european union import quotas on chinese textile and clothin exports in 2005

European Union Import Quotas on Chinese Textileand Clothing Exports in 2005: A Panic-DrivenCommission or Rational Explanations?

Peter Nedergaard

Received: 13 June 2007 /Revised: 13 January 2008 /Accepted: 26 February 2008 / Published online: 15 March 2008# Springer Science + Business Media, LLC 2008

Abstract Based upon a narrative policy analysis, the aim of this paper is to answer twoquestions: (1) Why did the EU re-introduce import quotas on Chinese textile and clothingexports in 2005 after promising to lift them? (2) Why did the EU (partly) abolish thesequotas a couple of months later? The rational choice inspired model put forward in thispaper assumes that the EUs political system is a partial asymmetrical political equilibriumin which decisions taken by decision makers are a product of a supply and demand. Byusing this model, it is explained how the lifting of quotas on Chinese textile and clothingexports to WTO members on 1 January, 2005 and the political situation surrounding theFrench referendum on the Constitutional Treaty on 29 May, 2005, constitute key events inthe decision making process.

Keywords import quotas . European Union . textiles . clothing . China

JEL Classification D72 . F14 . F53

1 Introduction

Based upon a narrative policy analysis, this paper tells an interesting story about extremepolitical volatility among political decision makers in the European Union. Usually, thiskind of political behavior is explained by referring to personnel factors1 or issues such as

J Ind Compet Trade (2009) 9:1747DOI 10.1007/s10842-008-0031-4

P. Nedergaard (*)International Center for Business and Politics, Copenhagen Business School, Steen Blichers Vej 22,2000 Frederiksberg, Denmarke-mail: [email protected]

1 The EUs trade commissioner, Peter Mandelson is the central person in this paper. Stephen Adams, one ofMandelsons spokesmen, came up with a personal factor explanation for Mandelsons decisions on behalf ofthe Commission of the European Union to restrict the EUs import of Chinese textiles and clothing: In orderto understand what Mandelson did, you have to understand that in April he was being burned in effigy byItalian textile manufactures outside the Commission building in Brussels. (In China, Mandelson recoveredhis gloss, The International Herald Tribune, September 9, 2005).

managerial lapses2 or the circus of ministerial panic (Francois and Wrz 2006: p. 1).Here, however, the rational choice theory will be put to a hard test through using it tointerpret volatile political incidences. Rational choice theory is often said to be able tohandle volatile markets and voters (Coleman 1994), but not volatile decision-makers, whoare supposed to have a set of fixed preferences as the basis for their decisions. The aim inthis paper is to discover whether it is possible to use rational choice theory under thesecircumstances. In this way, the theory concerning interest groups and trade policy putforward by Grossman and Helpman (2002) is expanded and defined more specifically.Thereby, this research contributes to the continued debate about the empirical content ofrational choice theory, cf. Cox (1999). For example, Green and Shapiro (1994) have arguedthat rational choice theory has produced virtually no new propositions about politics thathave been carefully tested, and that an empirically successful rational choice theory wouldbe no more universal than ordinary middle-level theories. An attempt to show otherwise ismade here.

The subject of this paper is the introduction of European import quotas on Chinesetextiles in 2005 in order to protect the European textile and clothing industry.3 The keyquestions relating to this issue are as follows: (1) Why, despite the promise to lift them, didthe EU re-introduce quotas on textile and clothing exports from China in 2005? (2) Whydid the EU (partly) abolish the quotas again just a couple of months later? These twoquestions will be answered in this paper.

The theoretical model presented here makes it possible to rationally explain the twoquestions mentioned above when they are interpreted as a result of a partial politicalequilibrium that changes due to the fact that various actors have new opportunities andhindrances in influencing policy-makers in the case of overall political context changes inthe relevant area. This new political context is the lifting of quotas on Chinese textileexports to WTO member states on January 1, 2005 and the political situation surroundingthe French referendum on the Constitutional Treaty on May 29, 2005.4

2 This research concerns the introduction of quotas by the EU on Chinese textile and clothing exports. JrgenRichter, chief executive of Gelco, a German clothing company, criticized the way their introduction washandled: The big problem is that Brussels has set import limits without apparently knowing that most goodswere already ordered in China much earlier this year. That is what is fatal in this situation. (EUChinatextiles deal comes apart at the seams, Financial Times, August 17, 2005). It will, however, be arguedbelow that Brussels knew what it was doing.3 Some clarifying remarks might be necessary concerning the concepts of textile industry and textiles:The industrial portion of the industry that creates clothing is often referred to as the textile industry, and theterm textiles is often reserved for intermediate products, like yarn and fabric that is spun from fibre. Inshort, fiber is transformed into consumer products as follows: FibreYarnFabricClothing (cf. MacDonaldand Vollrath 2005). This paper deals with all products in this product line that were subject to EU importquotas in 2005, i.e. textiles as well as clothing. I newspapers, for example, these two products are oftenmixed; and textiles are often used when speaking about clothing. However, this confusion does not seem tohave any influence on the analysis of this paper as both textile producers and clothing producers were hit bythe opening up imports of textiles and clothing from China in 2005. This is the case even though textiles arealso inputs in the European production of clothing. In this case, still, the final product faced toughcompetition from Chinese exporters in 2005. That is also why European textile producers as well asEuropean clothing producers reacted strongly through their (normally, common) interest organizations in2005.4 The Dutch referendum on June 1, 2005 also gave a no to the Constitutional Treaty.

18 J Ind Compet Trade (2009) 9:1747

Section 2 introduces the empirical background of the case.5 In the next section the modelof analysis is specified to provide a model of explanation. Sections 4 through 7 analyze thepolitical economy of the case focusing on the political demands of producers, retailers andconsumers of textiles and clothing in the market in Section 4; the political supply ofpoliticians and bureaucrats in Section 5; the welfare-economic consequences of theprotection of the European textile and clothing industry in Section 6; and the institutionalcoordination of the member state interests in Section 7. The conclusions are summarizedin Section 8.

2 The empirical background to the case

Quotas on textile and clothing have been an important trade policy instrument since the late1950s. In 1974 a system of trade restrictions on textiles and clothing was introduced byGATT (now WTO) membersthe so-called Multifiber Trade Arrangement. Later, duringthe Uruguay Round at the beginning of the 1990s, in the Agreement on Textiles andClothing from 1995, the members of GATT decided to lift the quotas on textile and clothingimports by the end of 2004. Technically, the quotas were to be phased out in a 10 yearprocess ending in 2005. As China joined the WTO in 2001, the quotas on Chinese textileand clothing exports to the EU were to be lifted as well. In short, by 1 January, 2005 this30 year-old system of trade restrictions had expired.6

The result was an immediate and rapid increase in Chinese exports to the EU. In the firstquarter of 2005 the volume of t-shirt imports from China into the EU rose by 187%compared with the first quarter of 2004. Import of Chinese flax yarn used to make linenrose 56% in volume during the same period.7 The extra supply of Chinese textiles wasimmediately reflected in lower prices according to Euratex, the European textile andclothing industry association.8

When China joined the WTO in 2001, a clause was added to Chinas Protocol ofAccession allowing other WTO members to safeguard their own textile and clothingproducers in the event of a sustained surge in Chinese exports when the old system ended.Already in March 2005, the Commission in general and trade commissioner PeterMandelson in particular were coming under increasing pressure to implement restrictionson Chinese textile and clothing exports to the EU. The guidelines for the introduction ofthese safeguards were announced by the Commission at the beginning of April 2005, when

5 The empirical material used to analyze this case is collected from some of the most authoritative writtensources: The Economist, Financial Times, and The International Herald Tribune. Later in the paper there isan attempt to measure the shifting influences of various social groups vis--vis the EUs textile trade policyvia how often these groups are mentioned in a broader array of written media. Moreover, the conclusions aresupported by relevant documents as well as by specific information from people in government and interestorganizations involved in the EUs trade policy.6 See Francois and Wrz (2006): pp.13 and pp. 914.7 EU cuts off China talks and moves to WTO, The International Herald Tribune, May 26, 2005. At thesame time, data from the first 6 months of 2005 showed moderatation: Chinese total exports to the EUincreased by 130% compared to the data a year earlier (Chinese fault EU in dispute on textiles, TheInternational Herald Tribune, August 26, 2005).8 EU weighs new quotas on China textiles, The International Herald Tribune, April 23, 2005.

