Shipments have been stranded in Asia, and retailers say newly affordable lines such as silk blouses and boxer shorts could disappear from the shops. 'It really is very worrying. Some small businesses could go under,' said Emma Ormond, textile specialist with Coopers & Lybrand.
Last week, the Department of Trade and Industry decided the situation in Brussels was so confused that a 'legal vacuum' existed and that it would issue limited licences on its own authority. 'It's a start, but it's still wholly unsatisfactory,' Ms Ormond said.
The European Commission decided on 10 March to restrict imports of Chinese silk, linen and ramie (a kind of cheap linen) products to 20,000 tonnes, 8,000 tonnes higher than the 1992 level. The move was part of the single market plan to replace national restrictions with EU-wide measures, but was widely seen as an attempt to protect European producers from cheaper Chinese goods.
Importers throughout Europe were asked to register for licences, and it soon became clear there was massive oversubscription. Silk products were worst hit, with up to 30 times the quota being requested by importers.
This was partly because the Commission's base figures were wrong, as it now admits, but mainly because the quota did not take account of the recent massive boom in demand, which has been fuelled by the low cost of Chinese material. The industry believes demand last year was at least three times higher than in 1992, as silk moved from the luxury to medium-priced racks.
The Commission demanded more information to sort out its statistics, saying that no licences could be issued in the meantime. Meanwhile, supplies have been piling up on the quaysides of ports in China and Hong Kong. 'It is extraordinary not to allow contracts to be performed which had been entered into in good faith,' said Richard Dixon, Storehouse's head of corporate affairs.
By the end of last week Storehouse, whose BhS subsidiary has been riding the cheap silk boom, had more than pounds 4m worth of goods trapped in Asia.
The worst-hit companies, however, were those importers or companies that did not use intermediaries to buy from China. They had issued irrevocable letters of credit that would be triggered as soon as the product was dispatched. If they let suppliers ship, they would have to pay but the goods would not be allowed into Europe. If they told them to hold the product back, they would be liable to pay penalties for failing to honour their contracts.
On Wednesday the DTI, which says it has been 'trying to get the Commission to address the problem of over-application for quotas', decided to issue a limited number of licences which should, Ms Ormond said, at least allow many of the trapped consignments to be shipped.
The EC is holding another meeting today to discuss the situation.
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