The EU And China Make A Deal

From the Wall Street Journal (page A3 in the print version):

A friendly 11th-hour deal between China and the European Union on curbing Chinese textile exports contrasts with the less-accommodating approach of unilateral quotas imposed by the U.S. It comes as divisions are emerging between the U.S. and Europe on a range of issues over how to respond to China's rising economic power.

Meeting at a government guesthouse in Shanghai, Chinese Commerce Minister Bo Xilai and EU trade chief Peter Mandelson on Friday resolved a dispute over surging exports of Chinese T-shirts, flax yarn, bed and kitchen linens and other textiles to European markets. Under the deal, which must be approved by EU member states, the two sides agreed to set limits on 10 categories of Chinese textile products.

The limits -- which are to last through 2007 and range from growth of 8% to 12.5% a year -- allow for greater growth than the 7.5% annual cap that the EU is allowed to unilaterally impose under China's World Trade Organization agreement...

In Washington, a Commerce Department spokesman yesterday said officials are "reviewing the agreement." But amid the rise of anti-China sentiments in the U.S. and with the Bush administration hemmed in by domestic concerns, the space for U.S. compromise on the textiles issue could be limited, at least over the next two months.

China made clear that it prefers resolving disputes the EU way.

That preference was expressed a bit more directly in this China Daily headline:

China scolds US for textile restrictions

The Unites States was unnamed, but nonetheless implicated, in a China Daily editorial:

The latest deal China and the European Union have sealed sets a good example for the international community which is increasingly threatened by some countries' unilateral protectionist acts.

By capping the growth of Chinese textile and clothes exports to the EU in the coming three years, the China-EU agreement provides a stable environment for Chinese exporters. It also gives European manufacturers a period to adapt to Chinese textile imports.

In the long run, the deal helps prevent protectionism from undermining European consumers' rights to enjoy the cheaper goods guaranteed by free trade.

The deal also helps strengthen rapidly growing economic ties between China and the European Union. With a bilateral trade volume of US$177.3 billion, the EU replaced the United States as China's largest trading partner last year.

Overall, the deal gives a shot in the arm to all those who are really committed to a global trade order which works for everyone.

I'll give that one an "ouch."   Heck, why not pile on.  There is this ancient Chinese proverb from the WSJ piece:

... [Mr. Bo] took a thinly veiled jab at the harder line taken by the U.S. "Unlike some other countries, the EU didn't take unilateral steps against China, but discussed the issue in a friendly manner," Mr. Bo told reporters. "Chinese people have a saying: 'If you respect me by an inch, I'll respect you by a foot.' "

As usual, the political game in the U.S. is complicated.  Again, from the Wall Street Journal:

The EU deal comes at a delicate time for President Bush, whose push for trade liberalization with Central America has run into unexpectedly strong opposition in Congress. Opposition to the Central American Free Trade Agreement, which is considered Mr. Bush's top trade priority for 2005, has been fueled by worry about the treaty's effect on U.S. sugar producers and textile makers, who will face greater foreign competition, and broader concern about Beijing's economic clout. The import curbs slapped on Chinese-made textiles by Mr. Bush this spring helped to dilute opposition from U.S. textile manufacturers to Cafta.

Here's a question.  If you were in charge, would you risk Cafta to make the Chinese happier?  Or would you calculate that the relationship with Beijing swamps any gain from trying to maintain the momentum for hemispheric free trade agreements?   (No fair assuming that Congress will give you both -- the political equivalent of a free lunch.)

UPDATE: Edward Hugh comments extensively on China trade within the EU.

UPDATE 2: Max would not apparently, give a plugged nickel for the likes of Cafta.