J Ind Compet Trade (2009) 9:1747 19

it initiated a 2-month investigation into the surge in the import of Chinese textiles andclothing. However, any safeguarding action would have to be taken only after carefulexamination of the data and consultation with China.9

During May 2005, the Commission warned that it would unilaterally impose quotason Chinese-made garments.10 On 10 June 2005 the so-called Shanghai Agreement wassigned by the Commission and the Chinese government with the purpose of implementingquotas on Chinese textile and clothing exports to the EU.11 This so-called voluntaryagreement on restraining the exports meant that the EU and China agreed to quotasthat restricted Chinese export growth in ten categories of clothing to 812.5% involume per year through to 2007.12 Thereby, the EU followed the usual pattern as allquotas from, for example, the USA since 1955 have been voluntary export restrictions. Inprinciple, due to the rules of the WTO, these quotas were supposed to expire no later thanon January 1, 2008.13 In addition, the EU might also have been inspired by the paralleldebate in the USA on the introduction of quotas on Chinese textile and clothing exportsin 2005.

Still, there may have been a temporary escape clause which could be used to block thefree textile and clothing imports from China after 2007. When China became a memberof the WTO in 2001, it did so under special terms that allowed importing countries toimpose short-term safeguards on Chinese goods until December 2013 wheneverimports threatened to cause market disruption for domestic producers of textile andclothing products (Audet 2004). Of course, whether or not Chinas textile and clothingsafeguards provision would be invoked by WTO members remains an open question(Audet 2004).

When the Shanghai Agreement was signed and published it took more than a monthbefore the announcement of a regulation (and thereby the implementation) on July 12,2005, marking an unusually lengthy process. Within this month licenses to import, forexample, a further 120 million pulloversalmost twice the quota for the rest of theyear and four times total sales in 2004were granted by EU governments, includingthose that most wanted protection for textile and clothing products.14 As a result, morethan 75 million sweaters, trousers, bras and other garments worth 43 million euros werestuck in European ports after China filled its quota much more quickly than anticipatedby the European side.15 Hence, the Commission came under growing pressure from midAugust 2005 to find a solution to the problem of Chinese textiles and clothing held upin transit.

On September 5, 2005 Peter Mandelson and Bo Xilai, Chinas commerce minister,announced that they had come to a new agreement. The stockpiled goods would be allowed

9 World Trade Organization, Report of the Working Party on the Accession of China (1 October 2002),available at http://trade.ec.europa.eu/doclib/docs/2003/september/tradoc_113814.doc (accessed January 3,2008).10 Transition deal in EUChina textile row, Financial Times, June 11, 2005.11 EU signs up new deals in China, The International Herald Tribune, September 7, 2005.12 Chinese fault EU in dispute on textiles, The International Herald Tribune, August 26, 2005; Transitiondeal in EUChina textile row. Financial Times, June 11, 2005.13 EU states stand firm on Chinese textile imports WORRY FOR RETAILERS, Financial Times, July 29,2005.14 Textile trouble; the European Union and China, Economist, September 3, 2005.15 Chinese fault EU in dispute on textiles, The International Herald Tribune, August 26, 2005.


into the EU, but half of them would be counted as part of other quotas, either in 2006 or instill unfilled categories.16

This is the empirical background of the case analyzed in this chapter. In the rest of thepaper the extraordinary series of events presented above will be evaluated.

3 A rational choice model of EU import quotas

In Fig. 1 the theoretical model of the paper is presented.The arrows between the boxes in Fig. 1 indicate dominant causal relationships

between the objects in the boxes in the theoretical model. In other words, it is assumedthat economic problems in the European textile and clothing sector potentially triggerpolitical interventions, the character of which is determined by the partial equilibriumbetween the politicians and bureaucrats supply of political decisions on the one hand,and the producers, retailers and consumers demands on the other. This partialequilibrium is biased or asymmetric because it is dominated by the European producersdemands for political interventions in the form of protectionism vis--vis producersoutside of the EU (strong demand), and less influenced by the retailers demands forreliable and, preferably, free import of textiles and clothing (moderate demand), whilethe consumers as a whole only have few claims (weak demand) or a low level of interestin trade policy decisions.17 In short, the demands for political decisions from the retailersare expected to be stronger than those of the consumers, but weaker than those of theEuropean producers of textiles and clothing. The background for this hypothesis of therelative weight of demands is presented in the next section.

The macro-economic losses analyzed in this paper consist of the losses that aprotectionist textile and clothing import policy inflict on society. The political co-ordination difficulties stem from government failures and lead to a multi-level gameinvolving member states interests and the common interests of the EU. Member statesof the EU are assumed to have an interest in obtaining protection for their own textileand clothing sectors if they have significant textile exports within the EU, and if theirproducers are less competitive than potential competitors outside the EU. Member stateswith a fully competitive textile and clothing industry (or no industry at all) are assumedto be in favor of the free import of textiles and clothing into the EU. Hence, the textileand clothing import policy raises questions about how to tackle the resulting co-ordination difficulties between member states with very different interests in the tradepolicy. In other words, how does the Commission as the prime representative of theEUs common interest solve these co-ordination difficulties? Did the Commissionchange its management of the EUs common interest during 2005 and, if it did, howand why?

The model above analyzes the EU trade policy with special regard to the textile andclothing import policy. The causal relationships in the model are often set in motion byfactors outside the EU as they have influenced the internal conditions of the EUs textileand clothing production in the last 15 years due to the free trade negotiations within GATTand WTO. In this paper, a WTO agreement serves as the starting point. However, it is

16 Economist.com, September 7, 2005.17 This fact was also mentioned by the Financial Times, August 11, 2005, as an explanation of theintroduction of quotas on Chinese textile exports in 2005.


predicted that external pressures on the textile and clothing import policy will triggerinternal changes and adjustments in the trade policy in accordance with the mechanismsshown in the model.

