Ten years to plan for trade changes, and still EU failed to prepare

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The Independent Online

A: In January, the 30-year-old international Multi-Fibre Agreement (MFA), which had limited the number of textile imports from developing countries into Europe and the United States to protect domestic manufacturing, was scrapped as part of worldwide trade liberalisation. Hundreds of suppliers switched their operations to China because of cheaper manufacturing costs, which led to a huge increase in exports from that country and the closure of factories in developing countries but also, and more importantly for the EU, the loss of jobs in Italy and France.

In July, the EU decided to impose import quotas on Chinese, but by then many of the retailers had already placed orders, meaning the goods are made up but cannot come into European ports.

Q: Is the EU allowed to impose quotas in this way?

A: Yes. As part of China's accession agreement to the World Trade Organisation (WTO), both the EU and the US are allowed to impose quotas if imports from China increase by more than 7.5 per cent per year.

Q: If the rules provided for the imposition of import quotas, how did the situation become so chaotic?

A: Greed and lack of foresight. Retailers and governments have had 10 years to prepare for the scrapping of the MFA, but instead of the phased implementation advocated by the poorer countries, charities and unions, it was simply lifted from 1 January. Some observers have accused the fashion industry of "acting like lemmings", as so many retailers immediately switched their supply chain to China to take advantage of cheaper costs without considering the long-term consequences. Retailers say that they had no idea the EU would react in such a protectionist way, particularly when the West has demanded that developing countries lift their own import quotas and liberalise trade.

Q: What companies are affected?

A: Most of the big high street names, although they are trying to play down the crisis to prevent falls in share prices.

Marks and Spencer, which has a 25 per cent share of the UK lingerie market, is believed to be experiencing problems with 10 per cent of its bras, while Next, BHS and H&M gave all been affected.

Q: What will happen to the backlog of clothes?

A: EU and Chinese officials are locked into talks, but it seems likely that the goods will eventually be allowed in by "borrowing" capacity from the 2006 quotas and switching future contracts back to other countries

Q: What does this mean for consumers?

A: Retailers say that if the impasse is not resolved, their profits will be hit and prices will have to rise.

Q: But if the quotas mean that contracts switch back to other countries, isn't that good for them?

A: Not necessarily. Countries such as Bangladesh are desperate to recapture their trade and are now trying to undercut China in order to win back more trade than just the above-quota supplies.

Wages are being cut and working hours increased.

In turn, China is trying to reduce costs even more, so that the pay and conditions of some garment workers - most of them young women - is becoming worse.

Q: What does China say about all this?

A: China had acceded to the import quotas when it joined the WTO, but believes that the current agreement is flawed and restrictive. The import quotas can be imposed until 2008, but then there will be pressure from China for them to be lifted.

Q: So what is the solution?

A: Unions and charities say that retailers should act more responsibly by spreading their operations across China and other countries and paying a decent wage to workers as well as easing the pressure on suppliers to slash costs.

But they say that consumers must also play a part, by thinking about the consequences of cut-price clothes and voting with their wallets when it comes to buying fairly priced goods.