there are 150 low-cost exporter countries in the world."

He said figures from the first four months of this year showed that Morocco, India, Turkey, Bangladesh, Tunisia, Pakistan, Cambodia, Bulgaria, Romania and Sri Lanka were already established as important source markets for Spanish clothes importers and distributors before the Chinese quotas were agreed.

The list of alternative suppliers partly reflects a trend among Spanish producers to shift production offshore in an effort to compete with cheap Chinese imports. This had been concentrated in nearby northern Africa, but producers had started moving further afield, mainly to eastern Europe but also to countries such as Bangladesh, said Mr Maluquer.

LOAD-DATE: August 29, 2005

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Financial Times (London, England)

September 1, 2005 Thursday
London Edition 2

SECTION: ASIA-PACIFIC; Pg. 10

LENGTH: 559 words

HEADLINE: China and US hit an impasse over textiles quotas

BYLINE: By EDWARD ALDEN, RICHARD MCGREGOR and GEORGE PARKER

DATELINE: BEIJING, BRUSSELS and WASHINGTON

BODY:


The US and China failed yesterday to strike a deal to restrain Chinese textiles exports to the US, making it unlikely that any agreement would be struck before the high-profile visit to Washington next week by Hu Jintao, China's president.

But as hopes dimmed for a US-China deal, China resumed talks with the European Union aimed at resolving the acrimonious bilateral dispute over textile quotas, agreed in June, which has left between 70m-80m Chinese unlicensed garments locked in storage.

The Chinese official media had raised expectations of a deal with the US by issuing positive commentaries ahead of the restart of the talks, stressing the need to settle contentious issues before Mr Hu's Washington trip.

While some discussions were continuing in Beijing last night, there now appears little chance of a negotiated settlement before Mr Hu's September 7 meeting with George W. Bush, the US president.

The US textile industry said it would now file a series of new "safeguard" cases aimed at blocking additional categories of Chinese clothing exports to the US. Washington faced a deadline yesterday for ruling on another half dozen cases already filed by the industry.

Both the US and the EU have reimposed quotas on Chinese clothing imports in recent months, using China's accession agreement to the World Trade Organisation which allowed for new restrictions in the case of a surge in exports.

Washington would like a comprehensive deal that gives both importers and US textile manufacturers certainty about the rate of growth of Chinese imports until 2008, after which the US will lose its ability to restrict Chinese imports.

But sources said the two sides made little progress in the Beijing talks, with the US insisting on tight quota restrictions on a broad range of imports until the end of 2008 and China offering looser restrictions on fewer categories until 2007. Beijing also wants assurances that the US would not impose additional quotas in the future.

The US textile industry accused China of refusing to negotiate seriously in the talks, in part because the problems in Europe may have persuaded Chinese officials that the US would not insist on tight quotas.

The EU and China succeeded on June 10 in reaching an agreement to limit exports over the next three years in 10 clothing categories, but that now risks falling apart because of the introduction of the new quotas.

Peter Mandelson, EU trade commissioner, last night resumed talks with Bo Xilai, Chinese trade minister, aimed at persuading Beijing to share the cost of dealing with the piles of unlicensed Chinese goods ordered by EU retailers but which ended up breaching the new quotas.

Mr Mandelson wants China to accept that some of the blocked garments should be included in the 2006 quotas, or shifted to one of the two remaining unfilled quotas: for cotton textiles or table linen. Yesterday he won agreement in principle from the 25 EU member states that there should be a speedy release of the blocked goods into the shops, but textile producers such as France, Italy, Spain and Portugal insisted the goods should not be additional to the quotas agreed on June 10.

Mr Mandelson will today put new proposals forward to the European Commission with an aim to resolving the issue with member states by the end of the week, to avoid the issue dominating next Monday's EU-China summit.

LOAD-DATE: August 31, 2005

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Financial Times (London, England)

September 2, 2005 Friday
London Edition 1

SECTION: COMPANIES ASIA-PACIFIC; Pg. 23

LENGTH: 723 words

HEADLINE: Temasek gambles on China Singapore state investment group is looking for high-growth assets, writes John Burton

BYLINE: By JOHN BURTON and ANDREW YEH

BODY:


Ho Ching, chief executive of Temasek Holdings, Singapore's state investment company, is in the middle of the biggest gamble since she took over in 2002 - a proposed investment of up to USDollars 6bn in two large Chinese state-owned banks.

