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Eu faces clothes shortage over chinese goods blockage

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EU Faces Clothes Shortage Over Chinese Goods Blockage (Update6)

Aug. 30 (Bloomberg) -- 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 Chinese garments blocked from entering Europe.

Mandelson is calling on the EU's 25 governments to permit clothing shipments that exceed a quota on Chinese imports he put into place in June to protect manufacturers. With caps for most of the 10 textile categories filled, shops are finding supplies for their winter collections -- ordered before the restrictions 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 today. ``It could mean some shortages during autumn, but more likely higher consumer prices for many of our citizens.''

T-shirts, sweaters, trousers, women's shirts and brassieres are among products that can't enter Europe from China. Retailers such as Hennes & Mauritz AB, who face higher costs because of the quotas, have been joined by governments in Sweden, Finland and the Netherlands in arguing that orders paid for before the limits kicked in are being unfairly obstructed.

EU Schism

Germany 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 Jan. 1 allowed producers in China, the world's biggest textile exporter, to increase their market share.

Mandelson is seeking to steer a course between his divided constituents that will allow him to release shipments without scrapping the June deal he won from the Chinese. Yesterday, he vowed to formulate a plan and began consulting with EU governments to lay the groundwork for his proposal, expected later this week.

European retailers' profit may slip as much as 5 percent 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 U.K.'s largest clothing retailer which gets about 10 percent of its products from China, he said.

Higher Costs

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 estimates the caps could lead to costs of 200 million Swedish kronor ($26 million) in the three months through November -- about 1.5 percent of the pretax profit she expects H&M to report for the fiscal year.

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.

The commission should have better anticipated the impact of the quotas, said Glyn Ford, a U.K. member of the European Parliament from Mandelson's Labour party. Restricting imports gives manufacturers ``a carte blanche'' to charge more for their goods, he said.

``The commission has no alternative than to let the textiles through the ports,'' Ford said in a statement. ``As the commissioner said -- who would pay for the mountains of trousers and pullovers if we sent them back to China? But this situation should have been anticipated and avoided.''

Good News

To be sure, the import caps have been a boon for rivals of Chinese clothing manufacturers such as Nanra International, a producer of women's apparel that made a quarter of its $2 million in sales last year in Europe.

The quotas ``have helped us,'' Chief Executive Jujhar Singh said by telephone from Delhi. ``The Chinese were really walking all over us.''

Felixstowe, the biggest container port in the U.K., has ``got no backlog or delays in turning containers around,'' said spokeswoman Rachel Jackson.

Mandelson's efforts will be closely watched across the Atlantic as the U.S. seeks to secure a similar arrangement with China. The U.S., the world's biggest clothing importer, has so far resorted to a special World Trade Organization rule to impose restrictions on individual textile products where markets are disrupted by rising imports.

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

No Quick Results

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 U.S.,'' Mandelson said.

Sun Miao, a spokesman for China's Ministry of Commerce in Beijing, declined to comment on Mandelson's remarks.

``We can't comment on this right now,'' he said by telephone. ``Many of our textile experts are in negotiations with the Americans today, and I can't just pull them out to ask them to give us their response to this.''

China opposes bringing forward quotas from coming years to eliminate the current backlog, said Ralph Kamphoener, trade adviser at Eurocommerce. The ``only option'' the commission has is to increase the 2005 quota unilaterally, he said.

China's textile and apparel exports grew 21 percent to $50.35 billion in the first half from a year earlier as manufacturers delivered shipments before U.S. and European quotas took effect, the commerce ministry said July 25. Shipments to Europe jumped 57 percent to $8.65 billion in the half.

Last Updated: August 30, 2005 07:00 EDT

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