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Last Updated: Monday, 30 May, 2005, 16:09 GMT 17:09 UK
China ups stakes in textiles row
Chinese textile shop
China's textile industry is booming, helped by cheap labour
China is to scrap export tariffs on 78 categories of clothing and textiles in an apparent escalation of a trade dispute with the US and European Union.

Beijing introduced the tariffs to try to control burgeoning Chinese clothing exports, but the EU and US still say too many such goods are being exported.

With the EU now threatening to limit imports of such Chinese items, it appears that China is now retaliating.

The US has already brought in limits on Chinese textile and clothing imports.

Washington made the move on 14 May against Chinese cotton trousers, cotton shirts and underwear. The EU on Friday asked for formal talks with Beijing over two types of Chinese clothing and textiles - flax yarn and T-shirts.

On Monday, the EU's executive commission insisted that it had grounds to act to stem the flood of Chinese imports and rejected China's claims that there was no evidence to justify the complaints.

Global deregulation

Under World Trade Organization rules, the US and EU can limit annual imports of Chinese clothing and textiles to a maximum of 7.5% more than the levels seen between March 2004 and February 2005.

If countries take action to limit textile product exports from China, we will exclude those products from the export tariffs
Chinese commerce ministry spokesman

Both the US and EU can evoke this 7.5% "safeguard rule" until 2008.

The EU can now bring in the 7.5% level if no agreement can be reached with China within 90 days of the start of talks on Monday.

The origins of this trade dispute between China on the one hand and the US and EU on the other was the end of a 30-year global agreement on clothing and textile exports on 1 January.

Under the old Multi-Fibre Agreement, countries had annual limits on the amount of clothing and textiles they could sell abroad.

Thanks to China's burgeoning economy and low costs, it was inevitable that exports of such Chinese goods would boom following the end of the global quotas.

But to try to at least control this growth, Beijing in January brought in export tariffs on 78 clothing and textiles goods.

It also announced on 20 May that tariffs would be introduced on another 74 lines from 1 June, responding to continuing US and EU complaints.

'Chinese interests'

Yet Beijing has now apparently performed an about-turn, saying that the 78 tariffs introduced at the start of the year would now be scrapped and that three of the proposed additional tariffs would now not be introduced.

"In total, 81 items will see export tariffs cancelled from June 1," China's finance ministry said in a statement.

Beijing had warned earlier this month that such a move was possible.

"If countries take action to limit textile product exports from China, we will exclude those products from the export tariffs," commerce ministry spokesman Chong Quan said on May 21.

On Sunday, Mr Chong also attacked the EU's threat of import limits.

"The decision not only transmitted an erroneous signal of trade protectionism for the textile industry sector of the EU, but also undermined the rights and interests of Chinese enterprises in global textile products trade integration," he said.

How the dispute over textiles has escalated

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