Temasek has suddenly emerged as the leading foreign investor in China's financial sector, buying a stake in Bank of China and pledging to buy a minority holding in China Construction Bank, the second and third biggest banks.

The Chinese bank investments are part of a wider strategy by Temasek to expand the "external wing" of the city-state's economy by picking up high-growth Asian assets, particularly in banking and telecoms.

The BOC and CCB deals are the biggest overseas investments by Temasek, which had a total portfolio of about Dollars 54bn in March 2004, the latest data released by the secretive state group.

Temasek announced this week it would spend Dollars 3.1bn for 10 per cent of BoC before the bank's IPO next year, with plans to spend an extra Dollars 500m on shares once listed. The 10 per cent stake in CCB will cost it Dollars 2.4bn.

Ms Ho, wife of Singapore's prime minister Lee Hsien Loong, has said she wants to improve performance by investing in growth sectors. Temasek has reported annual returns of only 3 per cent in the past decade.

"Investments in Chinese banks may seem risky, but you only get higher returns when you accept higher risks," says Paul Coughlin, global head of corporate and government ratings at Standard & Poor's, the international ratings agency.

Within the next decade, the group aims to have two-thirds of its assets outside Singapore, which accounts for about half of its portfolio.

Until now, China has represented less than 5 per cent of its holdings, which some analysts believed reflected past poor investments by Singapore state companies in China in the 1990s.

Before this year, Temasek had stakes in several Chinese ports through its wholly owned subsidiary, PSA International. CapitaLand, a Temasek-owned company, has also been a keen investor in China's property market.

But Temasek has recently stepped up the pace of Chinese investments after hiring several bankers from US investment banks.

Recent Chinese deals have included buying 5 per cent of Minsheng Bank, a privately owned bank, and 24 per cent of Great Wall Airlines, a cargo carrier.

Temasek has been selling shares recently in several Singapore holdings, including CapitaLand and transport group SMRT, raising SDollars 1.3bn (USDollars 774m) that could be used to finance its Chinese foray.

Temasek's finances are strong enough to withstand any possible risks in China. It receives at least Dollars 2bn in dividends from its corporate holdings, including Singapore Airlines, SingTel and DBS Bank.

Although it has not yet needed to tap financial markets for funds, it has received top ratings from S&P and Moody's. Temasek's financial firepower has already created a network of banking stakes across Asia, with holdings in Indonesia, India, South Korea, Malaysia and Pakistan.

"Temasek has created a strong banking franchise across the region in spite of initial scepticism that it could do so," says Prabodh Agarwal, Singapore research head at CLSA. "All its banking investments have proved profitable." But he warns that China will prove a challenge. "First-wave foreign investors into Chinese banks will not make money or will only do so after five to 10 years. But Temasek believes the upside potential can be achieved sooner if banking operations and governance are improved."

Whether Temasek can influence the management of Chinese banks remains an open question because of its minority status, although it is expected to advise on corporate governance and technology upgrades.

David Marshall, managing director of Fitch Ratings in Hong Kong, says Temasek's BoC investment has a better chance at succeeding if it gains warrants for "downside protection". "It's a leap of faith in the Chinese government," he says of investing without such guarantees.

Temasek has been able to improve the performance of Bank Danamon and BII in Indonesia because it holds a controlling stake in both. Analysts believe Temasek also has to pursue a longer-term goal of integrating its individual bank holdings. That has led to speculation it may try to buy a regional bank.Additional reporting by Andrew Yeh

LOAD-DATE: September 1, 2005

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Financial Times (London, England)

September 3, 2005 Saturday
Asia Edition 1

SECTION: ASIA-PACIFIC; Pg. 4

LENGTH: 794 words

HEADLINE: From Friendship Hotel, a message of amity: A Beijing leader tells Richard McGregor why the rise of China will not threaten the west

BYLINE: By RICHARD MCGREGOR

BODY:


When Hu Jintao needed an emissary to take a message to US leaders ahead ofhis Washington visit next week, he dispatched ZhengBijian, a trusted colleague from the time the pair ran the Communist party's school inthe 1990s.

