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April 28, 2005

This is How Europe Really Works.

An interesting insight into how the European Union really works is given by the new row about Chinese textile imports (see Samizdata for one view). My apologies, this is fairly long, includes an actual bit of real reporting (on a blog no less!), some economics and a touch of politics.

On Jan 1 2005, the quotas which restricted textile imports and exports around the world were abolished. As even Panorama was able to point out, that would mean a change in the countries from which Europeans bought their clothes and textiles, for the previous system of quotas meant that those places with comparative advantages were not able to exploit them fully. We all knew this was coming, all knew that Chinese exports would rise.

This rise could come at the expense of European manufacturing, could come at the expense of those other countries which had privileges under the old system. In general, most would assume (and in my opinion, be correct) that it would be a mixture of the two, greater imports in total plus a change in the portion of exports that came from China and other countries.

It is also worth noting that we have known that this would happen for a number of years. So much so that a special clause was inserted into China’s accession treaty to the World Trade Organisation (WTO) that would allow new rules to be imposed if the surge of imports was felt to be excessive.

The Textile Specific Safeguard Clause in China’s WTO Accession Protocol (2001) allows WTO members to take temporary safeguard measures to protect domestic textile producers from a sudden surge in Chinese textile exports following the liberalisation of the global trade in textiles on 1 January 2005. This clause allows for short-term protective measures until the end of 2008.

All of this is just to set the scene you understand. We knew what was going to happen.

Next we have in March a letter from the textiles manufacturing association, asking for protection from the predicted surge in Chinese imports:

The product categories concerned cover 7 of the 12 product categories identified by the European textile manufacturers association Euratex in a letter to the Commission on 9 March 2005.

This is followed up by a declaration by Jacques Chirac that:

French President Jacques Chirac on Thursday denounced what he called "the brutal and unacceptable invasion" of Europe by Chinese textiles and said the EU would within a fortnight take measures to stem the flow.

"There is every reason to think, and in any case it is the position of France and I am sure we will be followed on this, that (European Union) safety clauses will be applied within 10 to 15 days," he told French television.

Lo and Behold! a mere 11 days later, Peter Mandelson makes his announcement:

“Member States have finally made available the import statistics for the first quarter of 2005. In several categories of textile and clothing imports they do give cause for serious concern. Based on these facts, Europe cannot stand by and watch its industry disappear. Our investigation will enable me to decide whether the EU should introduce safeguard measures. Chinese exports should, of course, be allowed to grow at a normal speed following the removal of quotas. But we must also extend protection to European industry if it is faced with a ruinous surge of unprecedented proportions”.

Just to digress into some basic trade theory here. All of the above shows a quite shocking lack of knowledge of the basic issue. It is as if some mercantilist, unaware of the works of David Ricardo, had suddenly reappeared, unaware of the truths we have known for a couple of centuries. Imports are the thing we want, it is consumption that is desirable. Production and exports are simply the things, the undesirable things, we have to do in order to provide and finance our consumption. Booming imports of clothes (or of any other product) are what we want, for it means that we ourselves (quite obviously, we are not going to import things if we can do it better or cheaper ourselves) can go off and do other things. Yes, we may well have to compensate those who lose out, those producers who bear the brunt of the adaptation, even we should do so, but we should not stop the 450 million people of Europe from all becoming that fraction richer because some tens of thousands of Europeans become poorer.  Compensate them, yes, but do not stop the process.

In the process of the investigation the big question will be, has there actually been a rise in textile imports? Or has there simply been a shift in who is actually supplying us? I thought I’d go and ask this question, try and find out the answer. Talking to Stephen  Adams in Mandy’s office (on 32 2 296 31 66) I asked about this whole point,  and was told that of course, yes, this was the most important thing. So I asked for the raw figures...I’m not all that good at statistics and so on, but I know people who are....and I was told that country by country import numbers are not yet known.

Hunh? Up above we have this line, direct from the Commissioner’s original statement:

Member States have finally made available the import statistics for the first quarter of 2005.

So the statistics do indeed exist. As a note you will need to know that the statistics are originally collected on a country of origin basis. So if they have the gross figures, they have the country by country ones. If they have figures for Chinese imports, they have them for all other countries. This is the point, that they have them. They have them to hand and could simply send them out as an .xls file to anyone who asked. As I did and as I was refused.

