Let in China garments or face shortages
By Duncan Hooper (Bloomberg News)
Updated: 2005-09-01 08:47

European Union Trade Commissioner Peter Mandelson warned that consumers will pay higher prices and face clothing shortages unless EU governments release more than 80 million pieces of Chinese garments blocked from entering Europe.

He wants the EU's 25 governments to permit clothing shipments that exceed quotas on Chinese imports he put into place in June to protect manufacturers such as Marzotto SpA, owner of the Hugo Boss label. With caps for most of the 10 textile categories filled, shops are finding supplies for their winter collections, ordered before the limits took effect, stranded in European ports.

Keeping the goods impounded will result in "severe economic pain for many small businesses," Mandelson told a European Parliament trade committee in Brussels on Tuesday.

"It could mean some shortages during autumn, but more likely higher consumer prices for many of our citizens."

EU and Chinese negotiators began talks in Beijing on August 25 in a bid to hammer out an accord. The European delegates have returned to Brussels earlier this week, leaving local officials from the EU mission to carry on the discussions. Beijing will host a two-day EU-China summit starting September 4.

The current talks, "as far as the Chinese authorities are concerned, are unlikely" to produce results "immediately, given the concentration of China this week on negotiating a similar agreement with the US," Mandelson said.

T-shirts, sweaters, trousers, blouses and brassieres are among as much as 400 million euros (US$488 million) of products that can't enter Europe from China. Retailers such as Hennes & Mauritz AB that face higher costs because of the quotas have been joined by the Swedish and Dutch governments in arguing that orders paid for before the limits kicked in are being unfairly obstructed.

Germany, Finland and Denmark have also voiced discontent with the quotas, opening up a split within the EU between northern and southern nations. Greece, Italy and France were among a group of countries that pushed Mandelson to act after the end of a global quota system on January 1 allowed producers in China, the world's biggest textile exporter, to increase their market share.

Mandelson vowed to formulate a plan and began consulting EU governments to lay the groundwork for his proposal, expected later this week.

European retailers' profit may slip as much as 5 per cent in the second half should clothing supplies be disrupted, Matthew McEachran, an analyst at Investec Securities in London, said last week. That would put pressure on the profit of companies including Marks & Spencer Plc, the UK's largest clothing retailer, which gets about 10 percent of its products from China, he said.

"This is unnecessary pressure on retailers who are already feeling the pressure," Stuart Rose, chief executive of Marks & Spencer, said in a telephone interview.

"We've had some difficulties, but we think we've largely mitigated them."

The quotas may mean higher costs for Hennes & Mauritz, which buys about a third of its garments from China, according to Katharine Wynne, an analyst at Merrill Lynch & Co in London who has a "sell" rating on the stock. She estimated the caps could lead to costs of 200 million Swedish kronor (US$26 million) in the three months through November - about 1.5 per cent of the pretax profit she expects H&M to report for the fiscal year.

That "seems high," H&M spokesman Nils Vinge said of Wynne's cost estimate. Hundreds of sweaters the Stockholm-based company imported from China are now blocked in ports across the Europe, including Hamburg, and may end up being sold in non-EU countries such as Norway, Canada and Switzerland, he said.

"We're talking about very limited volumes," Vinge said.

Next Plc is also likely to be hurt by the logjam of Chinese textile imports, according to analysts, and Van de Velde NV, Belgium's largest lingerie maker, has said the impasse could have an impact on deliveries in coming months.

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