Mr Zheng is the architect of the "peaceful rise" theory, which contends that,unlike other rising nations in history, China will integrate with status quo powers rather than challenge them through war or other means.

Articulated to counter the "China threat" theory, Mr Zheng's musings have been elevated into high policy by the top leadership, who have used it to try to soothe growing concerns about the mainland's putative superpower status.

"China's rise is an entirely new phenomenon unseen in world history," says Mr Zheng, 72, a tall, courtly figure, in an interview at his office at the Friendship Hotel in the suburbs of Beijing.

"I understand why the western world is feeling so confused about the peaceful rise of China and why you cannot reach a consensus."

Mr Zheng received a reception worthy of his status in Washington in June, meeting top administration officials, including Condoleezza Rice, Robert Zoellick and Stephen Hadley, and delivering a speech to the Brookings Institution.

The chairman of the semi-official China Reform Forum since retiring from the party school, Mr Zheng rarely gives media interviews, preferring to propagate his views in public speeches and private meetings.

But his willingness to press his opinion in an interview with the Financial Times is evidence that Chinese leaders worry their message is not getting through in an increasingly hostile Washington.

His thesis rests on two pillars, that China's reforms in the past quarter of a century have delivered unprecedented prosperity to its people and also helped stabilise the world; but that it cannot sustain such development without a further deep integration with the global economy.

He pointedly compares China with other regimes that have risen to challenge the US, Britain and other western countries, such as Hitler's Germany, Hirohito's Japan and the former Soviet Union, only to be defeated or collapse. "China has rejected these above-mentioned countries because China emphasises win-win," he says. "China will never use violence to disturb the current economic order of the world. So you should have a different strategy for dealing with China."

The contrast with the former Soviet Union, which helped sow the seed of its later collapse in 1979 with the invasion of Afghanistan, the year China launched its market economy reforms, is especially instructive.

"The Chinese Communist party is not like the Communist party of the Soviet Union, hence our confidence in future prosperity."

Mr Zheng's reassurances are laced with the suggestion of dire consequences should the west oppose China's rise and sabotage its sovereign rights, including Taiwan and energy security.

"China is a new problem and you need to have a new way of thinking. Otherwise you might have a strategic misjudgment," he says.

At the same time China needs a peaceful external environment to handle its own dramatic internal challenges of economic management and wealth creation.

China faces catastrophic environmental and water problems; a restive rural population increasingly demanding that its rights be respected; and the job of managing the migration to cities of hundreds of millions of surplus agricultural workers.

"That means about 100m-200m young surplus labourers will have to have vocational training so they can find jobs in coming years," he says.

Mr Zheng's theory has been far from universally accepted within China, with many scholars criticising the theory for suggesting a dilution of Beijing's determination to use force if necessary to assert its claim over Taiwan.

"One does not restrain one's options," says Shen Dingli, of Fudan University, in Shanghai.

Yan Xuetong, a well-known Taiwan hawk at Tsinghua University in Beijing, says he "frequently uses the word 'rise' but I seldom use the term 'peaceful rise' ".

Mr Yan worries that the phrase underestimates the huge impact China's continued development will have on other countries. "China's growth is not like quick growth in Cambodia or some African country," he says. "It will change the world dramatically and I think the world should prepare for that."

Chinese leaders first began using the term "peaceful rise" in late 2003 and 2004, but then largely dropped it after a long internal debate.

Since then the phrase "peaceful development" has been preferred but, despite the semantic difference, its import is much the same as the original.

"I don't think you should suspect there is any political manoeuvring behind this phrase," says Mr Zheng, who has determinedly stuck with the term. Man in the News, Page 7

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Financial Times (London, England)

September 5, 2005 Monday
London Edition 3

SECTION: FRONT PAGE - FIRST SECTION; Pg. 1

LENGTH: 357 words

HEADLINE: Blair seeks end to farm export subsidies

BYLINE: By CHRISTOPHER ADAMS, BEN HALL and RICHARD MCGREGOR

DATELINE: LONDON and BEIJING

BODY:


Tony Blair has demanded an end to agricultural export subsidies in five years, warning today that failure to make progress at world trade talks in December could be "fatal" for the Doha round.