The next best thing would be to try and find some other way of getting the statistics. Eurostat perhaps? Now they do not have the relevant statistics, as the March figures are not yet in their database. But a request last night for figures on textile imports from a selection of Asian countries, looking at figures for Jan and Feb 2004 and Jan and Feb 2005 led to a little file dropping into my inbox this morning. You can download it here.
Download tradetextilesclothes.xls

I agree that this file does not show exactly the numbers that we would hope for. It does not show the exact articles that are being investigated, does not show the entire quarter. Rather, it is two months not three, and is at a higher level of abstraction, being all textile/clothes imports from those countries. It is also for a selection of countries, not for all of them.

But the interesting thing is as follows:

 

0720:China
[ctci2002_2D]26:TEXTILE FIBRES (OTHER THAN WOOL TOPS), WASTES; NOT MANUFACTURED [ctci2002_2D]65:TEXTILE YARN, FABRICS, MADE-UP ARTICLES, N.E.S., + RELATED PRODUCTS [ctci2002_2D]84:ARTICLES OF APPAREL AND CLOTHING ACCESSORIES
34,239 267,366 1,104,786
33,344 247,025 1,013,151
55,518 272,708 1,185,038
47,615 277,942 1,375,423

Figures are in 000’s of euros, meaning 1.3 billion worth or so of Chinese apparel arriving. It also shows an increase of some 30% in this higher level class. This is really rather different from the 500% scare numbers given, is it not?

(The numbers in the columns are for Jan 2004, Feb 2004, Jan 2005 and Feb 2005 respectively.)

Cambodia seems not to have been affected, at least yet:

 

0696:Cambodia
[ctci2002_2D]26:TEXTILE FIBRES (OTHER THAN WOOL TOPS), WASTES; NOT MANUFACTURED [ctci2002_2D]65:TEXTILE YARN, FABRICS, MADE-UP ARTICLES, N.E.S., + RELATED PRODUCTS [ctci2002_2D]84:ARTICLES OF APPAREL AND CLOTHING ACCESSORIES
-    98 41,607
-    9 34,836
-    70 48,406
-    -    34,201

Vietnam has been:

0690:Vietnam
[ctci2002_2D]26:TEXTILE FIBRES (OTHER THAN WOOL TOPS), WASTES; NOT MANUFACTURED [ctci2002_2D]65:TEXTILE YARN, FABRICS, MADE-UP ARTICLES, N.E.S., + RELATED PRODUCTS [ctci2002_2D]84:ARTICLES OF APPAREL AND CLOTHING ACCESSORIES
42 8,190 63,881
9 7,864 63,525
58 7,424 53,645
85 7,137 47,406

And so has Indonesia:

0700:Indonesia
[ctci2002_2D]26:TEXTILE FIBRES (OTHER THAN WOOL TOPS), WASTES; NOT MANUFACTURED [ctci2002_2D]65:TEXTILE YARN, FABRICS, MADE-UP ARTICLES, N.E.S., + RELATED PRODUCTS [ctci2002_2D]84:ARTICLES OF APPAREL AND CLOTHING ACCESSORIES
506 36,499 103,081
443 36,678 118,875
339 27,468 86,777
435 25,090 84,461

So let’s just skip through the major points again shall we?  A change in the world trading system will bring a change in (possibly) both the volume and country of origin of the imports of a class of goods. Producers, to the detriment of the rest of the population, call for protection. A French politician echoes that. The European Union Commissioner jumps into the fray on the basis of the newly delivered trade figures.

We, the demos, could make up our own minds, but cannot do so as those figures upon which the decision was based are said not to exist. Looking at proxies for those figures, we see that there might, in fact, be just a tadge of overstatement in those details that have been released.

We can also see that there have been declines in imports from some countries, growth in such from others. Exactly what we would expect to see. But not, of course, what we actually get told by our Lords and Masters.

So what could possibly be driving this rather odd decision?

