Is it fair and in the interests of free trade and competition for the EU to impose quotas on the Chinese textile industry or is the EU guilty of protectionism?

The trade relationship between the European Union and China is one that has existed for several years now. However, this relationship is one that has had its share of conflicts over the past 15 years or so, with regard to the volumes traded between the two regions. Since China entered the WTO in December 2001, trade barriers between China and the European were removed in order to ameliorate trade between the two. However, the textile and clothing product volumes that were exported from China to the EU began hurting the domestic markets in the EU.

It was due to this occurrence that the EU decided to re-apply quotas on China. In accordance with WTO principles, this is apparent violation of a developing country’s products. However, when China entered the WTO, the agreement asserted that a member may re-impose quotas on China for one year if that member’s markets were being hurt through China’s export volumes of textile and clothing products.

Introduction

If one looks back around a hundred or more years ago, life was certainly simpler than it is today. This refers to the fact that there have been a plethora of developments that have impacted everyone. The developments that one may consider in particular are technological ones as well as intellectual ones. Some may even go as far as asserting that each of these drives the other. However, because of more awareness and technological development, life today is more complex than it was before. In every field one considers today, things are generally more complex. The business environment is a good example, as it is one that is influenced by an array of newer ideas as well as new technology.

The technology mentioned here refers to the inventions or innovations that have made globalization possible. Business in today’s world has to consider this macro economical phenomenon, as it is a major part of the business today. Globalization does not only affect international trade, but also has its impact on trade within each country. In addition totalling about the unavoidable globalization aspect of business today, it is important to focus on business ideas and relationships that forma major part of them. An example of trade relations is the trade relationship between Chin and the European Union.

Rationale

The trade relationship between the European Union and China is an interesting and important relationship to study because of the fact that it has a long history behind it. In addition to this, it is an important relationship to study because it helps to expose aspects of competition, rapid growth, as well as questions regarding free trade and protectionism.
With increased emphasis in recent times on factors like free trade, it’s important to understand the relationship that has prevailed between China and the European Union.

In addition to this, it is important to understand why there may have been changes in this long relationship over the years. More importantly, it of interest to scholars and all those associated with international business that the reasons for recent changes in the relationship. These changes include the Imposing quotas on the Chinese textile industry.

Research Question

In view of the relationship between the Chinese and the European Union being studied in this paper, there are several details that will be exposed. However, the main question that will be dealt with includes the following:

Is it fair and in the interests of free trade and competition for thee to impose quotas on the Chinese textile industry or is the EU guilty of protectionism?

In order to answer this question, there needs to be detailed study of relevant data on this subject. To begin with, there is need to explore all pertinent matter on this subject, which will be dealt with in the following section of this paper:

Since technological advancements have promoted more effective communication around the world, international business has been greatly facilitated. Many economies have grown as a result of better communication. The European Union and particularly China have ameliorated their means of business because of effective communication. Certainly, these effective means have enhanced the speed with which trade has taken place.

Richer countries, like those in the European Union, have had the capital in to invest in ventures across the globe, and have subsequently thrived of other markets . China on its part has been faced with the necessity of keeping up to date its communications methods and systems. This has been one of the grounds for concern in the past few years, as China is a major player in international trade.

Businesses that were previously limited to UK markets have been extended to other places around the globe, as a result of globalization. Products that were freely available in one part of the world were easily spread into several others. The result of this was greater influx of revenue earned, and the chief operating office or store would benefit in its original location. This is true to say fork or US establishments that had chains in markets where labour is cheap.

Certainly, with the advantage that chain store provided businesses, it’s no wonder why this example of international business has been highlight in the trade arena. In addition to chain stores being lucrative earning opportunities, there are several other opportunities that have risen . In terms of considering economic conditions, it can be asserted that globalization has presented businesses in countries like the UK and US with ample opportunity for outsourcing work.

This is quite a common trend now as there are markets available to countries like the UK that have cheaper labour. Outsourcing to places like India is common today because UK companies are known to save a great deal of revenue. They need not hire workers in the UK because they are more costly in contrast to hiring them in India. In time to come, more and businesses will be conducted this way through hiring labour outside teak where it is cheaper.

Therefore, it can be asserted that International Business is expected to undergo more changes in time to come. This is because of the fact that businesses are still in the process of realizing the scope of profits that can be earned.

China is another country that has managed to take its products to other regions, and is still in the process of ameliorating its communication methods. However, it does not face significant obstacles in this regard.