The prime minister, writing in the Financial Times, sets out an agenda on Africa, climate change and trade with the developing world that he hopes will form the basis for a round of international summits as he enters the final phase of Britain's chairmanship of the G8 and European Union.

Mr Blair, who was due to arrive in Beijing last night for talks between China and EU leaders, says developed countries have a "moral responsibility" to alleviate poverty by removing protectionist trade barriers.

His comments come amid a trade dispute between Beijing and the EU over cheap Chinese textile imports. Talks between the two sides ended yesterday with no agreement on how to release about 80m pieces of Chinese-made clothing impounded in European warehouses.

The inability to resolve the dispute after talks beginning early yesterday in Beijing and continuing late into the night is an embarrassment before today's EU-China leaders' summit in the Chinese capital.

In the FT, Mr Blair calls for a stronger dialogue with China and, apparently undeterred by the failure to agree on a date for ending export subsidies at July's Group of Eight nations summit in Gleneagles, predicts a wider deal on ending protectionism.

He urges World Trade Organisation members to agree at their talks in December to scrap export subsidies within five years.

"It should be possible at Hong Kong to set a deadline of 2010," Mr Blair says. "There is an enormous amount at stake. ... Failure to make progress could even be fatal for the trade round."

On poverty, Mr Blair says the G8 commitments on Africa at Gleneagles are a substantial step forward but that further action is needed. Looking to this month's United Nations summit in New York, he says progress towards meeting development goals to halve poverty and cut child mortality must be accelerated.

He also calls for a new global agreement on climate change that goes beyond 2012. Beijing ties, Page 5 Longer campaign, Page 17

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Financial Times (London, England)

September 5, 2005 Monday
London Edition 1

SECTION: BUSINESS LIFE; Pg. 10

LENGTH: 784 words

HEADLINE: Greenpeace takes soft line in China The environmental organisation finds legal and cultural barriers bar protest action, say Hugh Williamson and Richard McGregor

BYLINE: By RICHARD MCGREGOR and HUGH WILLIAMSON

BODY:


On his name card Lo Sze Ping identifies himself as Greenpeace's local "campaign director". In the adjacent Chinese characters, however, his job description is subtly altered to read "programme director".

The difference, although small, is crucial in allowing Greenpeace to operate in China, a country whose leaders frown on political debate and forbid any campaigns other than those overseen by the ruling Communist party.

"We have to operate in a reasonably safe political context," says Mr Lo, in an interview near Greenpeace's offices in central Beijing.

Greenpeace, whose calling card has been stunts aimed at embarrassing politicians and multinationals and drawing attention to its cause, learnt its lesson the hard way in China.

Two stunts by Greenpeace activists in Tiananmen Square in Beijing in 1995, protesting against China's nuclear tests, and in Shanghai in 1996, were both suppressed within minutes, backfiring badly, according to the non-governmental organisation's officials.

"This was a bad start, and created the impression that we were western imperialists," says Martin Baker, Greenpeace's Hong Kong-based communications manager for China.

This led to the adoption of softer tactics towards China. The opening of an office in Hong Kong in 1997 marked an attempt to establish a presence in the country, with Chinese staff.

A "small, low-profile Beijing office" focused on translating work followed in 2000, says Cheung Sze Pang, a campaign manager for China. The office was expanded in 2003. In 2004, Gerd Leipold, Greenpeace International executive director, secured a meeting with a state environment protection administration vice-minister, clearing the way for the organisation to build its presence in China.

Greenpeace's expansion in the country in recent years "has been faster than any international NGO before, and faster than any other Greenpeace office elsewhere", says Mr Cheung.

More than 30 staff now work in mainland China on climate and energy; forest protection; an anti-toxics campaign; and opposition to genetically modified food.

Mr Lo rejects criticism that Greenpeace has struck a Faustian pact with China by eschewing its usual protest tactics. "We are a radical organisation but we are always practical," he says.

Yang Ailun, who pursues climate and energy issues in Greenpeace's Guangzhou office, acknowledges that the organisation works differently in China.

"The tradition of Greenpeace direct action doesn't work in China," she says. "If you protest you're seen as being angry, and people think you have already failed (to achieve your goal)."

In her campaign she works with industry and lobbies international financial institutions such as the World Bank to direct funds to projects involving wind ener­gy, a natural power source.

