by Maurizio D'Orlando

Levies enable China to retain near-monopoly in textiles and avoid countervailing measures by competitors, who are still likely to lose jobs.

Milan (AsiaNews) – Trade quotas on textile exports were dropped on January 1. But not all will benefit or lose equally.

In the case of textile exporting countries like Sri Lanka and Indonesia, the loss of quotas might have as bad an impact on jobs as the December 26 tsunami.

It is a different story for China. Although its exports are no longer limited to given quotas, its government has imposed export levies to limit the impact on other developing economies. Seemingly altruistic, this decision is none the less dictated by self-interest.

The old quota system ran askance of traditional views about free trade by fixing how much countries could export.

As tariffs dropped to the 5-10 per cent range they no longer served as inhibitors to imports—they became what they were once: a source of revenue for governments paid more by foreign exporters than domestic consumers.

Unlike import tariffs which regulated market access through less competitive pricing, quotas limited exports by fixing each exporter's market share.

Throughout its history the quota system had its problems and engendered its own scandals.

In recent years though, Chinese manufacturers have become so competitive not only against Europe and the US but also developing economies, especially those of Asia, that it has come to have as a close a monopoly over the sector as there can ever be.

Under the new free trade regime, the Chinese juggernaut risked siphoning jobs away from other countries and provoking a backlash. To pre-empt it, it chose to impose restraints on its own monopolistic potential.

For critics though China's competitiveness is largely due its social and political practices. For instance, manufacturers in other countries have documented how China has engaged in unfair trading practices like dumping, i.e. selling products at a cost below that of raw material imports.

By imposing export levies, the Chinese hope to reach several goals. On the one hand, they can mollify foreign criticism, showing that China cares about other countries. On the other, they can prevent countervailing measures and raise revenue that they are otherwise hard pressed to raise at home.

More importantly, they end up controlling a key sector of the world economy—textiles and could shape export flows just by raising or lowering exports levies and licences.

This is a blatant contradiction. Free traders who steadfastly argued that tariff reductions would increase competition and reduce national monopolies now face a situation in which a country run by Communist bureaucrats—China—can establish a monopoly and regulate one of the most important manufacturing sectors in the world's economy.

• china
• economy
• textile
• industry
• free
• trade
• tax
• levies
• competition
• quotas