Technological Developments that Impact Business Today:

There are several reasons why some may believe that international business is modified by technology. This is perhaps because the causes of this are more evident in their physical form. Developments such as credit cards, swipe machines and e-commerce technology, etc., are few of the things that are implemented as part of everyday business (Kennedy,2000, 34-9). With the use of credit cards, one can make an international business transaction.

There is no need to travel to different parts of the world to get a particular product. Products that are affordable, like ones from China, can now be purchased while one sits at home [Taylor, 2002, 28]. Goods of various kinds are available through the Internet, and countries like China with a mass of products can serve one in almost any part of the world. This is possible because of products being available through the Internet and through payment with a credit card, etc. Here, one can see how important the establishment of the Internet has been in promoting international business too.

The Internet is at the centre of technology as well as economic and political conditions too, and it is almost always considered when controls are being decided upon regarding safeguarding international business. This refers to the fact that businesses are known to exchange vital data across it during transactions or other forms of communication through it (Kennedy, 2000, 34-9).

Also related to the Internet-based technology is telecommunication that has been transformed too. This type of technology has made things more convenient for business individuals in different parts of the world. Countries like China have been working to make sure their systems are up to date and capable of meeting requirements of trading partners like the EU. Today, instead of business people having to meet in person, they simply have online conferences and conversations. Even prior to signing contracts and going through with business deals, these forms of corresponding are proving to be successful. China is no stranger to these forms of communication (Kennedy, 2000, 34-9).

The Trade Relationship between the European Union and China:

Trade relations between different countries are important as they each form a part of a larger trade environment. Considering the China-European Union trade relationship, it can be asserted that this trade relationship indeed forma a significant part of the overall trade environment. This is because of the fact that China is third on the list of countries that the European Union trades with. What may be considered to be more significant is the fact that this trade relationship is one that has a long history to it, and has seen three different stages. Another interesting fact to note is that export and import volumes have always been on the rise between these two countries over the years in spite of obstacles coming in between these countries.

The three stages through which the China and European Union trade relationship has gone through is as follows:

1. Western ostracism/Chinese self-sufficiency, 1949-1959;

2. Increasing bilateral trade development/low conflict levels, 1960-1988; and

3. EU-level trade policy/explosive trade growth/increasing trade conflict, 1989-present

The first stage is the stage within which sanctions were imposed on China because of the Communist takeover. The sanctions were first imposed by the United States of America, and then were followed by the European countries. The trade volume during this period is almost not worth considering, and whatever trade did take place before these sanctions could be considered as a starting point in the trade relationship.

Having sanctions imposed could in a manner of speaking mean that there was a relationship between Europe and China. Otherwise there would be no need for sanctions.
The following stage in the trade relationship between China and the European Union describes a gradual increase in trade. The gradual increase in trade was later transformed into rapid trade developments[Table 1 reflects these trade development] and even agreements being signed between the two regions. Out of the different trade agreements signed during this period, it can be said that the most important of these are the agreement on commercial co-operation [1978], and the trade and economic agreement signed in [1985] .

The third phase in which China and the European Union are in reflect the rapid trade progress that began in the second stage of their trade relations. Though this third stage has seen several developments, it has also seen several conflicts. However, bilateral relations still continue. The problem that seems to be most significant is that the European Union is further tightening its rules on the trade relationship with regard to specific products. The latest of these obstacles to trade between China and the European Union is the licensing quotas that have been imposed by the European Union on the import of textile from China.

What do obstacles like quotas do?

When two countries have traded for several years, they automatically gain an understanding between each other and trade volumes tend to expand gradually. This is similar to what exists between China and the European Union. They have traded with each other for several years, and this has led to agreements being signed between them. This has meant that trading between the two regions has become more practical, as trading obstacles were removed significantly. When trading obstacles are mentioned here it means that tariffs are removed.

Precisely, this is why quotas should not be applied to any trade relationships as it introduces tariffs on trade. When tariffs are introduced, trade is less convenient, and this may even be a sign of deliberate attempts to reduce trade between two regions. In the case of China and the European Union, since the European Union has imposed licensing quotas on exports from China, it is apparent that the EU wants to mitigate textiles coming from China. This is because the EU had signed agreements that reduced tariffs and trade barriers when they traded with China (Ma,& Wang, 2001, 22-5).

Is There Any Specific Reason for the European Union Imposing Quotas on China?

Over the years, when the EU has traded with China there has been change in the quality of exports coming from China. Previously, China had been known for its low quality products (Dong et al, 1998, 19-27).However, it can be asserted that there has been a change in the quality that China produces for the EU market. China has become increasingly aware of the fact that the EU market is quality conscious. This is because they understand that the market in several EU members is affluent. Particularly, Germany is a market that goes for high quality goods.