We should note that the investigation will take a maximum of two months. Umm. What happens on May 29th? Why, I do believe that France is having a referendum on the European Union Constitution, and the present polls seem to indicate that the Non vote is ahead. No, no, that couldn’t be it, could it? Surely the Commissioners make decisions in the interest of all Europeans, not just for narrow political, or even politically specific to one country, reasons? That is the aim of the project, is it not? That these dreary and complicated questions will be decided by a technocratic elite, not by the exigencies of winning over one or other group of voters?

As the French Industry Minister is quoted as saying:

Mr Mandelson's comments came after the French industry minister Patrick Devedjian said some 7,000 French textile jobs could be at risk unless China limited its exports.

"The situation is very serious ... for our businesses which make these products, which have already been suffering for a number of years," said Mr Devedjian.                    

Perhaps it is just because I am a natural cynic that I think that the results of the investigation are going to be released, oooh, say May 30th? Certainly, I wouldn’t want to bet on them coming out before May 29th.

There is, of course, a simple way in which such cynicism can be put to rest, release the full figures. We know that the Trade Commissioner’s office has them, they must do, for the way they are calculated makes it certain. At its simplest, what was the change in EU imports under SITC 65 between Q1 2004 and Q2 2005? Why not let us, the people, in on the information already collected (with our tax money, of course) and held in the Commission’s computers?

Or is there an election to win first?

Until the figures are released I leave you with this thought:

Worstall3_8_9


 

April 28, 2005 in European Union | Permalink

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Comments

tim,

very strong post. the intersection of politics and economics is a very messy one (due to the political side). fortunately the www allows those of us who "don't know what we are talking about" to show the elites that maybe we do know what we are talking about!

Posted by: GEA3 | Apr 28, 2005 2:45:03 PM

Good stuff

Posted by: Guido Fawkes | Apr 28, 2005 6:08:29 PM

It is supposed to be a Common Market, isnt it?

Posted by: jaimito | Apr 28, 2005 7:59:43 PM

heh - interesting post - surely you are not suggesting peter mandelson has his eyes on the political fallout? that would be most unlike the PM we know and love :)

it's a fascinating case of course.

also kinda depressing, as it is not exactly yesterday that we learnt that the trade barriers would come down. Makes you wonder what people have been doing the last ten years.

you may be interested to know that in the discussions the member states have been absolutely split on this issue - a large number of MS (not just the French) want emergency restrictions (portugal, slovakia, italy among them)

And a large number (those without significant numbers of textiles producers mainly) are equally opposed. So it is not just mr mandelson that is sensitive to the way decisions will be received in key constituencies. Member states also play this game. I think it is called politics.

Plus ca change, plus c'est la meme chose.

Interestingly Delors made some nice remarks the other day, pointing out that if we want to sell the chinese our exports, it is only reasonable that we don't keep out their exports. Who would have thunk it? Of course - Jacques was probably just pacifying the french public. After all.... he has his eye on the constitution vote too.....

Posted by: rjw | Apr 28, 2005 11:17:09 PM

Today's Chirac subtext: "There are lots of reasons to vote for Europe. The airbus monster plane for example. A vote for the Constitution is a vote for your Mom's job at Airbus! Sure, I'm the major proponent behind the tobin-esque tax on airline fuel that's going to cripple the airline industry, but I think we all know who's influence will persuade the EU that airlines which run the Marshamallow-man airbus monster won't have to bother with that, now don't we? A vote for a free-trade bloc is the only way I can carry on my rampant procectioneering! "

Posted by: Katie | Apr 28, 2005 11:39:37 PM

Well - in general terms a tax on airline fuel would be a jolly good thing.

The reason ? There is no tax on fuel at present, which is a huge implicit subsidy to the airline industry, and a huge market distortion given the tax rates on other fuels.

Taxing airline fuel and using revenue to cut other (distortionary) taxes would both reduce environmental pollution from aircraft and generate pure economic benefits.

Of course - Chirac's proposal was, I think, for a global tax - which has absolutely no chance of flying (sic).

Posted by: rjw | Apr 29, 2005 1:16:00 PM

Actually we should just CUT the tax on other forms of transport.

I am amazed at the ability of taxation being paid to beurocrats to lower the amount of airborne plant food (C02) in the atmosphere.

RJW should internalise his own charity cases rather than make everyone else reward his prefered failures.

Posted by: Rob Read | Apr 29, 2005 2:32:23 PM

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