European Union Import Quotas on Chinese Textile and ... - Springer Link

J Ind Compet Trade (2009) 9:17–47 DOI 10.1007/s10842-008-0031-4

European Union Import Quotas on Chinese Textile and Clothing Exports in 2005: A Panic-Driven Commission 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 two questions: (1) Why did the EU re-introduce import quotas on Chinese textile and clothing exports in 2005 after promising to lift them? (2) Why did the EU (partly) abolish these quotas a couple of months later? The rational choice inspired model put forward in this paper assumes that the EU’s political system is a partial asymmetrical political equilibrium in which decisions taken by decision makers are a product of a supply and demand. By using this model, it is explained how the lifting of quotas on Chinese textile and clothing exports to WTO members on 1 January, 2005 and the political situation surrounding the French referendum on the Constitutional Treaty on 29 May, 2005, constitute key events in the 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 extreme political volatility among political decision makers in the European Union. Usually, this kind of political behavior is explained by referring to personnel factors1 or issues such as 1 The EU’s trade commissioner, Peter Mandelson is the central person in this paper. Stephen Adams, one of Mandelson’s spokesmen, came up with a personal factor explanation for Mandelson’s decisions on behalf of the Commission of the European Union to restrict the EU’s import of Chinese textiles and clothing: “In order to understand what Mandelson did, you have to understand that in April he was being burned in effigy by Italian textile manufactures outside the Commission building in Brussels.” (“In China, Mandelson recovered his gloss”, The International Herald Tribune, September 9, 2005).

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

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J Ind Compet Trade (2009) 9:17–47

“managerial lapses”2 or “the circus of ministerial panic” (Francois and Wörz 2006: p. 1). Here, however, the rational choice theory will be put to a hard test through using it to interpret volatile political incidences. Rational choice theory is often said to be able to handle volatile markets and voters (Coleman 1994), but not volatile decision-makers, who are supposed to have a set of fixed preferences as the basis for their decisions. The aim in this paper is to discover whether it is possible to use rational choice theory under these circumstances. In this way, the theory concerning interest groups and trade policy put forward by Grossman and Helpman (2002) is expanded and defined more specifically. Thereby, this research contributes to the continued debate about the empirical content of rational choice theory, cf. Cox (1999). For example, Green and Shapiro (1994) have argued that rational choice theory has produced virtually no new propositions about politics that have been carefully tested, and that an empirically successful rational choice theory would be no more universal than ordinary middle-level theories. An attempt to show otherwise is made here. The subject of this paper is the introduction of European import quotas on Chinese textiles in 2005 in order to protect the European textile and clothing industry.3 The key questions relating to this issue are as follows: (1) Why, despite the promise to lift them, did the EU re-introduce quotas on textile and clothing exports from China in 2005? (2) Why did the EU (partly) abolish the quotas again just a couple of months later? These two questions will be answered in this paper. The theoretical model presented here makes it possible to rationally explain the two questions mentioned above when they are interpreted as a result of a partial political equilibrium that changes due to the fact that various actors have new opportunities and hindrances in influencing policy-makers in the case of overall political context changes in the relevant area. This new political context is the lifting of quotas on Chinese textile exports to WTO member states on January 1, 2005 and the political situation surrounding the 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. Jürgen Richter, chief executive of Gelco, a German clothing company, criticized the way their introduction was handled: “The big problem is that Brussels has set import limits without apparently knowing that most goods were already ordered in China much earlier this year. That is what is fatal in this situation.” (“EU–China textiles deal comes apart at the seams…”, Financial Times, August 17, 2005). It will, however, be argued below that “Brussels” knew what it was doing. 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 the term “textiles” is often reserved for intermediate products, like yarn and fabric that is spun from fibre. In short, fiber is transformed into consumer products as follows: Fibre–Yarn–Fabric–Clothing (cf. MacDonald and Vollrath 2005). This paper deals with all products in this product line that were subject to EU import quotas in 2005, i.e. textiles as well as clothing. I newspapers, for example, these two products are often mixed; and textiles are often used when speaking about clothing. However, this confusion does not seem to have any influence on the analysis of this paper as both textile producers and clothing producers were hit by the opening up imports of textiles and clothing from China in 2005. This is the case even though textiles are also inputs in the European production of clothing. In this case, still, the final product faced tough competition from Chinese exporters in 2005. That is also why European textile producers as well as European clothing producers reacted strongly through their (normally, common) interest organizations in 2005. 4 The Dutch referendum on June 1, 2005 also gave a “no” to the Constitutional Treaty. 3