Even with an established presence in the country, Greenpeace operates in a legal limbo. NGOs have no legal status in China. A draft law allowing them to register legally has been repeatedly delayed because some top leaders fear they could undermine one-party rule.

The authorities' suspicions grew after the "colour revolutions" that toppled governments in central Asia and the former Soviet Union. Chinese leaders, according to the local press, believe NGOs played a pivotal role in undermining these regimes. The central government is conducting a census of environmental NGOs to check their size and the scope of their activities.

Greenpeace operates in China through a contract with a consulting company; Mr Lo says it does not raise money or recruit members.

Other NGOs are also flourishing, especially in the fields of HIV/Aids and the environment, largely because their skills and expertise are sorely needed. "People have become more aware of their own problems and their own ability to do something about it," says Wan Yanqing, who runs an HIV/Aids NGO in Beijing.

In many parts of the country NGOs are increasingly welcomed. But equally, many officials remain wary or hostile. That means clever NGOs can forge powerful alliances, even as they make enemies.

Greenpeace, for example, has run a very public campaign against the logging practices of APP, Asia's largest pulp and paper company. It may have angered some officials in Hainan and Yunnan, the two provinces that are host to APP, but the campaign is in synch with the central government's broad ban on logging in native forests.

Mr Lo says there is "no reason" for Greenpeace to be "anti-government" in China, and points out that the country's policies on logging and diversifying its energy mix are far more progressive than those of the US. "The Bush administration hates us much more than the Chinese government does," he says. "Beijing knows we are not a puppet of the US."

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Financial Times (London, England)

September 5, 2005 Monday
London Edition 1

SECTION: WORLD NEWS; Pg. 5

LENGTH: 276 words

HEADLINE: Embarrassment as textile dispute reaches impasse

BYLINE: By RICHARD MCGREGOR

DATELINE: BEIJING

BODY:


The European Union and China have failed to agree on how to unblock the 80m pieces of Chinese-made clothing impounded in warehouses in Europe in a dispute over textile quotas.

The inability to resolve the dispute, after talks beginning early yesterday in Beijing and continuing late into the night, is an embarrassment before today's EU-China leaders' summit.

A spokesman for Peter Mandelson, the EU trade commissioner, said the two sides were "in the same place" after long talks. "This will lead to the unblocking of goods held at borders, but there are important aspects still to be resolved and discussions are continuing at an expert level."

The two sides had agreed earlier in the day on a set of principles to settle the dispute, but have not reached a detailed accord on how the 80m items of Chinese clothing will be juggled to keep intact a new quota system, negotiated in June. "It is about burden-sharing," said an EU official.

In June the EU and China agreed on increases in exports of 10-12 per cent for 10 categories of Chinese clothing. Nearly all those quotas for this year have now been filled, prompting the EU to impound clothing exceeding the quotas.

In a speech to European businessmen earlier in the day, Mr Mandelson urged Chinese leaders to take note of rising support for protectionism among the European general public. "We have some problems sometimes in Europe addressing public fears about the rise of China," he said. "It's a very political climate in which we are operating."

Mr Mandelson said that Chinese exports to the EU had grown 39 per cent in the first half of this year, whereas EU exports to China had only risen 2 per cent.

LOAD-DATE: September 4, 2005

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Financial Times (London, England)

September 5, 2005 Monday
London Edition 1

SECTION: EUROPE; Pg. 5

LENGTH: 548 words

HEADLINE: Blair to press for closer strategic ties with Beijing EU-CHINA SUMMIT:

BYLINE: By BEN HALL

DATELINE: BEIJING

BODY:


The European Union and China are to draft a detailed roadmap setting out what Beijing needs to do to acquire market economy status, a recognition that would make it harder for Brussels to block its exports.

Tony Blair, prime minister of Britain, which holds the rotating presidency of the EU, will discuss the plan with Hu Jintao, the Chinese president, and Wen Jiabao, premier, at the EU-China summit in Beijing today.

Mr Blair will be accompanied by Jose Manuel Barroso, the European Commission president, and Peter Mandelson, the trade commissioner, for the talks.

A joint declaration on climate change will also be signed, including the provision by the EU of a prototype for an environmentally sound coal-fired power station.