4 The economic system and the demand side: producers, retailers, and consumers

The supply of textile and clothing goods has two main characteristics. First, thesignificant position of European textile and clothing production that competes with theChinese textile industry is overwhelmingly located in specific member states. The mainproducers of wage intensive textiles and clothing products are Portugal, Spain, Italy,Greece and several member states that entered the EU in 2004, with Poland as the mostimportant textile and clothing industry country among them. France belongs to thesame group of countries even though it has outsourced most of its textile production buthas kept, for example, a portion of the production of flax yarn for linen products, aproduct area that was struck hard by the sudden increase in Chinese exports in 2005.18

Second, alternative job possibilities for low-skilled textile and clothing workers areoften scarce in areas like north-western Poland, south-eastern France and northernPortugal, where the European textile and clothing producers are located. This is a hardfact, despite the disputes on how many jobs are actually affected by the tradeliberalization. On the one hand, OECDs Employment Outlook from 2005 concluded

18 U.S. and EU turn up the heat on China; A tougher line on textiles before a French vote, TheInternational Herald Tribune, May 18, 2005.

a Market Failures

1. Demand Side:

Retailers and Consumers

2. Supply Side:

Producers

b Government Failures1. Demand Side:

Producers, Retailers and

Consumers

2. Supply Side:

Politicians and Bureaucrats

d Political Co-ordination difficulties1. Component:

Member State Interests

2. Aggregate Level:

The Common Interests

Economic System: Welfare Economic Approach Political System: Rational Choice Approach

Micro

Level

Macro

Level

c Wellfare Gains/Losses

1. Component:

The Textile and Clothing

Sector

2. Aggregate Level:

Economic Efficiency

Fig. 1 Model for Analyzing the Textile and Clothing Trade Policy of the European Union


that only a tiny fraction of job losses in the EU could be attributed to trade liberalization.On the other, Eurotex argued in 2005 that as many as one million textile and clothingjobs could be lost in the EU if curbs to textile and clothing imports were not re-introduced.19

The two main characteristics of textile and clothing goods mentioned above reduce thecosts of organizing collective action by the textile and clothing producers at the memberstate level, because government officials and politicians from member states withsignificant textile and clothing production concentrated in certain areas are very open topressure from interested producers, from trade unions organizing the workers and fromparliamentarians elected in these areas.

According to European textile and clothing producers, the impact on local manu-facturers was dramatic due to the sharp increase in Chinese textile imports to the EU atthe beginning of 2005. The production of t-shirts in Portugal, for example, was 30% to50% lower in volume in May 2005 than a year earlier. Meanwhile, EU-wide productionof flax yarn had fallen by a quarter, and the employment in this sector had fallenby 13%.20

A relatively smooth restructuring of the textile and clothing industry had takenplace in many northern EU member states after the opening-up of investments andtrade with the central and eastern European countries in the aftermath of the fall of theBerlin Wall in 1989. In the southern European member states this restructuring had nottaken place, perhaps because they were still competitive (partly due to the restrictionsembedded in the so-called Europe Agreements between the EU and the central andeastern European countries), perhaps because of a lack of business alternatives. In anycase, according to rational choice theory, the fact that the elimination of textile andclothing quotas could have been foreseen long before 2005 played no role for theindividual producers, as they are not guided by such general rationalist considerationson behalf of the industry. Producers are not rational at the aggregate level, but only atthe individual level.

As expected, the result was more intensive lobbying on the part of European textile andclothing producers. Many sources confirm that these producers lobbied hard for controls tobe introduced after the old quota system limiting Chinese textile and clothing imports hadended.21

The demand for textile and clothing products consists of two basic steps. First, retailersimport items and material that are paid for already when textiles and clothing are still in theexporting country (e.g. China). Second, consumers buy clothing from the retailers. Over thelast few years, worldwide demand has accelerated, boosted by favorable trends in incomesand fiber prices. However, as clothing is not an immediate necessity in the developedworld, its purchases can be delayed, making demand extremely responsive to short-termchanges in prices and incomes. In the long term, clothing consumption is far less responsiveto changes in incomes and is actually growing more slowly in volume counted as kilogram

19 EUChina textiles deal comes apart at the seams, Financial Times, August 17, 2005.20 U.S. and EU turn up the heat on China; A tougher line on textiles before a French vote, TheInternational Herald Tribune, May 18, 2005.21 E.g. EU weighs new quotas on China textiles The International Herald Tribune, April 23, 2005;economist.com (September 1, 2005) stated as follows: powerful textile lobbies have frantically agitated forlegislative action to stop the flood of cheap Chinese apparel from swamping their business.


fiber than income on average.22 This fact potentially creates some of the same problems fortextile and clothing producers as for, for example, farmers.

In short, the specific characteristics of the industry put independent pressure on thetextile and clothing producers as far as lobbying is concerned.23 This effect is causedboth by the consumers ability to delay his or her consumption until the right (and cheap)piece of clothing becomes available and because, in general, clothing is a matureproduct with relatively low growth rates as far as basic textile and clothing products areconcerned.

Problems with competitiveness create a consensus among textile and clothing producersin using the political system as an alternative way of pursuing their own economic interests.Stated in terms of rational choice theory, textile and clothing producers see that theireconomic profit-seeking in the market is unsuccessful. Instead, it seems that political rent-seeking through organization in an interest group provides a better economic pay-off(Krueger 1990).

In order to be rational, when an economic actor decides to join or participate in aninterest group, he or she has to judge whether the potential benefits exceed the foreseeablecosts. Costs are incurred by the administration and co-ordination that is necessary in orderto acquire political influence. If an economic actor belongs to a group with structuralfeatures that imply few organizational costs, this group must be expected to be relativelyeasy to organize. For textile and clothing producers this is decisive in lending strength tothe groups organization. At the same time, the group members` preferences are similar asthey, fundamentally, want more protectionism.

In common with other interest groups, textile and clothing producers run the risk ofsome members free-riding when they organize themselves in order to acquire politicalinfluence with the aim of enhancing common interests. Political influence has manyfeatures in common with public goods, since it is impossible to exclude non-organizedtextiles producers from benefiting from the efforts made by their organized counterparts.For example, all textile and clothing producers in the EU will benefit from a rise inprotectionism that is partly a result of the political activity of the textile and clothingproducers organizations. Why should a producer then join a professional association thatworks on behalf of all members of that industry, regardless of whether or not they aremembers of the association (cf. Scott 2000)?

Olson (1965) was the first to point out the necessity of selective incentives if individualsare to participate in a collectively beneficial activity that looks like a public good. Selectiveincentives alter the rewards and costs in such a way as to make support for collective actionprofitable (Scott 2000).

The selective incentives for European textile and clothing producers are individualadvantages connected to involvement in negotiations with political decision-makersthrough their interest organizations. These advantages have been cultivated in the decadeswhen all imports to the EU were part of the GATT and WTO Multifiber TradeArrangement. The existence of long standing and detailed quota import systems providedhigh motivation for European textile and clothing producers to become organized in interestgroups because of detailed and reiterated negotiations on the size and content of quotaswhich meant that they could overcome the problems of collective action, because each

23 This is an effect seen even more strongly in agriculture (cf. Nedergaard 2006a).

22 MacDonald and Vollrath (2005).


individual producer could often have at least some influence on the administration of thequota system that was relevant for his or her particular line of production.24

As mentioned at the beginning of this section, a basic explanation of the textile andclothing sectors organizational strength relates to the economic conditions to which textilesand clothing producers are subject. The new pressure on prices of textiles and clothing afterJanuary 1, 2005 made it easy for producers to build consensus about the well-defined goalof easing the competitive pressure through political means. This new pressure was createdby the new external competitors penetrating EU markets, which were already sufferingfrom relatively low increases in demand. However, strong external competitive pressure isfar from serving as an adequate explanation for the costly import policies. In othereconomic sectors of society, incomes are on average as low as those in the textile industry,but they do not get support through protectionism or other kinds of interventionism. Thereason for this difference is partly that the organizational costs in the textile and clothingsector are lower and, more fundamentally, that there is no selective incentives in these othersectors.