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

2 The empirical background to the case Quotas on textile and clothing have been an important trade policy instrument since the late 1950s. In 1974 a system of trade restrictions on textiles and clothing was introduced by GATT (now WTO) members—the so-called Multifiber Trade Arrangement. Later, during the Uruguay Round at the beginning of the 1990s, in the Agreement on Textiles and Clothing from 1995, the members of GATT decided to lift the quotas on textile and clothing imports by the end of 2004. Technically, the quotas were to be phased out in a 10 year process ending in 2005. As China joined the WTO in 2001, the quotas on Chinese textile and clothing exports to the EU were to be lifted as well. In short, by 1 January, 2005 this 30 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 first quarter 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 linen rose 56% in volume during the same period.7 The extra supply of Chinese textiles was immediately reflected in lower prices according to Euratex, the European textile and clothing industry association.8 When China joined the WTO in 2001, a clause was added to China’s Protocol of Accession allowing other WTO members to safeguard their own textile and clothing producers 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 Peter Mandelson in particular were coming under increasing pressure to implement restrictions on Chinese textile and clothing exports to the EU. The guidelines for the introduction of these 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 written sources: The Economist, Financial Times, and The International Herald Tribune. Later in the paper there is an attempt to measure the shifting influences of various social groups vis-à-vis the EU’s textile trade policy via how often these groups are mentioned in a broader array of written media. Moreover, the conclusions are supported by relevant documents as well as by specific information from people in government and interest organizations involved in the EU’s trade policy.

6

See Francois and Wörz (2006): pp.1–3 and pp. 9–14.

“EU cuts off China talks and moves to WTO”, The International Herald Tribune, May 26, 2005. At the same time, data from the first 6 months of 2005 showed moderatation: Chinese total exports to the EU increased by 130% compared to the data a year earlier (“Chinese fault EU in dispute on textiles”, The International Herald Tribune, August 26, 2005). 8 “EU weighs new quotas on China textiles”, The International Herald Tribune, April 23, 2005. 7

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it initiated a 2-month investigation into the surge in the import of Chinese textiles and clothing. However, any safeguarding action would have to be taken only after careful examination of the data and consultation with China.9 During May 2005, the Commission warned that it would unilaterally impose quotas on Chinese-made garments.10 On 10 June 2005 the so-called Shanghai Agreement was signed by the Commission and the Chinese government with the purpose of implementing quotas on Chinese textile and clothing exports to the EU.11 This so-called “voluntary” agreement on restraining the exports meant that the EU and China agreed to quotas that restricted Chinese export growth in ten categories of clothing to 8–12.5% in volume per year through to 2007.12 Thereby, the EU followed the usual pattern as all quotas from, for example, the USA since 1955 have been “voluntary” export restrictions. In principle, due to the rules of the WTO, these quotas were supposed to expire no later than on January 1, 2008.13 In addition, the EU might also have been inspired by the parallel debate in the USA on the introduction of quotas on Chinese textile and clothing exports in 2005. Still, there may have been a temporary escape clause which could be used to block the free textile and clothing imports from China after 2007. When China became a member of the WTO in 2001, it did so under special terms that allowed importing countries to impose short-term “safeguards” on Chinese goods until December 2013 whenever imports threatened to cause “market disruption” for domestic producers of textile and clothing products (Audet 2004). Of course, whether or not China’s textile and clothing safeguards 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 month before the announcement of a regulation (and thereby the implementation) on July 12, 2005, marking an unusually lengthy process. Within this month licenses to import, for example, a further 120 million pullovers—almost twice the quota for the rest of the year and four times total sales in 2004—were granted by EU governments, including those that most wanted protection for textile and clothing products.14 As a result, more than 75 million sweaters, trousers, bras and other garments worth 43 million euros were stuck in European ports after China filled its quota much more quickly than anticipated by the European side.15 Hence, the Commission came under growing pressure from mid August 2005 to find a solution to the problem of Chinese textiles and clothing held up in transit. On September 5, 2005 Peter Mandelson and Bo Xilai, China’s 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 EU–China 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; “Transition deal in EU–China textile row”. Financial Times, June 11, 2005.