China has therefore understood the need to develop an identity that may not have been before. Since European consumers now demonstrate shift in their attitudes, there is more scope for Chinese and other Asian countries to cater to these attitudes. A significant segment of consumers in the EU are ready to explore new brands (Lee, 2003, 20-2}.With their high expectations of new products and brands, these consumers present tremendous scope for the Chinese and other Asian countries to produce quality goods and services. Particularly in the case of the Chinese, it can be asserted that with their low cost quality goods, they can capture a great deal of the market (Fuchs,2003).

In accordance with surveys, it is thought that China indeed has good chances of capturing a significant part of the European market as compared to other Asian countries. What goes in China’s favour is the fact that they have had had a long relationship with the European Union, and consumers have taken to their products. In addition to this, China’s prices have been more affordable than other Asian countries, considering the quantity they produce as well. It is because of this that China has managed to maintain an image as a supplier to major markets [Fuchs, 2003]. This has also helped its reputation as it has managed to align itself alongside other members of the WTO.

Therefore, on its part, China has done nothing to violate the rules of the WTO (Williams et al, 2002, 577-91.
Having mentioned China’s abidance by the WTO rules, it is worth noting that China had Seventy Thousand Textile and clothing enterprises in2002, of which only twenty present are state-owned. With more than 80percent of the textile industry in the hands of the private sector, China is doing well to abide by WTO policies.

Though China has been doing well, in 2002, it was predicted that China was headed for obstacles. One of the first obstacles was thought to be “the increasingly strong hi-tech tendency led by information progress”. Considering that there has been an immense advancement in data interchange, e-commerce and virtual trading sites, if China did not focus on these aspects it would not be able to stay in the market(Taylor et al., 2001).

In addition to this, it was thought that China would have to face an “expediting tendency of economic globalization and market integration marked with the World Trade Organization” . Obviously China has been making progress in these directions, and this is the reason why they are still in the market and in demand as suppliers of quality products at reduced costs. Though there are still many consumers who have the impression that China continues with its low quality and bulk produced goods, there are also many consumers who are ready to explore the newer Chinese brands that aim at producing better quality to consumers in thee that have higher expectations [Fuchs, 2003].

As far as working according to the WTO expectations is concerned, China has managed to so far combat its trade functions that are not according to WTO expectations. As a result of this, China has gained through its membership, and it is ready to take further steps in order to be completely in sync with WTO standards (Yang, 2001, 437-42). One benefit that China has had since it joined the WTO is that its textile and clothing exports to the US have increase momentously.

This is reflected in the fact that US textile and clothing imports from China had risen by 124 % in 2002. This was one year after China joined the WTO in 2001.“Chinese exporters reduced their prices in order to gain a greater share in the market. They were able to do so, among other reasons, because quota rents were reduced and Chinese enterprises increased their productivity by investing heavily in new machinery and technology” (Knapped, 2003). As a result of this, China realized that it had even greater scope for exports, and continued to work towards enhancing its quality and output in the textile and clothing industry.

In 2000, China’s output in the textile and clothing industry has stood at 97.7% while the US has stood at 76.3 %. In contrast to these high percentages, the EU’s output has dropped from 53% (1980) to 29% (1995).Quite obviously, the EU textile market has been on the decline, and has also been known to undergo a continuous process of restructuring in this industry .

Another interesting fact to note is that while import quotas were reduced in the past 15-20 years, China’s exports to the EU increased bay startling 164%. In contrast to China’s huge volume of export to thee in the category of textile and clothing, other countries only increased their exports to the EU by 10 % .

Since the USA and the EU both had anticipated such a situation in which China would overwhelm domestic markets in these two countries [in the category of textile and clothing products], when China entered the Wrother agreement included allowing any member to re-impose quotas in order to safeguard themselves. The agreement allowed any member to impose quotas for a period of one year between 2005 and 2008, but this was only in the case of domestic markets being affected in the USA and thee .

What Does the WTO Say About Discrimination?

It is known that agreements formed between member countries are meant to benefit all members as a whole. It is rare that agreements intrude discriminate against some countries. In order to prevent discrimination in trade taking place, the WTO has set standards that are to be followed closely. Being a successor to the GATT, it follows the principles set by the GATT as well. Indeed, many of the newer policies established are a result of GATT policies that were first established in the 1940s (Brews, et al, 1996, 27-51).