While textile and clothing producers can be regarded as demanders of protectionism andintervention, the demand of the retailers and consumers is expected to pull in the oppositedirection. In this light, the actual level of protectionism can be regardedaccording to theproposed theory in this paperas a function of the investment made in political influenceon behalf of the textile and clothing producers, retailers and consumers respectively. Theresult is assumed to be a partial equilibrium situation between opponents and supporters oftextile and clothing protectionism against the background of calculations of the marginalcosts and benefits of the investments made in political influence.

The aim of more or less organized interest groups entering the political market is toachieve a political result. So, by means of a lobby-curve with net gains from lobbyingand resources used for lobbying on the two axes, it is possible to illustrate the willingnessor unwillingness of the suppliers of political decisions to submit to pressure from lobbyists.Figure 2 shows the lobby-curves in the three groups mentioned above with different slopeswith the retailers and textile and clothing producers lobby-curves.

Figure 2 shows that the slope of the lobby-curve is higher for textile and clothing producersthan for retailers, which is still higher than for consumers. It may be suggested that the slope ofthe lobby-curve is higher (1) the better the economic groups are organized (e.g. measured as ahigh affiliation percentage and fewpreferably only oneinterest organization in the area), (2)the more potentially effective the lobbying is (e.g. measured as staff and financial resources),and (3) the more the other social groups accept the consequences of political decisions that aparticular interest group demands. The third point, not least, can change quite quickly ashappened after the French referendum on May 29, 2005.

There are 370 million consumers in the EU.25 In contrast, the retail sector employs about1.7 million people26 and the EUs textile and clothing industry employs less than 2.5million.27 Nevertheless, the textile and clothing industry seems to have more influence onthe EUs textile and clothing import policy than both the retail sector and consumers.

27 EU admits glitch on textile quotas, The International Herald Tribune, August 25, 2005; Eurostat 2006.

26 http://www.aedt.org/index.php?page=STATISTICS&sub=Statistics_sub_menu_1&sub_sub=&langue=en(accessed April 27, 2007).

25 http://europa.eu.int/scadplus/leg/en/lvb/l32000.htm (accessed April 29, 2006).

24 As mentioned by economist.com (September 6, 2005): Supporters of quotas are vociferous andpotentially well-connected in their home countries.


As far as the organization of the interest groups mentioned above is concerned, theinterest organizations in the retail sector are more diffuse than in the textile and clothingindustry: at the European level, the Foreign Trade Association, EuroCommerce and theEuropean Association of National Organizations of Textile Retailers (now EuropeanAssociation of Fashion Retailers) are all important bodies representing retailers andimporters. On the other hand, there is only one major lobby group for textile and clothingproducersEuratex. As far as the consumers are concerned, the national consumerorganizations (all of which have very few members, i.e. an affiliation percentage of a fewpercent) coordinate their European activities in the Bureau Europen des Unions deConsommateurs (BEUC); however, this euro-lobby organization is somewhat weak due to alack of resources.

Behind the slope of the lobby-curves are the selective incentives for the various groupsto organize, and it is here that the textile and clothing industry is strong. The theoreticalexplanation of the empirical situation outlined above is as follows: the partial equilibriumsituation in the textile and clothing industrys political market is asymmetric because theproducers are able to press the slope of their lobby-curve upwards due to the selectiveincentives.28 That is not the case for companies in the retail sector even though there are

1

2

3

4

5

Ressources used for

lobbying

Net gains

from

lobbying

1) Textile and clothing producers before the French referendum on

May 29, 2005

2) Textile and clothing producers after the French referendum on May

29, 2005

3) Retailers after the French referendum on May 29, 2005

4) Retailers before the French referendum on May 29, 2005

Fig. 2 Three Textile and Clothing Groups with Different Lobby-Curve Slopes

28 See also Ballisacan and Roumasset (1987).


more selective incentives for retailers to organize than for consumers (e.g. in order toaccess help in obtaining import licenses). As a result, the textile and clothing producersare over-motivated to use money and time to safeguard their collective interests. Thepotential opponents of the producers are the retailers and consumers, but the consumersare only weakly organized and the retailers are more heterogeneously organized than theproducers. In addition, the marginal benefit of opposing the textile and clothing producersresulting from lower consumer prices is very limited among a great number of consumers(cf. Nedergaard 2006a).

It has been suggested above that the slope of the lobby-curve for the retail sectorchanged rapidly after the French referendum on May 29, 2005. This is underpinned by thedata presented in Table 1 below, which details the number of newspaper articles about theChinese textile and clothing exports to the EU in 2005 in a large number of European newssources29 publicizing the views of the organized lobby groups of consumers, retailers andproducers respectively. These data are regarded as a proxy for the organizational strength ofthe various lobby groups. As shown in the table, the voice of the textile and clothingproducers was the one that was most often heard in the selected media before May 29,2005, whereas it was the viewpoint of the retailers that was most often seen after that date.

More precisely, after May 29, 2005, there was a 39% increase in the articles mentioningtextile and clothing retailers; at the same time there was a 42% decline in pieces alluding toproducers. The number of articles mentioning consumers was very low in both periods.

The reason for this change is that before the French referendum other social groupsseemed willing to accept the consequences of the political decisions favoring the Europeantextile and clothing producers, whereas after May 29, 2005 they were not. After the Frenchreferendum on the Constitutional Treaty there were no advantages for other social groups inaccepting the demands for more protection from the European textile and clothingproducers. They had accepted that quotas should be imposed in order to safeguard theFrench yes vote. However, when the referendum was over and perhaps especially afterrecognizing that more protectionism could not deliver the yes vote, the acceptance oftextile and clothing protectionism by social groups (other than the producers) decreased. On

29 Cf. the Appendix of the paper for a complete list of the news sources included.

Table 1 Number of newspaper articles about the Chinese textile and clothing exports in 2005 in Europeannews mentioning interest organisations of producers, retailers and consumers respectively

January 1 to May 29, 2005 May 30 to December 31, 2005

Number of organisationnames (N)

In percentage Number of organisationnames (N)

In percentage

Producer 67 66 25 24Retailer 34 34 77 73Consumer 0 0 4 4In sum: N/percent 101 100 106 101

Search conducted utilizing the words textile and China and (1)Euratex for the producer category, (2)FTA or Foreign Trade Association or EuroCommerce or AEDT or European Association of NationalOrganizations of Textile Retailers or European Association of Fashion Retailers for the retailer category,(3) BEUC or European Consumers Organisation or Bureau Europeen des Unions de Consommateursfor the consumer category. Search conducted in the European News section of the LexisNexis NewsDatabase. Source: LexisNexis News Database


the other hand, at this point, the investigation by the Commission into the surge in theexport of Chinese textiles and clothing and the negotiations between the Commission andthe Chinese government had already been set in motion and could not be halted.

Hence, the Shanghai Agreement on import quotas on Chinese textiles and clothing wasnegotiated between the Commission and the Chinese government even though at this pointthe slope of the lobby-curve for retailers had already moved in the direction of the lobby-curve of the producers due to changes in point 3) mentioned above. The fact that thingschanged in favor of the retailers after May 29, 2005 is illustrated by a statement made byFrancesco Marchi, Director of Euratex, after the modification of the Shanghai Agreementwas made public on September 5, 2005: I think that part of my industry will bedisappointed. Only 50% is being paid for by the Chinese. The other is a free gift toChina.30

The situation in the period between June 10, 2005 (when the Shanghai Agreement wassigned) and July 12, 2005 (when it was implemented) was exploited by retailers in the EU:they were able to achieve this because of the extremely long period of time fromannouncement to implementation of the Shanghai Agreement.

