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EU, China Talk Trade, U.S. in Wings

As U.S. officials prepare to continue negotiations for an import agreement with China, EU officials are talking to the Chinese about fixing their deal.

WASHINGTON — As U.S. officials prepare to resume negotiations for a textile and apparel import agreement with China, European Union representatives returned to the bargaining table with their Chinese counterparts in hopes of fixing the deal they cut in June.

Talks between the EU and China began in Beijing on Thursday and are to continue today. People familiar with the U.S. negotiations said the next round will be in Beijing on Tuesday and Wednesday, although the office of U.S. Trade Representative Rob Portman did not confirm the timetable.

The EU-Sino deal restricted imports on 10 categories of goods to annual increases of 8 to 12.5 percent through 2007, but the quotas filled quickly and stranded at the borders some orders that had been placed before the agreement.

EU negotiators are under intense pressure from businesses to adjust the agreement, though it is unclear what fix would work. Possibilities include borrowing against next year's quota to bring in fall and holiday goods or exempting orders placed before the deal was reached.

Reopening discussions between the EU and China has created a situation similar to the uncertainty that made a broad agreement attractive in the first place. Just as a U.S. agreement would, the EU-China pact replaced the system of safeguard quotas, which China agreed to when it joined the World Trade Organization in 2001. Limiting growth to 7.5 percent, safeguards can be renewed through 2008 and added to as deemed necessary, making it hard to put together long-term sourcing plans.

Chinese apparel and textile imports to the U.S. shot up 46.6 percent in the first half of the year to 7.9 billion square meter equivalents worth $10.8 billion. So far, the U.S. has imposed safeguards on imports worth $1.31 billion.

By all accounts, negotiators from the U.S. and China still had significant ground to cover after a round of negotiations in San Francisco last week.

"They're very far apart," said Brenda Jacobs, counsel for the U.S. Association of Importers of Textiles & Apparel.

Much of the friction has been created by the January expiration of the system of quotas that regulated trade for more than 30 years.

"[A deal] has to be set up as a transitional program that ensures we do not create another cliff off of which all of us will fall," Jacobs said.

Whether a deal is ultimately reached with China or not, the drop of quotas has fundamentally changed the sourcing landscape.

"No matter what they do, we're going to continue to see a very rapid expansion of other countries that aren't restrained, like India and Bangladesh," said Tom Haugen, president of Li & Fung USA. "We're optimistic that a deal will be reached. We are not optimistic that it will be a terrific deal. Any deal is a good thing in our opinion. We think the U.S. will probably try to stick real close to the 7.5 percent growth rate."

The desire on the part of importers to get on with business — placing emphasis on certainty rather than high growth rates — has the domestic textile community claiming to be in the driver's seat.

"The Chinese, in my opinion, need an agreement more than we do," said Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, which has pushed for safeguards. "The Chinese, we assume, are under heavy pressure from the U.S. importing and retailing community to figure out what is the dynamic, not only for this year, but next year. There's an enormous amount of pressure on them."

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