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Solve Trade Disputes via Dialogue

The final China-EU agreement on textile trade hammered out late on June 10 is proof that bilateral trade and other relations between the two hugely important economies are capable of cruising ahead despite frequent friction and setbacks.


The mutually acceptable agreement on China's textile exports to the EU not only avoided a trade war at the 11th hour, but set the tune for solving China-EU trade disputes, that is, through co-operation, but not confrontation.


This was also the conclusion of experts and trade officials from both sides, who are confident of the long-term prospects of relations between China and the EU.


"The textile row represents only a small amount of friction and will not cloud a positive future for China-EU trade," Zhou Shijian, standing council member of the China Association of International Trade, said at the Sino-EU Trade Forum 2005 held in Beijing last week.


Thirty years ago when China and the EU established diplomatic relations, bilateral trade was only US$2.4 billion. Now it stands at US$177.3 billion per year. China has become the EU's second largest trading partner while the EU was China's largest trading partner last year - and this was not due to the enlargement of the bloc, but "principally due to growth trends that had been present for quite some time," according to Serge Abou, ambassador of the EU's Delegation of the European Commission to China.


The two sides have also engaged in a broad spectrum of co-operation from the environment to space technology, a typical example of which is China's involvement in the EU's Galileo satellite navigation system.


The close business ties and co-operation in other fields mean that China-EU trade disputes should be seen from a wider perspective.


"The two sides face some challenges given their different historical backgrounds, social systems and development stages," said Zhao Jun, head of the European Division of the Ministry of Foreign Affairs. "Both, however, would like to further push forward their economic and trade relations on the basis of the last 30 years of development," Zhao added at the forum held by the Chinese People's Institute of Foreign Affairs, World Affairs magazine and the EU's Delegation of the European Commission to China.


The textile issue directly affects vast number of jobs on both sides. The EU claims it must care for its 2.5 million textile workers, while in China, the fate of 19 million workers also hinges on a sound international trade environment. But confrontation is not the answer, and the compromise reached is in the interests of both sides since trade disputes should not be allowed to derail overall China-EU trade relations.


First of all, the textile products involved in the current trade disputes are not of strategic significance to bilateral trade, let alone bilateral relations.


They only account for 2.2 billion euros (US$2.6 billion) of total bilateral textile trade per year, a fraction of the total textile exports to the EU at 15 billion euros (US$18.2 billion).


"And of course, they (textiles) are far from approaching the total Chinese exports to the EU," said Abou. "Textiles themselves are only a small part of our (China-EU) trade and trade itself is only one part of our strategic relationship."


Apart from trade, investment and science and technology are two other pillars of the Sino-EU relationship.


The EU is China's fourth largest source of foreign investment. Last year, the EU's contractual investment in China was US$8.36 billion. Although this figure was dwarfed by funds coming from the United States and Japan, inbound EU investment registered the fastest growth.


In terms of co-operation, the two sides have created a network of dialogue and collaboration in more than 20 fields, such as tourism, education, the environment, industrial standards, energy, intellectual property rights, anti-terrorism, poverty reduction and the fight against cross-border crime.


All this is set to bring about sustainable momentum for the improvement of Sino-EU trade and other relations, a momentum not easily reversed by short-term trade friction.


And though trade friction may hurt, it cannot alter the long-term course of bilateral relations.


In China's case, it needs to open its market wider to EU products to redress the EU trade deficit with the country.


And more importantly, the EU should better understand the World Trade Organization (WTO) principle of free trade.


Thanks to its inexpensive and relatively skilled labour, China has comparative advantages in labour-intensive sectors, including textiles.


This is the root cause of the current China-EU trade situation. China's labour force is not an affront to WTO principles. Bringing out the potential advantages of different traders' labour forces benefits the world as a whole.


"However, it is often seen that Western economies uphold the banner of free trade to facilitate the export of their products. But in cases where they do not have the comparative advantage, they impose limits and quotas on imports," said Zhou Shijian, "and this is unfair." The current China-EU textile trade imbalance may only be temporary, said Zhou.


The elimination at the start of the year of the EU's previous quota system led to a rapid increase in EU textile imports from China a natural consequence of the removal of quotas. From January to April, the growth rate was 45 per cent year-on-year.


However, this situation is unlikely to remain. "Seen from statistics of the whole year, China's textile exports to the EU will predictably remain stable," said Zhou.


This would make the EU claim of unfair trade with China groundless.


The EU's stance may have also arisen from political considerations, Zhou said.


Chinese clothes took a 10 per cent share of the EU's market in 2003, less than that of Turkey and some Eastern European countries. The EU wants to protect the textile industries of those countries to reduce illegal immigration into developed EU member states, Zhou said.


Abou admitted that the EU could not ignore the interests of "our neighbouring countries whose development and even stability are highly dependent on the access (of their textile products) to our market."


He suggested that trade disputes should be handled "through dialogue and co-operation, but not by imposing unilateral measures."


And it was this thinking that led to the recent bilateral trade agreement.


(China Daily June 17, 2005)


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