TOPICS: EU must compete with China

Reports that there are shiploads of ladies underwear lurking in on the borders of the EU due to a decision to limit imports from China, recently elevated trade to the lead item on the BBC news. And, while it is tempting to dismiss “bra wars’’ as a typical silly season story, there is more to it.

The outcry over higher prices and restricted stock is being hailed as both a policy and public relations disaster for Peter Mandelson, and the EU’s trade commissioner has had better weeks. Recent talks in Beijing were an attempt to cobble together a face-saving deal that would allow European countries to exceed their Chinese quotas by bringing forward imports earmarked for next year.

A global textile free-for-all began on January 1 this year after the scrapping of the Multi-Fibre greement, which had given countries a fixed quota for clothing exports. The Chinese cleaned p, but the surge in goods from the far east gave European producers little time to adapt. andelson was not trying to put up fresh barricades around a fortress Europe; the idea was to put in place transitional arrangements to give companies a breathing space. But China will be the second biggest economy within a decade.

China’s electronic exports to Europe used to be cheap consumer goods, but recent years have seen a big increase in sales of computer and office equipment. Almost 20 per cent of China’s exports are classified as high-tech.

China has also sucked in resources to enable its rapid growth. As a result, everything that China buys has gone up in price. For rivals in the west, this has been a double whammy — higher costs for fuel and raw materials, and lower selling prices to remain competitive. For retailers, the China effect means lower prices and lower costs.

Governments in Britain and the US have reason for concern, since strong consumer spending, fuelled by cheap imports, has compensated for the weakness of manufacturing and helped sustain growth.

The economic textbooks say there’s nothing to worry about. Countries specialise in what they are good at, so there should be a ready market in China for high-tech western goods. There are those who see textiles as merely the thin edge of a very large wedge. What will happen when Chinese goods will flood the world? Western consumers are western producers too and if they are not producing anything, how can they carry on consuming at the current rate? The western manufacturing sector will be hollowed out unless there are more measures to meet the threat of China.

Western politicians are backing the alternative of braining up. The UK’s finance minister ordon Brown is urging a concentration on knowledge-based industries to meet China’s challenge. In the UK, knowledge-intensive services have grown at more than per cent a year even though high-tech manufacturing has been in decline. The choice is protectionism or to oll with the punches. Even if they hurt. —The Guardian