“EU states stand firm on Chinese textile imports WORRY FOR RETAILERS”, Financial Times, July 29, 2005. 13

14 15

“Textile trouble; the European Union and China”, Economist, September 3, 2005. “Chinese fault EU in dispute on textiles”, The International Herald Tribune, August 26, 2005.


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into the EU, but half of them would be counted as part of other quotas, either in 2006 or in still unfilled categories.16 This is the empirical background of the case analyzed in this chapter. In the rest of the paper 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 assumed that economic problems in the European textile and clothing sector potentially trigger political interventions, the character of which is determined by the partial equilibrium between the politicians’ and bureaucrats’ supply of political decisions on the one hand, and the producers’, retailers’ and consumers’ demands on the other. This partial equilibrium is biased or asymmetric because it is dominated by the European producers’ demands for political interventions in the form of protectionism vis-à-vis producers outside of the EU (strong demand), and less influenced by the retailers’ demands for reliable and, preferably, free import of textiles and clothing (moderate demand), while the consumers as a whole only have few claims (weak demand) or a low level of interest in trade policy decisions.17 In short, the demands for political decisions from the retailers are expected to be stronger than those of the consumers, but weaker than those of the European producers of textiles and clothing. The background for this hypothesis of the relative weight of demands is presented in the next section. The macro-economic losses analyzed in this paper consist of the losses that a protectionist textile and clothing import policy inflict on society. The political coordination difficulties stem from government failures and lead to a multi-level game involving member states’ interests and the common interests of the EU. Member states of the EU are assumed to have an interest in obtaining protection for their own textile and clothing sectors if they have significant textile exports within the EU, and if their producers are less competitive than potential competitors outside the EU. Member states with a fully competitive textile and clothing industry (or no industry at all) are assumed to be in favor of the free import of textiles and clothing into the EU. Hence, the textile and clothing import policy raises questions about how to tackle the resulting coordination difficulties between member states with very different interests in the trade policy. In other words, how does the Commission as the prime representative of the EU’s common interest solve these co-ordination difficulties? Did the Commission change its management of the EU’s common interest during 2005 and, if it did, how and why? The model above analyzes the EU trade policy with special regard to the textile and clothing import policy. The causal relationships in the model are often set in motion by factors outside the EU as they have influenced the internal conditions of the EU’s textile and clothing production in the last 15 years due to the free trade negotiations within GATT and WTO. In this paper, a WTO agreement serves as the starting point. However, it is

16

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

17

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Economic System: Welfare Economic Approach

a

Market Failures

Political System: Rational Choice Approach

b

1. Demand Side: Retailers and Consumers

Micro Level

1. Demand Side: Producers, Retailers and Consumers

2. Supply Side: Producers

c Macro Level

Wellfare Gains/Losses 1. Component: The Textile and Clothing Sector 2. Aggregate Level: Economic Efficiency

Government Failures

2. Supply Side: Politicians and Bureaucrats

d

Political Co-ordination difficulties 1. Component: Member State Interests 2. Aggregate Level: The Common Interests

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

predicted that external pressures on the textile and clothing import policy will trigger internal changes and adjustments in the trade policy in accordance with the mechanisms shown 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, the significant position of European textile and clothing production that competes with the Chinese textile industry is overwhelmingly located in specific member states. The main producers 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 most important “textile and clothing industry” country among them. France belongs to the same group of countries even though it has outsourced most of its textile production but has kept, for example, a portion of the production of flax yarn for linen products, a product 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 are often scarce in areas like north-western Poland, south-eastern France and northern Portugal, where the European textile and clothing producers are located. This is a hard fact, despite the disputes on how many jobs are actually affected by the trade liberalization. On the one hand, OECD’s Employment Outlook from 2005 concluded

