In the wee hours of June 11, a memorandum of understanding (MOU) was signed between China and the European Union (EU), after 10 hours of marathon negotiations.

Based on the information provided to date, we can say China achieved satisfactory results. This conclusion is based on the following reasons:

First, the European Commission agreed to end ongoing investigations concerning 10 categories of textiles originating in China. The agreement, reached at the last minute, ended the trade dispute, and avoided a trade war that would have hurt both sides.

Second, the Chinese Government gained reasonable room for exports of the 10 categories of textile products to grow.

It would not be enough for China if the EU merely ended the safeguard measures against these textiles.

In fact, China would have failed in the negotiations if it had not gained an annual growth rate in excess of 7.5 per cent, because China''''s textile exports, in certain categories, would be reduced to less than 7.5 per cent under the safeguard measures.

Finally, it has been agreed, and included in the MOU, that growth rates from 8-12.5 per cent are allowed for these 10 categories which include pullovers, men''''s trousers, blouses and cotton fabrics. The growth rates are apparently not as high as expected.

However, through analysis of the base to calculate the exact export quantity, we will result in many benefits to China.

In my opinion, the base could be called a reasonable figure only when it is higher than the exports last year for a certain category. In other words, it must take into account the growth potential of China''''s textile exports in the post-quota era. To be specific, the exports in the first quarter of this year must be taken into account during the calculation of the base figures.

Based on information published on the European Commission''''s website, the base for T-shirt and flax yarn, on which the commission had initiated emergency safeguard measures, shall be the actual imports into the EU originating in China between March 2004 and February 2005. The base for the other eight categories, which were under investigation, shall be the actual imports into the EU originating in China between April 2004 and March 2005.

Therefore, this calculation method will bring about real benefits to Chinese enterprises, as the statistics from the EU indicate China''''s exports of these 10 categories rose up to 500 per cent, year-on-year, in the year''''s first three months.

Meanwhile, the base also hints at a kindly compromise from China, as the figures for two categories are attributed to February rather than March.

Besides, the greatest success for China is the EU promised to exercise restraint concerning the application of EU rights under Paragraph 242 of the Report of the Working Party for the Accession of China to the World Trade Organization (WTO), from 2005 to 2007, for the 10 categories; and for all textile and clothing products in the year 2008. The two sides are ready to discuss, promptly, any aspect regarding implementation of the MOU.

Paragraph 242 is regarded as "Damocle''''s sword" hanging over the heads of Chinese textile enterprises, as it entitles other WTO members the right to launch safeguard measures against Chinese textile products.

The EU launched safeguard investigations on 10 categories of Chinese products, while quotas on 35 categories were removed. That is to say Chinese firms could have faced great uncertainties if no arrangements had been made to the other 25 categories.

It could have been a huge step backwards if the quotas had been introduced back to these products.

On the contrary, as long as the articles in the MOU are realized in the coming years, Chinese firms do not need to worry about the restrictions from the EU.

Based on the above analysis, it is reasonable to give Chinese negotiators high marks for the handling of this trade issue.

Such a win-win agreement, which gains mutual satisfaction, was the result of mutual effort.

First, China showed its firm adherence to principles, yet flexibility on specific issues, and the EU found the right niche in negotiations.

Secondly, our allies in the EU played an important role in this process.

To be frank, the European Commission faced greater domestic pressure than the United States. The EU has about 7 million workers in the textile sector, while the United States has about 10 per cent of that number. However, the strength in the EU that advocates free trade with China is also strong. Besides those who gained benefits from it, including textile importers, material and machinery exporters and investors in China, the governments of Britain, Germany, Sweden and Denmark also supported the request of China.

Trade friction is normal for an economy with fast-growing foreign trade, but in such cases the sides shall look for a solution through negotiations and consultations.

The satisfactory results of this Sino-EU trade dispute should also contribute to the attitude of the EU, for it abides by the international rules rather than unilateralism.

Source: China Daily 06/27/2005