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Will Textile Dispute Lead to Trade War?

Certain ambivalent signs showed in May for Chinese textile producers and traders amid trade tensions. Their colleagues in the United State and European Union also hold their breath to see what will happen.  

As the US and the EU turned blind eyes to the voluntary measures adopted by the Chinese government to impose export tariffs, China announced on Monday it would abolish export tariffs on 81 categories of textile products starting from June 1.


The textile trade friction has the possibility to scale up into a trade war. And any trade war is hurting all parties involved. But experts in Beijing predict that it is still too early to come to worrisome conclusions.


"Though the three parties appear to be tough, the trade dispute is far from a trade war," said Zhang Hanlin, director of the Research Institute on the World Trade Organization with China's University of International Business and Economics.


The well-known expert in international trade explained that "trade war" must comply with at least three standards: parties in dispute are resistant to each other in the trade issue and show vengeful behavior; retaliation extends to a wider area; and parties in dispute ignore WTO rules.


"The current textile trade friction has not come to that stage," said Zhang.


Fu Mengzi, an expert of American studies with China Research Institute of International Relations, said the trade tension might get worse, yet more time is needed to say whether it will lead to trade war.


The Chinese government is defending the principles of free trade in abolishing export tariffs on 81 categories of textile products, which is also a defense of its legitimate interests and cannot be considered a vengeful action, said Fu.


Restrictions on textile products by the US and the EU brought huge pressure on China's textile industry as the marginal profit of the industry has become very small due to heated competition in the global market, the expert said.


"The government has an obligation to support those companies in difficulty and to create a fair and reasonable trade environment for them," Fu said.


Analysts said despite tough stances from the tree parties, they are not closed to negotiations.


On May 30, Minister of Commerce Bo Xilai gave a full illustration of China's stance at a two-hour press conference, saying that the restrictive measures by the US and the EU were "groundless," "unreasonable" and "rash."


Yet, China is still willing to handle the textile trade issue through serious negotiations, said the minister.


Bo said frankly that China's textile companies, facing unfair treatment, have demanded the government take vengeful measures. "Their displeasure is understandable, but we may not take 'revenge' as Sino-US and Sino-EU trade and economic cooperation lies in a very wide area."


EU Trade Commissioner Peter Mandelson was optimistic that the EU and China may solve the trade dispute over textile products through negotiation. He said the EU is seeking for a "negotiated solution in a comprehensive way."


None of the tree parties is willing to see a trade war and it is a wise choice to end disputes and return to the negotiation table, experts agreed.


The US and the EU should take the whole industry into consideration. Textile products only account for less than 10 percent of trade between China and the US as well as the EU.


If the trade dispute on textiles deteriorates further, the global trade system could be hurt, which is not good to balance benefits between developed countries and developing countries, said Zhang.


The expert predicted, therefore, the concerned parties might compromise by taking a step back.


And it seemed the timing has come for the US side to make a move.


US Secretary of Commerce Carlos Gutierrez started his visit to Beijing on June 2 and during his visit, China and the US will exchange views on a series of trade and economic issues including the textile trade dispute.


People are pinning their hope on it. "Rational negotiation is the way out," Zhang said.


(Xinhua News Agency June 2, 2005)

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