The WTO [World Trade Organization] is the successor of the GATT[General Agreement on Tariffs and Trade]. The WTO is at present, an organization, which has further developed various policies dealing with multilateral trade, and also has maintained and followed policies that were established under GATT. Policies that are followed under GATTinclude articles 1 and 3 under GATT 1994. The WTO upholds the GATT 1994policy, which consists of the principle of non-discrimination. These are particularly relevant to the trade relationship between China and the European Union (Brews, et al, 1996, 27-51).

Basically, the principle of in the GATT 1944 has two main points that promote fair multilateral trade. These include the Most-Favoured Nation[MFN], which is the clause contained in GATT Article I, and the second one is the National Treatment rule that comes under Article III(Brews, et al, 1996, 27-51).

In accordance with Article I, Members of the WTO are not supposed to discriminate between the products of other Members and the products that are from any other country. This is especially the case with developing countries that try to promote themselves as possible. No country is supposed to have any special trading benefits with another country or discriminate against it. As a result of this, all members are believed to have equal rights, and they all have the same benefits that come of any rules for lower trade barriers (Hoekman &Kostecki, 2001, 37-50).

The MFN principle mentioned earlier, guarantees countries, whether they are developing countries or ones with little economic leverage, so that they may gain freely from the most appropriate trading conditions no matter when and where they are decided upon.

The important component of non-discrimination, National Treatment, is yet another supporting factor. In accordance with Article III, once products have been launched in any market, they should be treated the same as locally produced ones (Brews, et al, 1996, 27-51).

It must be asserted that the principle of non-discrimination is the central rule around which the rules of the multilateral trading system are established.

Another consideration that might be brought into play is the fact that the WTO practically overrules the other policies and laws when it comes to sustaining trade between countries. Its policies are such that it has the power to overrule laws such as environmental-based as well. In addition to this, it is an agreement that is believed to be powerful enough to overrule government powers through imposing sanctions. Theta agreement has the power to overrule policies that prevent trade from taking place multilaterally (Martin & Ianchovichina, 2001,1205).

Free trade refers to an agreement whereby all member countries are allowed to conduct uninhibited trade without any barriers being imposed on them once their products are introduced in the market (Brews, etal, 1996, 27-51).

The WTO mission statement asserts that the organization aims at promoting smooth and free trade through encouraging lower trade barriers. In addition to this, it also provides a platform that caters to the negotiation of trade; it helps in resolving trade disputes as well between member nations. Also, the aim of the WTO is to aid producers of goods and services, importers and exporters to carry out their businesses (Hoekman & Kostecki, 2001, 37-50).
The WTO Trading system follows the following principles in order to fulfil their mission. It asserts that:

1. A trading system is encouraged to be more competitive.

2. A trading system needs to be open and accommodating so that less developed countries are encompassed. This will provide them with more time, greater flexibility, and privileges too.

3. A trading system needs to be free of discrimination in order to prevent one country from discriminating against another country or against foreign products or services.

4. A trading system should not have barriers that inhibit it from trading freely.

5. A trading system needs to be predictable in a manner that foreign companies and governments can have the confidence that trade obstacles will not take place and that the markets they invest in will not suffering anyway (Hoekman & Kostecki, 2001, 37-50).

From the above, the WTO promotes a suitable environment within which businesses can be introduced, can operate, and may not be driven out of easily. It is an organization lends tremendous support to trading countries like China that has immense scope for growth.

Methodology:

In order to conduct a study and answer the above research question, there is need to understand what can be deciphered from the matter reviewed. The matter reviewed will essentially consist of authentic material that is concerned with the relationship between China and the European Union, and also what the WTO principles state regarding the trade relations between these two sides. The literature review will reanalysed thoroughly so as to expose the underlying answer to the research question.

For this study, there will be a qualitative as well as a quantitative method employed. This means that in addition to the literature review that would serve as a good amount of data, a survey will also be conducted and analysed. The survey will consist of 10 questions and 50participants randomly selected. This data obtained through the survey will be compared with the reviewed literature in order to determine whether opinions coincide or not.

Sources for the literature review are ones that are relative to the issue and are authentic, as they are taken from books, journals as well as official websites, newspapers and magazines. Sources used in the literature review are relevant to the area of study as well as the other relevant views that help in exploring this area of study as deeply as possible. In addition to the use of the sources mentioned above, the important factors belonging to field studied here are obtained from other studies and presentations, which means that this Isa qualitative study. This helps to bring together a wider range of opinions and facts that can be analysed from different angles. Careful analysis will be carried out in order to answer the research question. After analysing the facts presented and making use of opinions as well, the study will be concluded.