The UK has been pressing for China to be given market economy status in the hope this will encourage Beijing, already a commercial superpower, to shoulder more global responsibilities.

Writing in today's Financial Times, Mr Blair says: "It is clear that developed countries need to move quickly, not only to be competitive with, but also to strengthen their dialogue with, India and China and other emerging economies."

He also urges world leaders to use a meeting of the World Trade Organisation in Hong Kong in December to set a deadline of 2010 for ending agricultural export subsidies.

British and EU diplomats are looking for deeper co-operation with China on global governance, energy, migration and nuclear non-proliferation in a more "strategic" relationship that is not so easily soured by arguments over trade.

But the continuing dispute over cheap Chinese textile imports - with southern EU member states demanding no concession on this year's quota of clothing imports - suggests that longer-term goals may fall victim to a European protectionist backlash.

EU officials say the political climate is hardly conducive to an agreement that would open Europe's doors to yet more cheap Chinese goods.

EU diplomats rue the sense that Washington has been more adept in its diplomacy even though there are more serious underlying strains in the US-China relationship over Taiwan, exchange rate policy, trade and human rights.

Recognition as a market economy has been of paramount importance to China as it is the target of most EU and US anti-dumping measures.

As long as China has non-market economy status, Brussels can compare the export price of a Chinese product with that of third countries rather than deciding whether China was selling below cost.

European business groups have been lobbying against the move, arguing that Beijing first needs to make progress in reforming its financial markets and five other areas.

The European Commission has also judged that China does not meet the criteria for a market economy and has said it should be awarded on technical grounds.

But a senior UK diplomat said: "It depends how legalistic you are. It is not an evidence-free zone but it is a question of taking an overview."

The EU granted market economy status to Russia in 2002, a move regarded as political because Russia was not a member of the World Trade Organisation.

Mr Blair will use the visit to China, and to India on Wednesday and Thursday, to show that the two countries offer a commercial opportunity rather than a threat. Tony Blair's long campaign, Page 17

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Financial Times (London, England)

September 6, 2005 Tuesday
London Edition 2

SECTION: ASIA-PACIFIC & INTERNATIONAL ECONOMY; Pg. 12

LENGTH: 656 words

HEADLINE: Textile quota setbacks point to streamlining for Chinese industry: Less competitive manufacturers will be weeded out, writes Alexandra Harney

BYLINE: By ALEXANDRA HARNEY

BODY:


Down a pocked and dusty road lined with makeshift cafes and crumbling brick buildings, Huang Chaohong marvels at the peculiarities of world trade.

Last year, a flood of executives from UK retailers washed up at the gates of his garment factory in Guangzhou, eager to take advantage of the end of the decades-old quota system on January 1 2005 by sourcing more from China.

The appetite of the executives from Debenhams and elsewhere so impressed Mr Huang and his colleagues that they drew up a Rmb20m (Dollars 2.5m, Euros 2m, Pounds 1.3m) plan to double the capacity of their plant. An additional 200 workers were hired, increasing the factory's shopfloor headcount by a third.

"We were very happy," says Mr Huang, surrounded by multi-coloured clothing samples in his office. "We thought there would be no quotas after China entered the World Trade Organisation. And it wasn't only us - our international customers felt the same way."

How wrong they were. European and Chinese negotiators' June agreement to limit Chinese growth in textile exports by imposing a set of quotas left millions of Chinese-made garments stranded at European ports.

Women's blouses, jackets and shirts made at Mr Huang's factory, owned by a Chinese-Hong Kong joint venture called Suntex Garment Manufacturing, are among them. One container of clothing has already returned after failing to reach European stores.

There are fewer phone calls from UK retailers these days. Mr Huang, whose customers include Next and Marks & Spencer, expects to ship his last container of goods under quota to Europe this month. Then he will have to wait for next year's allocation.

China and the European Commission announced yesterday an agreement on how to resolve the problem of the stranded garments, ending protracted negotiation.

Last week, Beijing failed to reach a deal to manage growth in its textile and apparel exports to the US. The US then moved to restrict imports of Chinese-made bras and some synthetic filament fabric.

EU and US attempts to rein in China's textile and clothing industry have inconvenienced some producers, but they are unlikely to put the best of them out of business. It might even make them stronger.

