EU Quotas on China may rapidly fill in 2007 (Quota Report) - Emerging Textiles

EU-China Textile and Clothing Quota Fill Rates and Prices

EU Quotas on China may rapidly fill in 2007 Quota Report

16 January 2007

China's clothing exports to the European Union may rebound in 2007. Shipments already surged by the end of 2006 with EU's quota fill rates finally reaching 80%-90% in most categories. Licences are being rapidly used in China in the first days of 2007, in addition, with quota prices reaching higher levels, as reflected in our series of graphs below. Adhesion of Romania and Bulgaria to the European Union should be followed by a rise in EU's quotas, nevertheless.

Could EU quotas on imports from China be fully filled this year?

This is far from impossible, when seriously looking at latest offical data from EU's Commission.

First, quotas very rapidly filled in the second part of last year.

Lower imports in first half 2006

After EU's textile and clothing imports had been placed under limits in 2006, shipments began accessing EU's borders at a very low level.

Such a decrease in EU's imports from China reflected a fall in orders that were placed in the second part of 2005 after embargoes were imposed by Brussels.

With quota fill rates remaining at low levels in the first months of 2006, however, fear of new embargoes disappeared and much larger orders were received by Chinese exporters.

As a result, EU's imports began sharply rising by the end of last year and may further increase in the first months of 2007.

Fill rates above 80%

Quota fill rates finally exceeded 80% by the end of 2006 in no less than six categories, including pullovers (5), women/girls shirts (7), or women/girls dresses (26).

Statistics covering the use of licences in China confirm that EU's quotas were nearly filled by the end of the year in categories 5 (pullovers), 6 (trousers), 7 (W/G shirts) and 115 (flax yarns).

Quota licensing did not decelerate in the first 15 days of 2007 in China, as indicated in our charts below.

Use of European quotas is already reaching 11% in category 26 (W/G dresses). At such a speed, this quota would be filled before the end of the first half.

Nearly all limits would actually be reached before the end of the year, if licensing rises at the same pace in the coming months.

Of course, this is not certain, but these data look worrying for Chinese exporters and European importers.

Romania and Bulgaria

Accession of Romania and Bulgaria may partly explain the surge in fill rates, nevertheless.

With Romania and Bulgaria having joined the European Union on 1 January, Brussels already warned that quotas would be raised accordingly.

China's exports to both countries dramatically increased in the past year, in order to re-export products from Romania and Bulgaria to the European Union after quotas were reimposed.

According to Chinese sources, textile and clothing exports to Romania surged 648 percent to US$3.89 with clothing exports even jumping by more than ten times.

More significantly, Romania became China's fourth largest market, before South Korea.

Shipments to Bulgaria were up 836% and clothing exports climbed by 10 times.

Following their entry into the European Union, Bulgaria and Romania are now also imposing quotas on imports from China.

The way EU's quotas will be raised in the short term could be decisive for the level in quota fill rates in 2007.

Such a rise in quotas has not been negotiated with China in 2005 and could be a source of tension, in addition.

Higher quota prices

also reflecting larger demand at the start of the year, quota prices are significantly higher by mid-January than at the end of last year.

According to offers made on Chinese web site "Chinaquota.com", quotas for pullovers are for instance quoted at US$7.50 per dozen (0.81 euro per piece), compared with US$6.50 per dozen on 31 December 2006 (0.71 euro per piece).

A similar rise in prices is observed in other categories.

Imports into the Community of textile and clothing products following the enlargement of the European Union of Bulgaria and Romania on 1 January 2007 (.pdf file)