This exploitation was officially criticized by Peter Mandelson on August 9, 2005, whenhe put the blame on European retailers for the difficulties concerning the Chinese textileand clothing exports being blocked in transit, suggesting that they had massively stepped uptheir orders from China to get these goods into Europe under the wire before July 12,2005. According to the Financial Times, Peter Mandelson used the following argument:The Commission has kept importers and retailers informed of developments at every stage.However, the sheer scale of their attempts to beat restrictions has presented us withimmense difficulties. The Foreign Trade Association, on the other hand, said it wasdisappointed by Peter Mandelsons accusations. It criticized the Shanghai Agreement fornot adequately addressing the issue of importers that completed orders before the agreementwas finalized, even though all parties knew that many contracts with Chinese exporters hadalready been signed.31 Moreover, as mentioned, by having such a long time elapse betweenthe signing of the Shanghai agreement and its implementation, Peter Mandelson invitedretailers to exploit the situation according to retailers organizations32, thereby implicitlyand, probably consciously, strengthening the EU textile and clothing retailers vis--vis theEU textile and clothing producers.

When taking a rational theoretical route of reasoning, the many pieces of the puzzleseem to fit nicely together: the Commission had incentives to send a signal that it waswilling to restrict the influx of Chinese textiles in order to help the yes-side in the Frenchreferendum; however, when these restrictions had been adopted, the immediate cause forthem (i.e. the French referendum) had disappeared. The slope of the lobby-curve of theretailers now made their lobby efforts more effective, and the Commission was underpressure from this side as well because of the many textile goods being stuck in Europeanports. The long period of time before the implementation of the Shanghai Agreement can beseen as resulting from this counter-pressure from retailers. By prolonging the period oftime, the Commission accommodated the retailers and opened the way for futuremodification of the Agreement. They knew that the fully informed retailers would certainly

30 EU meets halfway with China on clothing, The International Herald Tribune, September 6, 2005.31 Excess of trousers puts strain on EU China textiles deal, Financial Times, August 10, 2005.32 EU admits glitch on textile quotas, The International Herald Tribune, August 25, 2005.


exploit the situation and make the adaptations of the Shanghai Agreement a necessity thatwould be in accordance with the new post-referendum lobby-curves.

5 The political system and the supply side: politicians and bureaucrats

The strong and homogeneous interest organizations in textile and clothing production(relative to opposing groups), the only moderately forceful and heterogeneous interestorganizations of the retailers, and the consumers relatively weak interest organizations arenecessary conditions for political decisions being pro-textile and pro-clothing producersoriented (however, after May 29, 2005 only moderately). In addition, political decision-makers, politicians and bureaucrats, are required to be willing to fulfill the demands onpolitical decisions (Grossman and Helpman 2002: pp. 5254).

In this context, it is a widespread notion that politicians and bureaucrats in a democraticsociety make decisions reflecting the wishes, attitudes and preferences of the people, inparticular, political goals that are common among a majority within the electorate, and thatthese decisions are assumed to make up the foundation of the political decisions in society(Grossman and Helpman 2002: pp.4749).

The existence of such correspondence between the democratic, collective decisions andpolicy objectives based on individual preferences is much too optimistic, although long-lasting in democratic theory (Nedergaard 2006a). While the gain from free imports oftextiles is spread collectively among all consumers, extraordinary incentives are needed tomobilize consumers in the political process. In the same way, the costs of the expansion ofprotectionism have to be paid by all consumers. Again, extraordinary incentives are neededto mobilize consumers. Their loosely organized group is confronted with a much smaller,but much more homogeneous group of textile producers who enjoy the benefits of anexpansion in protectionism and who are struck hard by more free trade. The gains andlosses of this group are concentrated and private in character. The retailers, however, act asa modifying sector as far as textile and clothing protectionism is concerned, a groupfavoring not necessarily free trade (even though this is preferred), but predictable traderelations. Nevertheless, at first the retailers were ineffective in their lobbying; after theFrench referendum, however, things changed in their favor, even though political decision-makers were still relatively pro-textile producer oriented due to the latters organizationalstrength. Or as stated by The International Herald Tribune: The quotas [agreed upon in theShanghai Agreement] have exposed the tensions between the two most powerful lobbies inEurope.33

Because of the marginal impact of rising and decreasing protectionism in the textilesector, electorates in general have no incentives to acquire a specific interest in textile andclothing import policy. The individual producer, on the other hand, has revenue that is to acertain extent a function of political decisions. His or her motive for influencing the policyis therefore very strong.34 Textile and clothing producer organizations will therefore gatherinformation about what national political representatives do as far as trade policies ontextiles and clothing are concerned, whereas the general public do not bother to keepthemselves informed on these matters.

33 EU backpedals on textile quotas, The International Herald Tribune, August 25, 2005.34 economist.com (September 7, 2005) expressed it like this: But it is not surprising that textilemanufacturers have chosen to lobby for government intervention rather than quickly file for bankruptcy.


In this paper, it is suggested that politicians make political decisions according to howvoters will react. Voters, on the other hand, have to consider the costs when they form theirpreferences and transmit them to the politicians. If the voter is rational, a minimum ofindividual benefits is necessary if he or she wants to incur the costs of collectinginformation and transmitting preferences to the political decision-makers (Grossman andHelpman 2002: pp. 126131). As mentioned above, just getting information about theimpact of protectionism of textile and clothing products is difficult and costly. The supportis hidden in the prices as well as in bureaucratic measures.

Alongside the politicians, the bureaucrats are important suppliers of trade policydecisions. In rational choice theory it is assumed thateven though politicians formallytake the political decisions under counseling from the civil servicebureaucrats are alsoindependent actors who want to preserve and expand their power bases, their careeropportunities, etc. In trade policy, bureaucrats probably have quite a considerable amount ofinfluence because this area is characterized by technicalities and many specific rules. As aresult, politicians avoid dealing directly with many of the regulatory and distributivequestions relevant to the sector. When political decisions are transformed into quasi-political and bureaucratic-technical questions, textile and clothing import policy takes on aseemingly objective character. At the same time, it endows the bureaucrats making inputsinto the political process with a large amount of influence (Mueller 2003: pp. 126131).

In the month after the signing of the Shanghai Agreement on June 11, 2005, a very largenumber of licenses to import Chinese textiles and clothing were granted by EUgovernments. This can be interpreted as a result of the cross-pressure from the strongorganized textile and clothing producers as well as from the still more (after the Frenchreferendum) outspoken retailers. The licenses were granted on an objective basis due to thecase handling by bureaucrats who nevertheless, at the same time, were also assumed toaccommodate the stronger demand for a more pro-retailer textile and clothing trade policy.In this rationalist explanation of the events highlighted in this paper, the ShanghaiAgreement had been planned before the French referendum; after the referendum, however,the lobby-curve of retailers changed its position and they were compensated for theprotectionist Agreement through excessive granting of licenses to import Chinese textilesand clothing. In other words, the many licenses to import Chinese textiles and clothing, aswell as the long period of time between the signing and implementation of the Agreement,can be rationally explained as preconditions for the later modification of the ShanghaiAgreement on September 5, 2005.

6 Economic welfare losses due to import quotas

The period that is analyzed in this paper is characterized by a lifting, a reintroduction, and,finally, partial re-lifting of the EUs import quotas on textiles and clothing from China. Theeconomic consequences of import quotas are a well-known phenomenon in macro-economic literature. Import quotas are an import-restricting policy that operates directlythrough price mechanisms, and are probably the most important so-called non-tariff barrierto trade. The effect of the quotas is to raise domestic prices, since they restrict the supply tothe domestic market to the benefit of domestic producers and to the disadvantage ofconsumers. In many ways, the welfare effects of quotas are similar to those of tariffswhich in industrialized countries mean a negative effect (Sdersten and Reed 1994).

