Europe is sleepwalking towards a trade war with China, warn UK retailers

Europe is "sleepwalking" into a multi-billion pound trade war with China on the back of a groundswell of protectionism among Continental industries struggling to compete with low-price imports, British companies are warning.

In a week's time, a committee of technocrats holds a private meeting in Brussels to recommend whether the European Union pull up the drawbridge to low-cost imported Chinese shoes. If it does, it could open the door to a flood of similar complaints by European manufacturers of everything from plastic bags and sports trainers through to tungsten filaments and recordable CDs.

More importantly, it will fuel concerns that Fortress Europe is prepared to do anything to protect ailing industries against the clear and present danger from low-wage manufacturers in the world's most populous - and largest totalitarian - country.

The issues involved cut across all key issues raised by globalisation - poor countries' access to markets in the richer nations, allegations of "slave labour" conditions and the elimination of whole industries in the face of competition.

The impact could be to put up prices across the board. One charity has warned that a plastic bag tax would wipe £300,000 off the income its shops generate. Alisdair Gray, European director of the British Retail Consortium, said: "Why are we having to pay the price for when it is about a political issue in another country? Sleepwalking into a trade war is the best way to put it."

Following the 24 February meeting, the first major decision for Europe's politicians is on 9 March, when they are expected to decide whether to impose tariffs or quotas on leather footwear. If they give the green light then measures - currently thought to be a 30 per cent tax - would take effect from 23 March.

UK retailers argue that such a move would add £5 to the average price of a pair of shoes on the high street. Along with importers, wholesalers and consumer groups, they claim Western manufacturers are desperately trying to protect unviable industries and leave consumers nursing the cost in higher prices.

Diane Coyle, an advocate for free trade and managing director of Enlightenment Economics, said China's "trade-fuelled growth" was creating a vast new market for UK exporters. "It's very depressing to see politicians failing to make the point that trade between Europe and China is mutually beneficial despite the competitive threat it poses to some companies," she said. "If the EU decides to protect special interests like Italian shoe manufacturers, it will harm the interests of not only consumers, but also all the other businesses who benefit from Chinese imports keeping costs down and Chinese markets for their goods and services."

Manufacturers say that they need space to help adjust in the face of a massive shift that, unprotected, could lead to hundreds of thousands of job losses.

The floodgates opened in January last year when a three-year-old quota system on textiles and shoes was lifted following China's accession to the World Trade Organisation, the rules-based body that oversees world commerce. China's sales of shoes to Europe jumped eight-fold immediately after the quotas ended but have since slowed to around a fourfold increase.

Manufacturers are up in arms, led by the Italians, who took out advertisements in European newspapers to urge Mr Mandelson to take "firm, bold and swift" action. ANCI, the Italian trade body, says 600,000 jobs are directly or indirectly connected to the industry, adding that 75,000 were axed last year alone. However, critics say Italian companies have struck their own deals for low-cost production in North Africa and Eastern Europe. "It's all a bit hypocritical," said a senior adviser to a UK retail group.

Although footwear is a high-profile case, plastic bags could have an even larger impact on the UK economy. Fifteen retailers signed a letter to Mr Mandelson urging him to "halt immediately" his investigation.

The BRC it would cost the four major supermarkets £60m to absorb duty placed on carrier bags and fruit and vegetable bags. It would mean higher prices, or fewer staff, or lower profits.

One signatory, the Association of Charity Shops, said plastic bags were crucial to their work in collecting goods and recycling what they could not sell.

According to the accountants Deloitte, Brussels is planning an investigation into ceramic tableware, kitchenware and toilet articles. "We recommend importers prepare their defence before the actual investigation is initiated," it said.

If the dispute escalates, China could retaliate, cutting big-ticket imports such as infrastructure, factory equipment and Airbus aircraft at a key time in the company's battle for dominance with Boeing. But Brussels denied was taking part in a protectionist drive. A spokesman for Mr Mandelson said: "Whenever we talk about demand for protection from certain countries, as far as the Commission is concerned the issue of anti-dumping is a technical one.

"It is about determining whether unfair trade is taking place and whether it is in European interests to use the most restrained way possible to return markets to free and fair competition."