Textile exports may get tariff hit
Exclusion from preferential tariffs will not have a big impact on China's textile exports to the European Union, experts said. But they still called on companies to improve their products and expand to other countries.
The European Commission, the executive arm of EU, accepted on Wednesday a reform proposal of the Generalized System of Preferences (GSP), which will exclude Chinese clothing and textiles from the bloc's preferential tariff scheme.
The new version of the GSP, which aims to ensure that the world's poorest nations benefit most, said countries that hold more than 15 per cent of EU market share in any industry will lose their GSP position.
Tighter restrictions will apply in textiles, where a ceiling of 12.5 per cent market share will be set.
Under the current system, the graduation looks at growth rather than the lion's share.
Chinese textiles and clothes currently have a 30 per cent market share in the EU market, which means it will not be able to enjoy the new GSP. The new system, if approved, would be in force from 2006 to 2008.
The proposal still needs approval from EU member governments and the European Parliament.
Unveiling the generalized system of preferences, EU trade commissioner Pascal Lamy said on Wednesday that for products like shirts China would see a duty increase of about 3 percentage points.
"Three per cent is not going to make a whole heap of difference to them, the Chinese, but it will possibly allow Bangladesh or Pakistan or India indeed... to get a foothold," Lamy said.
The upcoming abolition of textile quotas may be another driver behind the lifting of GSP.
With the textile quotas being removed at the end of the year, EU's trade officials expect a surge in shipments from China.
EU officials confirmed that the end of quotas cannot be re-negotiated. However, they believed there could be some flexibility in order to help other developing countries.
For example, the future GSP regime is one such area where flexibility could prevail in their favour.
In response, Chinese Foreign Ministry spokeswoman Zhang Qiyue said in a regular media briefing yesterday that the integration of textile trade is beneficial to all the countries and every country should make a contribution to its implementation.
She said the quota abolition is an important outcome of the Uruguay round of multi-lateral talks after long and strenuous negotiations.
No country should set new obstacles in carrying out the textile integration, she added.
Industry insiders said Chinese exporters should not be too worried about the possible removal from GSP list.
Some manufacturers, who run by low prices and large quantities, will suffer, even if the tariff rate will be increased by only 3 percentage points, said Yang Kun, an official from the Chinese Textile Industry Association.
But the competitive advantage of Chinese textile producers vis-a-vis their EU counterparts far outweighs the benefits that may be lost by the reformed GSP scheme, he said.
However, he still suggested Chinese producers should focus efforts on increasing the competitiveness of their products, in particular, the high quality.
"And the textile producers can move part of their production to other developing countries which still enjoy the GSP, which will benefit both the destinations and themselves," he said.
GSP provides benefits to developing countries by enabling qualified products to enter the markets of preference at reduced or free rates of duty.
The GSP reform will increase the average tariff rate for Chinese textile to about 12 per cent from the current 9 per cent.
China is currently the biggest beneficiary of the EU system, accounting for about 33 per cent of imports to the 25-nation bloc under the scheme while India is in second place at 11 per cent.
Six categories of products, including edible products of animal origin, plastics and rubber, paper, optical and clocks, electro-mechanics, and consumer electronics have graduated from the GSP this May.