Typically, the government will issue licenses for the import of various proportions of thequota. However, there are different economic consequences depending on how the licenses


are issued. If they are issued free of charge, then the holders of them will gain the rentresulting from the quotas. If the licenses are issued by the government of the exportingcountryalso known as a Voluntary Export Restraint arrangement (VERs)then theresulting rent will probably go to the foreign suppliers taking part in the VER arrangementsbecause it allows them to export at higher prices. This ability to earn rent is one of thereasons why foreign suppliers can often be persuaded quite easily to voluntarily restricttheir exports (Sdersten and Reed 1994, p. 206). Countries frequently resort to VERs partlybecause import quotas are not permissible under the WTO. Typically, it is the import-competing industries that pressurize their governments into negotiating a VER with theexporting country as a means of lessening import competition (Kreinin 1987, p. 330)

The import quotas that were negotiated between the EU and China in the ShanghaiAgreement of June 11, 2005 and later renegotiated in the new agreement of September 5,2005 were both VERs. These two agreements therefore enabled China to set higher priceson the (all things being equal) lower export of textiles and clothing and, thereby, harvest therent paid for by the consumers in the EU.35 This was probably the reason why the Chinesegovernment was not so unwilling to negotiate agreements on the textile and clothingquotas. Chinese Commerce Minister Bo Xilai said, The Chinese government appreciatesthe EUs sincerity in solving trade disputes with China through dialogue and consultation,instead of taking unilateral action.36 As a matter of fact, if the EU had adopted importquotas unilaterally (with licenses issued to European importers), China would probably nothave been able to harvest the extra rent, as it would have gone either to the Europeanimporting firms or the importing countries. However, this would have also been a directviolation by the EU of its WTO obligations. China would then have had a direct interest inbringing the EU before the WTO panel set up to scrutinize WTO member compliance withthe organizations rules.

At the same time, for the EU, the VERs on Chinese textiles and clothing were a rationalsolution to a delicate political problem because the price was paid mainly by the mostweakly organized group within the EU, namely the consumers that (as analyzed in thesections above) have little chance of collectively resisting the introduction of VERs. This iswhat was predicted by the theory suggested in order to analyze the Chinese import quotacase in this paper.

There is no precise estimate of the effect of the quotas introduced in 2005, but it isestimated by OECD (2004) that the quotas before January 1, 2005 (which had a similareffect to the quotas introduced in the Shanghai Agreement) cost a family of four an averageof 330 euros per year.37 This was the loss as far as the consumers of the EU are concerned.In total, the economic welfare loss of the EU is then nearly 400 billion euros.

As expected in rational choice theory, in spite of the fact that the losses are enormous,the size of the welfare losses does not seem to have played any important role in theadoption of the textile and clothing import policy. As seen in Table 1, the consumers voiceas far as quotas on Chinese textiles and clothing in 2005 is concerned was only heard

35 This rent is often called the tariff equivalent revenue in economics literature. See Francois and Wrz(2006) for an overview of studies estimating the impact of the pre-2005 quotas on textiles and clothing. AsChinese foreign trade is highly centralized, China will probably be able to administer its VER agreement withthe EU in a way that includes all Chinese suppliers and not only the major ones as is typically seen in VERarrangements. Therefore, China will probably be able to capture all the tariff equivalent revenue (cf. Kreinin1987: p. 331), which makes VERs more attractive for China than for less centralized economies.36 Textile trouble; The European Union and China, The Economist, September 3, 2005.37 The textiles scramble is a circus disguised as a crisis, Financial Times, September 7, 2005.


relatively few times in the large number of newspaper articles about the introduction ofEuropean import quotas on Chinese exports in 2005. As a matter of fact, the voices ofproducers and retailers were heard much more often than those of consumers.

7 Political co-ordination and the Chinese textile and clothing quota case

According to the Financial Times38 that followed the case of Chinese textile and clothingproducers very closely, one can identify two opposite coalitions of member states as far as theimplementation of quotas on Chinese textiles and clothing in 2005 is concerned, twocoalitions that underscored the north-south divisions inside the EU.39 The first consisted ofSpain, Portugal, Italy, France and several new member states in eastern and central Europe.40

This coalition was generally in favor of a protectionist textile and clothing import policy. Thesecond was made up of Sweden, the Netherlands, Denmark, Finland andfrom August 15,2005 onwardsGermany (Financial Times, August 16, 2005). These countries had a small,efficient and relatively modern textile and clothing production capability, and most of thewage-intensive production in these member states was already outsourced to other countries.

In between these two coalitions were the United Kingdom and Germany (until midAugust 2005) even though Germany only has a relatively small and (by and large)competitive textile and clothing industry. The UK held the presidency of the EU from July2005 and stayed neutral (this is a normal self-imposed constraint in the EU) in the ongoingdebate between the two coalitions in the run-up to the presidency and during its period ofoffice.41 In the first period Germany supported the protectionist coalition at some criticalmoments before the French referendum on May 29, 2005. As mentioned, however,Germany changed course due to new pressure from retailers organizations at some pointafter the French referendum.42

It is clear that France had a special interest in the question of EU quotas even though ithad to some extent outsourced wage-intensive textile and clothing production. Already inApril 2005, the French foreign minister, Michel Barnier, said that he wanted the EU to actwithout delay to save European textile and clothing jobs.43 As mentioned, France (togetherwith Italy) is the main producer of flax yarn which has suffered from the sharp increase inChinese textile and clothing exports since January 1, 2005.44 Last but not least, the French

39 EU backpedals on textile quotas The International Herald Tribune, August 25, 2005.40 All in all, a group consisting of 13 the member states according to The International Herald Tribune, April26 2005. It was also claimed that this first coalition defended the interests of developing countries such asBangladesh, Turkey, Tunisia and Morocco, which had built their textile businesses on the back of the oldquota system or on access to the EU market (The International Herald Tribune, April 9, 2005; TheInternational Herald Tribune, August 30, 2005). An anonymous top official at the French Trade Ministryspelled out the rationale for this position: This is a very important concern for France. This is not onlybecause French businesses have factories in these countries, he said, but also because the textile industry isoften the largest employer. It will create social and political problems if thousands of people becomeunemployed in Tunisia or Morocco. (The International Herald Tribune, August 30, 2005).42 E.g. EUChina textiles deal comes apart at the seams, Financial Times, August 17, 2005.42 E.g. EUChina textiles deal comes apart at the seams, Financial Times, August 17, 2005.43 13 members pressure EU over textiles from China, The International Herald Tribune, April 26, 2005.44 U.S. and EU turn up the heat on China; A tougher line on textiles before a French vote, The InternationalHerald Tribune, May 18, 2005.

38 EU urged to review Chinese textile quotas, Financial Times, August 16, 2005.


government wanted to use restrictions on Chinese textiles and clothing as a signal in thedomestic campaign on the EUs Constitutional Treaty that the EU was a wall against tradeliberalizationnot a champion of the same. For the French government, quotas on Chinesegoods were also a signal to other groups (e.g. French farmers) that could potentially sufferfrom increased trade liberalization.