While smaller, low-end producers may suffer as a result of the quotas, the most competitive Chinese textile and apparel-makers will find new customers and markets for their goods.

"There will be fewer players, but that doesn't mean we will make less money," says Mr Huang.

Suntex executives briefly considered shifting production to Hong Kong or Macao, which are part of China but separate customs territories.

Discouraged by the shorter working hours and higher wages in the former British and Portuguese colonies - which would have added at least 15 per cent to its costs - Suntex decided to stay put in Guangzhou.

Plans for expansion were put aside. The future of some of the new workers is in doubt. But nobody is being fired yet, since Suntex has taken on a big new customer. Decathlon of France has tapped the factory to make some of its sportswear - goods which are not restricted by the EU quotas - Mr Huang says.

Suntex, which has been paid for the goods stranded in Europe, is also supplying customers such as Esprit, the Hong Kong retailer, in China.

Many Chinese textile manufacturers are moving production to south-east Asia, extending their reach deeper into the region, or shifting their attention to the local market. Those lucky enough to get a quota allocation, such as Suntex, will continue to supply European customers.

Those that are not so competitive will be weeded out. Mr Huang has watched the rise of aggressive, low-quality producers in eastern China this year with dismay. But he believes officials in Beijing are concerned about these companies, too.

"The Chinese government wants to restructure this market and kick out the low-priced, low-quality players," he says. "They just waste energy and resources." Editorial Comment, Page 18

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LexisNexis(TM) Academic - Document

LexisNexis(TM) Academic - Document: "Financial Times (London, England)

September 6, 2005 Tuesday
London Edition 1

SECTION: LEX COLUMN; Pg. 20

LENGTH: 240 words

HEADLINE: Chinese textiles THE LEX COLUMN:

BODY:


China and the European Union have negotiated a ceasefire in the great bra war. That much is good news. With protectionist sentiment on the rise, yet more tensions on textile trade are the last thing a vulnerable world economy needs.

But even Peter Mandelson, EU trade commissioner, will struggle to spin the latest textile deal as a yarn of success. The prospect of millions of Chinese garments impounded in warehouses finally landing in shops is heartening. However, it serves as a reminder of why commitments to limit the growth rate of Chinese exports were a bad idea in the first place.

Like other trade restrictions, such agreements restrict consumer choice and increase prices. But unlike, say, tariffs, they bolster producer profits rather than excise revenues in importing countries. For example, Japanese carmakers did no worse after agreeing to voluntary export restraints with the US in the 1980s. For their American rivals, the windfall profits delayed the day of reckoning. Consumers picked up the tab. The same is true of textiles, with the crucial difference that there are many more buyers and sellers. That makes managing export and import licences an administrative nightmare, which the EU has compounded by, in effect, backdating the original agreement. It is sometimes said that a good bra is more supportive than most boyfriends. Sadly, the same remains true for the commitments of EU trade officials to prop up free trade."

LexisNexis(TM) Academic - Document

Financial Times (London, England)

September 6, 2005 Tuesday
London Edition 1

SECTION: LEADER; Pg. 18

LENGTH: 471 words

HEADLINE: A sordid textiles deal The EU-China agreement is a victory only for expediency

BODY:


So, it appears, a deal has been done to untangle the textile quota mess between the European Union and China. Barring an even more spectacular degree of pigheadedness from the EU member states than hitherto, the blocked bras will be released from warehouses and some of next year's Chinese import quota reduced in turn.

The shelves will be full for the autumn season. Europe's garment producers will be happy. The deal is a great success for European trade diplomacy and everyone wins. Everyone, that is, except the retailers that will be forced to switch their clothing sourcing for next year to less efficient producers, the European consumers who will end up paying for it and, most importantly, the battered and beleaguered principle of free trade.

Arguments against striking deals like this do not lose one iota of their force just because a sordid short-term fix gets the issue off the front pages barely in time for this week's EU-China summit. Delaying the world's best textile producer from capturing its fair share of the market was a bad idea then and remains one now.

It is particularly worrying how shallow is the support for real free trade, as opposed to the ineptly managed version, in Europe. "Free trade is right but you have got to get there in stages," Tony Blair, who makes a big deal out of banging the drum for economic liberalism in the EU, told the BBC yesterday. "It is not unreasonable for some of those people who are producers in Europe to say: we have our own interests in this process of transition."

