Is the Chinese Textile Industry a Threat for Europe?

Is Chinese Textile Industry a threat for Europe?

Introduction

"Napoleon said of China "Let China sleep, for when she wakes, she will shake the world." This assumption turned out to be true, particularly these two last decades. As a matter of fact, China has undergone two restructuring processes: the industrialization and the transition from a centrally planned to a market economy since the early 1980's. Thus, Chinese government has been implementing an economic reform to reinforce its rapid growth. China is now awake and is already a major actor of the world economy, widely open to the world. It has reduced its trade barriers and has managed to attract huge foreign direct investments thanks to which China could improve its competitiveness.

There is a particular area in which China has become a leader: the textile industry. After the end of the Multifibre Arrangement, China's textile exports rose astonishingly. China's share of the US$350 billion global textile market is expected to rise from its current 20 percent to a maximum of 60 percent in the coming years. Indeed thanks to its low-wages, China became the place where western textile companies outsource their production. Now China's success lead European firms to wonder how to remain competitive. How to face the big Chinese competitor?

This paper aims at dealing with the textile issue. First we will deal with the Chinese openness to the world especially through its WTO membership and the consequences of the end of the Multifibre Agreement on the Chinese textile. Then, we will analyze the Chinese textile industry and see why China is getting so huge benefits from this sector. Finally, we will conclude by asking ourselves whether China is truly a threat for Europe.

I - the Consequences of China's Openness to the World on its Textile Industry

The accession of China to the World Trade Organization

After almost fifteen years of negotiations between China and The World Trade Organization (WTO), an agreement was eventually reached in September 2001. These negotiations were dealing with the Chinese conditions of membership to the WTO. By reaching such an agreement China accepted to bring its trade regime into conformity with the WTO requirements.

As a result, China committed itself to take several measures to open and liberalize its economy in order to better integrate in the world economy and offer a more predictable environment for trade and foreign investment in accordance with WTO rules. Following are some of the main measures China undertook to enter the WTO. First, China would have to provide non-discriminatory treatment to all WTO Members. All foreign individuals and enterprises, including those not invested or registered in China, must be accorded treatment no less encouraging than that accorded to enterprises in China with respect to the right to trade. Then, China would have to eliminate dual pricing practices as well as differences in treatment accorded to goods produced for sale in China in comparison to those produced for export. In addition to this, price controls would not be used for purposes of affording protection to domestic industries or services providers. Moreover, the WTO Agreement would be implemented by China in an effective and uniform manner by revising its existing domestic laws and performing new legislation fully in compliance with the WTO Agreement. Finally, within three years of accession all enterprises will have the right to import and export all goods and trade them throughout the customs territory with limited exceptions.

On the other hand, during a "12-years period starting from the date of accession there would be a special Transitional Safeguard Mechanism in cases where imports of products of Chinese origin cause or threaten to cause market disruption to the domestic producers of other WTO members. However, prohibitions, quantitative restrictions or other measures maintained against imports from China in a manner inconsistent with the WTO Agreement would be phased out or otherwise dealt with in accordance with mutually agreed terms and timetables specified in an annex to the Protocol of Accession."

Such commitment from China to make efforts to answer the WTO requirements demonstrates its willingness to be integrated in the world economy, to become a major player in the world trade. Indeed, this shows the obvious interdependence between China and the rest of the world. On the one hand China needs to be more open to the World to get more investments from foreign companies and thus to promote its domestic growth and development. On the other hand, the rest of the World needs China to get the benefits from its mass low-wages labor, but also to get into a huge market composed of more than one billion of potential consumers.

However, there was a particular area in which WTO members would have to change and adapt their regulation on Chinese products: the Chinese textile imports. In reality, WTO members will have to grant China benefits under the WTO Agreement on Textiles and Clothing (ATC).

From the Multifibre Arrangement (MFA) to the WTO Agreement on Textiles and Clothing (ATC)

The Multifibre Arrangement was implemented in 1974. It dealt with new regulations concerning international trade in textiles. It extended the coverage of the restrictions on textiles and clothing from cotton products to wool and man-made fiber products. "The main objective of the MFA was "to achieve the expansion of trade, the reduction of barriers to such trade and the progressive liberalization of world trade in textile products, while at the same time ensuring the orderly and equitable development of this trade and avoidance of disruptive effects in individual markets and on individual lines of production in both importing and exporting countries". Another aim was "to further the economic and social development of developing countries and secure a substantial increase in their export earnings from textile products and to provide for a greater share for them in world trade in these products". The MFA provided rules for the obligation of quotas, either through bilateral agreements or unilateral actions, when surges of imports caused market disruption or threat in importing countries. In imposing quotas, importing countries were obliged to observe consultation provisions and specific rules and standards both in determining a situation of market disruption and when introducing and maintaining restrictions on exporting members. As a norm they were required to allow for an annual growth rate of six per cent in the quotas. The MFA terminated on 31 December 1994 upon the