Generally, as predicted by rational choice theory, the position of member states vis--visquotas was first and foremost determined by whether or not the state had national producerssuffering from the surge of Chinese textiles and clothing into the EU after January 1, 2005.The asymmetries of the national political systems outlined above are much more decisivethan diffuse welfare-economic losses or benefits for member states as a whole. However,these asymmetries can change due to extraordinary circumstances such as a referendumbecause the lobby-curve of the various interest groups changes at the same time. In addition,the position of Germany (which in this case seemed to regard itself to a certain degree as adefender of the common interest of the EU together with the Commission) has to beevaluated. Such an explanation has to broaden the picture of Germanys national interests andhas to include an interpretation as to why Germany has so often in the history of Europeanintegration sacrificed its short-term interests for the sake of long-term general Europeaninterests. On the surface, factors influencing such an explanation should be sought outside therational framework of this paper: the defeat in World War II and the road back to becoming anormal European country, the fact that German influence on the world scene occurs throughthe EUmore often than for the UK and France because it is not a member of the UNs SecurityCouncil, the German interests in adhering to its alliance with France, and the constitutionalconstraints on German decision-makers which outlaw, for example, referendums.45

However, none of the above means that German politicians and bureaucrats are notunder strong influence from organized interest groups as it has also been pointed outabove.46 Therefore, the German behavior might still be interpreted within the rationalchoice framework, but in a fashion where promotion of its interests is functioning on asomewhat more complex background than for most other member states due to its semi-hegemonic role within the EU.

In the area of trade policy, the general asymmetry whichaccording to rational choicetheoryis always present in collective political decisions, is sharpened by the suppliersof decisions who often have independent reasons for reinforcing a complicated,protectionist trade policy because it enhances their power base. In rational choice theoryit is recommended that institutions should be set up in order to place restraints on utility-maximizing actors, no matter whether they are interest groups or member states. Theseinstitutions should be designed with the aim of encouraging a larger degree of correlationbetween the particular interests and the common interests. At the same time, once created,institutions realize an interest of their own in enhancing power, size etc.

In European textile and clothing import policy, the most relevant institutions are theCommission and the Council of Ministers.47 The position of the Council of Ministers is a

45 All these factors are also mentioned in the literature on European integration (e.g. Dinan 2005).46 Cf. EUChina textiles deal comes apart at the seams, Financial Times, August 17, 2005.47 Also the European Parliament expresses views of general interest in the EUs textile policy as they did onSeptember 6, 2005 (the day after the second textile quota agreement between the EU and China in 2005)when they called on the EU trade commissioner to extend Chinese textile quota restrictions wherenecessary, claiming that China was not operating on a level playing field (Financial Times, September 7,2005). Although the European Parliament seems to be an institution that plays no role in order to reduce thepolitical asymmetry of the European Union in the area of trade policy, perhaps the opposite is true.


reflection of the position of the member states analyzed in the last section. However, eventhough a consensus is often needed in the EU in order to adopt new trade agreements,analyses show that there is a remarkable amount of build-in consensus mechanisms in thedecision-making process of the Council of Ministers that can safeguard this result (cf.Nedergaard 2006b).

The Commission plays a powerful role in the decision-making system of the EUs tradepolicy because of its (in international comparison) unique right and obligation to makeproposals to the Council of Ministers, and due to its central role in the administration of thecustoms union of the EU. The Commission is headed by a group of politically appointed,but non-elected, commissioners. Moreover, the Commission is also a large bureaucracy. Itsofficial aim in both its forms isaccording to the treatyto work for stronger Europeanintegration (an ever closer union among the peoples of Europe). Success in achieving thisaim should ensure greater prestige and power for the Commission and the commissioners.

In retrospect, according to various sources, the issue which was uppermost in the mindsof the commissioners in the spring of 2005 was an increasingly negative French citizenrythat was threatening to vote against the constitutional treaty in the upcoming referendum onMay 29, 2005. The question of the surge in the exports of Chinese textile and clothing wasoverwhelmingly seen in this light.48 As late as April 2005 Peter Mandelson urged China tovoluntarily slow shipments to the EU. He also signaled that he was unlikely to respond tothe vocal demands from various member states to impose immediate limits on Chinesetextile and clothing imports.49

The French campaigners for a no vote also used the sharp rise in Chinese textileimports as a symbol of the perils of globalization, which they interpreted as a processdriven by a free market, an Anglo-Saxon approach that they saw championed by the EU.50

On May 25, 2005 Peter Mandelson, in an effort to woo French voters by demonstratingdecisive action, decided to cut short talks with Chinese trade officials and initiate action atthe WTO which could lead to the re-imposition of quotas on some of the Chinese textileand clothing exports to the EU.51 Despite this, the French referendum resulted in a novote on the Constitutional Treaty. Nevertheless, a political process had already been set inmotion as far as an agreement with the Chinese government on quotas was concerned.

There is plenty of blame to go around concerning the Shanghai Agreement. TheCommission was criticized for letting more than a month slip by between signature andimplementation. Member state governments (including the protectionist ones) were blamedfor handling out too many import licenses.52 Mandelson was also accused of taking thesituation too lightly by not coming back from holiday to deal with the crisis.53 Part of theproblem was also said to be that the Commission rushed into the Shanghai Agreement.54

The general director of Euratex, William Lakin, supported this view and claimed, In

48 EU strives to avoid trade duel with China, The International Herald Tribune, April 28, 2005.49 EU strives to avoid trade duel with China, The International Herald Tribune, April 28, 2005.50 EU cuts off China talks and moves to WTO, The International Herald Tribune, May 26, 2005.51 EU cuts off China talks and moves to WTO, The International Herald Tribune, May 26, 2005.52 Textile trouble; The European Union and China, Economist, September 3, 2005.53 EU backpedals on textile quotas; Potential shortages force Mandelson to seek to renegotiate with China,The International Herald Tribune, August 25, 2005.54 Jobs in EU arent root of quotas on China; Imports most hurt some Arab nations, The InternationalHerald Tribune, August 30, 2005.


management terms the agreements could have been better thought through.55 AdditionallyPeter Mandelson acknowledged that the system of quotas of the Shanghai Agreement had aserious glitch.56

However, in this paper it has been argued that rational explanations can replace theculture of blame. The Commission did act in what it perceived to be the common interest ofthe EUtaking into consideration the upcoming French referendum.

The relatively long period before the Shanghai Agreement was implemented can beinterpreted as the Commissions way of dealing with the fact that its raison detre had to acertain political extent disappeared after the French referendum. In connection with this, theCommission used a rather advanced method to safeguard the possibility of future adaptationof the Shanghai Agreement. This consisted of placing the EU in a situation where the newpressure from retailers enforced the needed adaptation.57

8 Conclusion: the EUs U-turn on import quotas on Chinese textiles and clothing

Potentially, the economic problems experienced by textile and clothing producers bringthem into contact with political decision-makers in cases of trade liberalization. Thiscommunication is in general successful because of strong selective incentives.

The selective incentives for European textile and clothing producers are individualadvantages connected to involvement in negotiations with political decision-makers thathave been cultivated throughout the decades when all imports to the EU have been part ofthe GATT and WTO Multifiber Trade Agreement. These negotiations meant that producerscould overcome problems of collective action because each individual manufacturer couldhave at least some influence on the administration of the quota system that was relevant forhis or her particular line of production.

Consumer and retailers are expected to pull in the opposite direction of the producers.However, as demonstrated by the introduction of the lobby-curve, the payoff for lobbying ishigher in the textile and clothing industry than in the retail sector, which is still higher thanfor consumers due to selective incentiveseven though consumers and retailers by faroutnumber the producers. This means that textile and clothing producers have more netgains from lobbying when they use the same resources as the retailers and the consumers.