In fact, those producers had a full decade of warning that the quotas were coming to an end, for at least the last three years of which China's competitiveness in textiles was evident. And Mr Blair's words should ring particularly hollow with the UK's own textile companies, many of whom have done a good and prescient job of restructuring themselves into high-end specialist manufacturers or design and distribution houses. They will now suffer next year from lack of access to low-cost Chinese production, as will European retailers.

Moreover, the entire episode has fed a belief in the developing world that the rules of free trade are there to be changed by the rich countries if it is politically expedient. Often this charge is not true: the World Trade Organisation is one of the few multilateral organisations where small poor countries can force large rich nations to change policy through litigation. But sometimes it is. And mid-course corrections like these send a terrible message to the other members of the WTO who are being asked to offer up politically difficult cuts in tariffs as part of the troubled Doha round.

Yesterday's agreement was a victory for news management and little else. No one who cares about efficiency, fairness and the future of free trade should be celebrating.

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LexisNexis(TM) Academic - Document

Copyright 2005 The Financial Times Limited
Financial Times (London, England)

September 6, 2005 Tuesday
Europe Edition 1

SECTION: FRONT PAGE - FIRST SECTION; Pg. 1

LENGTH: 536 words

HEADLINE: China-EU near import deal

BYLINE: By BEN HALL and GEORGE PARKER

DATELINE: BEIJING and BRUSSELS

BODY:


* Half impounded garments to be waved through

* Decision marks softening of Beijing's stance

* Member states still to approve agreement

China and the European Commission yesterday struck an eleventh-hour agreement to end their dispute about imports of cheap Chinese textiles, but EU member states have yet to approve it.

After marathon talks in Beijing stretching into the early hours of Monday morning, Peter Mandelson, EU trade commissioner, and Bo Xilai, his Chinese counterpart, agreed to release Chinese garments impounded at Europe's ports "as soon as possible".

Mr Mandelson said the two sides had agreed to "sensible, reasonable, burden-sharing" regarding the fate of 77m

Chinese sweaters, trousers and bras impounded at the EU's borders.

The Commission proposes to wave through half of the impounded garments. China accepted that the rest would be deducted either from its 2006 textile quota, or switched to other unfilled-quota categories.

The decision marked a softening of China's stance. Trade officials from the EU's 25 member states will today consider whether it goes far enough.

Mr Mandelson hopes the agreement will be approved by EU textile producing countries such as France, Spain and Italy, even though it means allowing into the shops 38m unlicensed Chinese garments, ordered by retailers "in good faith" but which fell foul of quotas agreed on June 10.

The EU has already allowed in 135m Chinese pullovers given import licences in a frenetic period between June 10 and July 12, when the new quotas came into force. The agreed pullover quota for 2005 was 69m.

The textile dispute overshadowed an EU-China summit in Beijing, where Tony Blair, who holds the rotating EU presidency, argued the west should welcome China's economic rise.

After talks with Hu Jintao, China's president, and Wen Jiabao, Chinese premier, Mr Blair said further trade liberalisation was inevitable and that Europe should see China's booming economy as an opportunity not a threat.

"There is, of course, a case for managing change," the prime minister said. "What there is not a case for is resisting change."

Mr Blair and his Chinese counterparts characterised the textiles dispute as a minor irritant in a flourishing EU-China relationship.

But it reflects Europe's difficulty in developing deeper political ties with the emerging superpower, notwithstanding an agreement to co-operate more closely on climate change reached yesterday.

Mr Mandelson, who resisted reintroduction of quotas on China in June, said that this time the EU needed to take greater care in managing the textile quotas and would have to step up contact with importers and producers. The measures were aimed at "smoothing a transition to a period when there are no quotas at all".

Sir Digby Jones, director general of UK employers organisation the CBI, said borrowing from next year's quota to satisfy consumer demand was no long-term solution.

"The real answer is to allow access to the EU for goods produced in China and for EU producers to adapt to the competitive challenge," he said.

"Quotas, agreed or otherwise, are not the way for the developed world to deal with globalisation." Streamlining China's industry, Page 5 Editorial Comment, Page 13 Lex, Page 16

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