Analysis

Trade relations between any two regions are not only governed by principles set between them, but are also directly influenced by factors outside the relationship. This could refer to globalization-influenced communications or even political rules through organizations. The relationship between China and the European is an example of a trade relationship that is subject to external influences as well as the agreements set between the two regions. The reason why it is said that the trade relationship between China and the EU is influenced by external factors is because of the comparisons that are often made with the EU’s trade relationships with other countries.

Also, the fact that China is now a member of the WTO means that both trading regions are now under the WTO obligations (Martin &Ianchovichina, 2001, 1205). However, the trade relationship between the two regions is not mitigated by the WTO. Instead, the WTO encourages a better trade relationship between the two regions. It can therefore be said that the trade relationship between the EU and China is one that is mainly influenced by the agreements that the two countries have. The history of the relationship between these trading regions plays an important role in understanding the relationship, as the relationship was strengthened over a several years and trade volumes grew proportionately as well (Martin & Ianchovichina, 2001, 1205).

The European Union’s Viable Markets:

Since the very beginning of the trade relationship between China and the European Union, both sides saw immense scope for exports and imports. This is because both of them realized that they had markets that needed services and products from each other. Particularly, the European members realized that they had a vast consumer market the Chinese could cater to. Chinese products and services suited Consumers because of the fact that China was able to supply in bulk and that to at a low cost. Till today this is one of the major reasons why the EU is keen on trading with them. This is in spite of the fact that there are conflicts between the two sides.

The Chinese have always realized the potential in EU market through the years. They are aware of the fact that they can produce products and services that are affordable for most consumers in the European Union. They have understood the consumers in the past as well as now, and are aware of the shifts that are taking place in consumer culture. The Chinese are also well aware of how much they need to ameliorate their quality with regard to particular products and services.

They know that there is an affluent market to cater to in addition to the average consumer who would settle for more affordable products produced in China. Since the general impression of China has been that they produce low quality products in bulk, the Chinese are changing that image now. They know that a significant portion of the EU market has affluent individuals who want quality products. China knows that it is in apposition to produce this quality for a small sacrifice. They will lower their margin of profit in order to achieve this, and would still be able to make profits that are more than what other countries can do.

In addition to being aware of their capability and how much they can do to withhold significant portions of the EU market, the Chinese also know that there is a portion of the EU market that is willing to explore newer brands. This is something that would help them create a better image for themselves. As mentioned above, many believe that China produces low quality goods. However, with a significant portion of the EU market being curious enough to explore new products, gives China a good opportunity to ameliorate its image as a country that produces quality goods (Kong, 2001, 1181-214). This is the case with the textile and clothing products that China produces. It has aimed at producing better quality in recent times, but may also have low quality as well because the change is still in progress.

Demand for Chinese Textile and Clothing Since it Entered the WTO:

Since it entered the WTO in 2001, China’s textile and clothing products have been in demand in both, the USA and the EU. The fact that they have improved their quality and because they are cheaper than the same products supplied by other countries, puts them ahead (Martin &Ianchovichina, 2001, 421–446). In addition to this, there aren’t many countries that can produce goods in the quantity that China can [Table3 reflects the increased number of employed individuals in China].However, China is flooding the market with its textile and clothing products, and this is a significant degree of concern for developed countries like the USA and the EU. The EU in particular has objected tithe manner in which their market has been flooded and the manner in which their domestic producers are being hurt. This is the reason why they are now imposing quotas on Chinese textile and clothing exports.

Quotas that previously applied to Chinese exports to the EU were removed in order to ameliorate trade between the two regions. This waste make trade more prosperous, and it certainly did help the trade volumes increase significantly. However, after 2001, when China entered the WTO, Chinese textile and clothing products were welcomed to such an extent that they flooded the EU market. This is the reason why the EU has decided to re-impose quotas on Chinese textile and clothing exports to the EU (Martin & Ianchovichina, 2001, 421–446).

Many object to the EU re-imposing quotas that bring back the effects of tariffs and trade obstacles between China and the EU. They believe that it is unfair and that the EU is abandoning its commitment to trade under the WTO rules. Here, it is important to include what the WTO rules assert regarding such a situation where the EU has attempted to mitigate textile and clothing exports from China to the EU (Martin& Ianchovichina, 2001, 421–446).

Is the European Union Violating WTO Principles?

In view of the WTO principles, it is clear that member countries are not supposed to discriminate against any products or member countries. In addition to this, it is said that no member me provide advantages intrude over other member countries. This is something that the EU has done