One of the factors influencing the slope of the lobby-curve is that the more other socialgroups accept the consequences of political decisions that a particular interest groupdemands, the lower the lobby-curve. However, as noted in this paper, the lobby-curve forthe retailers as well as for textile and clothing producers changed rapidly after the Frenchreferendum on May 29, 2005. This is underpinned by the fact that the voice of theproducers was heard far more often in European news media before May 29, 2005 than itwas after that date: the opposite is true for the retailers.

57 The interview with trade commissioner Peter Mandelson in Politiken (September 18, 2005) clearlyillustrates that he is thinking in terms of pressure and counter-pressures from the various interest groups whentalking about the series of events that led to second agreement with the Chinese government in September2005: At this period of time [before the French referendum] the retailers were rather silent. There were nocounter-pressures from the retailers.

55 EU backpedals on textile quotas; Potential shortages force Mandelson to seek to renegotiate with China,The International Herald Tribune, August 25, 2005.56 EU admits glitch on textile quotas; Fearing shortages, Mandelson sends team to China to renegotiatedeal, The International Herald Tribune, August 25, 2005.


The reason for this change in the lobby-curve of retailers and textile and clothingproducers is that before May 29, 2005, other social groups seemed amenable to acceptingthe consequences of political decisions favoring the European textile and clothingproducers, whereas after that date, they were relatively more willing to oblige the retailers.At the same time, the negotiations between the Commission and the Chinese governmenthad already been set in motion and could not be halted. Hence, the Shanghai Agreementwas signed on June 10, 2005, but was not implemented before July 12, 2005.

The well-informed retailers who stepped up their orders from China massively to getgoods into the EU before 12 July 2005 deliberately exploited the long period of timebetween signature and implementation. As a result, large amounts of Chinese textiles andclothing became blocked in transit in European ports. The Commission was heavilycriticized for its handling of the Shanghai Agreement. However, by prolonging the periodof time before the implementation, it accommodated the retailers and opened the way forfuture modification of the Agreement because it probably knew that the retailerswho hadbeen kept fully informedwould certainly exploit the situation.

In other words, the many licenses granted by government bureaucrats to import Chinesetextiles and clothing can be rationally explained on the part of the EUs member statesgovernments and bureaucrats, as can the long period of time between the signing and theimplementation of the Shanghai Agreement. The reason is that it was a precondition for thelater modification of the Agreement on September 5, 2005, needed to bring the situationinto line with the post-referendum lobby-curves.

The import quotas that were negotiated between the EU and China were so-calledVoluntary Export Restraints (VERs), meaning that they enabled China to set higher priceson the (all things being equal) lower export of textiles and clothing. Thereby China couldharvest a rent that was paid for by the most weakly organized group within the EU, namelythe consumers that have so few opportunities of collectively resisting the introduction ofVERs even though the welfare losses implicit in VERs are enormous.

Two opposing coalitions of member states may be identified as far as the implementationof quotas on Chinese textiles and clothing in 2005 is concerned. The first consisted ofSpain, Portugal, Italy, France and several of the new member states in eastern and centralEurope. The second was made up of Sweden, the Netherlands, Denmark, Finland and, frommid August, Germany.

Generally, as predicted by rational choice theory, the position of member states vis--visquotas on Chinese textiles and clothing was first and foremost determined by whether ornot they had national producers suffering from the surge in Chinese textiles and clothinginto the EU after January 1, 2005. In short, the asymmetries of the national political systemsare more decisive than the welfare-economic benefits for member states as a whole.However, the asymmetries can alter due to extraordinary circumstances such as areferendum, because the lobby-curve of the various interest groups changes at the sametime.

There is plenty of blame to go around concerning the Shanghai Agreement. TheCommission, being the most important institution in coordination and administration of theEUs textile policy, was blamed for letting more than a month slip by between signature andimplementation, and many other things. However, in this paper it is argued that rationalexplanations can be more usefully employed in offering an evaluation.

The relatively long period before the Shanghai Agreement was implemented can beinterpreted as the Commissions way of dealing with the fact that its political raison detrehad to a certain extent disappeared after the French referendum. Hence, the Commissiondecided to safeguard the possibility of a future adaptation of the Shanghai Agreement in


order to bring it more in line with the new positions of the lobby-curves after the Frenchreferendum of May 29, 2005. This method consisted of putting the EU in a situation wherethe new pressure from retailers enforced the needed adaptation. Thus the analysis of thiscase has illustrated how a rational choice theoretical model, combined with contextualsensitivity, can help to interpret even extremely volatile political decision-making.

Acknowledgements In preparing this paper, I have received help from my research assistants, MonicaThurmond, Thomas Horn Hansen and Rune Bolding Bennike, as well as from Susana Borrs; University ofRoskilde, and Jens Ladefoged Morgensen, University of Copenhagen. Also the comments of an anonymousreferee to the first version of the paper are acknowledged. Terry Mayer edited the language in my original draft.

Appendix: Content of LexisNexis Professional European News Sources Database

GuideEuropean News SourcesFILE-NAME: ALLNWSHIER-LOC:Country & Region (excluding U.S.)/Europe/NewsNews/By Country & Region/EuropeCONTENT-SUMMARY:The All News group file contains cover-to-cover news sourceswhere more than 60% of

the stories from the sources pertain toEurope and selected stories about Europe from othernews sources.

COMPLETE FILE:ABC MagazineAberdeen Evening ExpressAberdeen Press & JournalAccountancy AgeActusnewsEnglishAfrica Energy IntelligenceAfrica Mining IntelligenceAFX International FocusAir Transport IntelligenceAirline BusinessAirline Industry InformationANP English News BulletinANSA English Corporate ServiceANSA English Corporate ServiceMost Recent 2 WeeksANSA English Media ServiceANSA English Media ServiceMost Recent 2 WeeksThe ArgusArtReviewArts & Books ReviewAUSTRIA TODAYAutomotive News EuropeAutomotive News German Auto Industry NewsletterAxis (UK)B2B Marketing Magazine


Baltic News ServiceBath ChronicleBBC Music MagazineBelarus Business WeeklyBelarus General NewswireBelfast News LetterBelfast TelegraphBelfast Telegraph Home FinderBelfast Telegraph Job FinderBelfast Telegraph Saturday MagazineBirmingham Evening MailBirmingham PostBrand StrategyBray PeopleBreakingviews.comBristol Evening PostBroadcast news powered by produxion.comBudapest Business JournalBusiness & Finance MagazineBusiness & MoneyBusiness News From PolandBusiness SpainBusiness TelegraphCampaignCarlow PeopleCentral Asia & Caucasus Business WeeklyCentral Asia General NewswireCentral Asia NewsMost Recent 2 WeeksCentral Europe Banking & Finance WeeklyCentral Europe Energy WeeklyCentral Europe IT & Telecom WeeklyCentral Office Of Information (Hermes Database)Chemical News & IntelligenceChildren Now (UK)CitywireCMP InformationThe Compact TravellerCompanynewsGroupe (English)Computer Reseller News UKComputer WeeklyComputeractiveComputerWireComputingConference and Incentive travel (UK)Contract JournalControl and InstrumentationCorkmanCorporate IT UpdateCorporate Money


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European...AbstractIntroductionThe empirical background to the caseA rational choice model of EU import quotasThe economic system and the demand side: producers, retailers, and consumersThe political system and the supply side: politicians and bureaucratsEconomic welfare losses due to import quotasPolitical co-ordination and the Chi