China has said it is abolishing export duties on 81 categories of its own textile products. The move has escalated tensions with the European Union and United States, which have set new curbs on Chinese textile imports.
Textile exports from China have skyrocketed
In an abrupt turnaround, Beijing's finance ministry on Monday said it was revoking a decision made only ten days ago to impose export taxes on textile and clothing products. The move follows decisions by the European Union and United States to limit imports after a steep surge in shipments this year.
The US has imposed import quotas on seven categories of Chinese textile goods, insisting that China's exports benefit unfairly from its undervalued currency, the yuan, and low labor costs.
The EU is seeking formal talks with Beijing over exports of flax yard and T-shirts, bringing it a step closer to imposing limits.
EU Trade Commissioner Peter Mandelson, right, with Chinese Minister of Commerce Bo Xilai
"If the EU and US disregard the important measures and policies the Chinese government has taken and decide to impose restrictive measures over Chinese textile products, then as a response ... we will also adjust our own policy," said China's Commerce Minister, Bo Xilai.
Jump in exports
Since the beginning of the year, when the global quota system on clothing and textiles was abolished, China had imposed duties of between two and four percent on 148 types of textile goods to limit the impact on it trading partners.
But the tariffs have had little effect and Chinese textile exports jumped 29 percent in the first three months of this year. EU figures show imports of Chinese T-shirts rose 187 percent in the first quarter of 2005. International pressure has been mounting on Beijing to do more to stem the flood.
To appease concerns in Brussels and Washington, China announced on May 20 that it would raise duties in 74 categories beginning June 1. But Beijing has been angered by calls to curb its exports, saying that the EU and US both knew the quota system would end under a 1995 agreement and so had no one to blame but themselves for not being prepared.
"If developed countries had eliminated their textile quota restrictions step by step, the surge in Chinese textile exports to their markets this year would have been avoided," Bo said.
Harsh words, but still talking
China argues that the actions undercut the very principles of free trade being promoted by Washington and Brussels and are a threat to global trade liberalization efforts. Over the weekend, China's Commerce Ministry blasted the EU as protectionist.
Under World Trade Organization rules, China is supposed to take steps to drastically cut exports of two types of clothing. If it fails to do this, Brussels is entitled to impose its own limits that can be renewed until the end of 2008.
Despite the coarse tone coming from Beijing, the Chinese Commerce Ministry suggested on Monday that everything was open to negotiation. US Commerce Secretary Carlos Gutierrez is due in Beijing this week to discuss the matter.
The European Union said Monday it was "surprised" by China's decision to scrap concessions meant to avert a trade war over textiles, but appealed to Beijing to continue talks.
"When we heard of that (Chinese action) we were surprised," said EU spokeswoman Claude Veron-Reville. "We are still willing to discuss, to negotiate, to a mutually satisfactory settlement."