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

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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 clothing jobs could be lost in the EU if curbs to textile and clothing imports were not reintroduced.19 The two main characteristics of textile and clothing goods mentioned above reduce the costs of organizing collective action by the textile and clothing producers at the member state level, because government officials and politicians from member states with significant textile and clothing production concentrated in certain areas are very open to pressure from interested producers, from trade unions organizing the workers and from parliamentarians elected in these areas. According to European textile and clothing producers, the impact on local manufacturers was dramatic due to the sharp increase in Chinese textile imports to the EU at the beginning of 2005. The production of t-shirts in Portugal, for example, was 30% to 50% lower in volume in May 2005 than a year earlier. Meanwhile, EU-wide production of flax yarn had fallen by a quarter, and the employment in this sector had fallen by 13%.20 A relatively smooth restructuring of the textile and clothing industry had taken place in many northern EU member states after the opening-up of investments and trade with the central and eastern European countries in the aftermath of the fall of the Berlin Wall in 1989. In the southern European member states this restructuring had not taken place, perhaps because they were still competitive (partly due to the restrictions embedded in the so-called Europe Agreements between the EU and the central and eastern European countries), perhaps because of a lack of business alternatives. In any case, according to rational choice theory, the fact that the elimination of textile and clothing quotas could have been foreseen long before 2005 played no role for the individual producers, as they are not guided by such general rationalist considerations on behalf of the industry. Producers are not rational at the aggregate level, but only at the individual level. As expected, the result was more intensive lobbying on the part of European textile and clothing producers. Many sources confirm that these producers lobbied hard for controls to be introduced after the old quota system limiting Chinese textile and clothing imports had ended.21 The demand for textile and clothing products consists of two basic steps. First, retailers import items and material that are paid for already when textiles and clothing are still in the exporting country (e.g. China). Second, consumers buy clothing from the retailers. Over the last few years, worldwide demand has accelerated, boosted by favorable trends in incomes and fiber prices. However, as clothing is not an immediate necessity in the developed world, its purchases can be delayed, making demand extremely responsive to short-term changes in prices and incomes. In the long term, clothing consumption is far less responsive to changes in incomes and is actually growing more slowly in volume counted as kilogram

19

“EU–China textiles deal comes apart at the seams,” Financial Times, August 17, 2005.

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

20

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 for legislative action to stop the flood of cheap Chinese apparel from swamping their business.”

21

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fiber than income on average.22 This fact potentially creates some of the same problems for textile and clothing producers as for, for example, farmers. In short, the specific characteristics of the industry put independent pressure on the textile and clothing producers as far as lobbying is concerned.23 This effect is caused both by the consumer’s ability to delay his or her consumption until the right (and cheap) piece of clothing becomes available and because, in general, clothing is a “mature” product with relatively low growth rates as far as basic textile and clothing products are concerned. Problems with competitiveness create a consensus among textile and clothing producers in 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 their economic profit-seeking in the market is unsuccessful. Instead, it seems that political rentseeking 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 an interest group, he or she has to judge whether the potential benefits exceed the foreseeable costs. Costs are incurred by the administration and co-ordination that is necessary in order to acquire political influence. If an economic actor belongs to a group with structural features that imply few organizational costs, this group must be expected to be relatively easy to organize. For textile and clothing producers this is decisive in lending strength to the group’s organization. At the same time, the group members` preferences are similar as they, fundamentally, want more protectionism. In common with other interest groups, textile and clothing producers run the risk of some members free-riding when they organize themselves in order to acquire political influence with the aim of enhancing common interests. Political influence has many features in common with public goods, since it is impossible to exclude non-organized textiles 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 in protectionism that is partly a result of the political activity of the textile and clothing producers’ organizations. Why should a producer then join a professional association that works on behalf of all members of that industry, regardless of whether or not they are members of the association (cf. Scott 2000)? Olson (1965) was the first to point out the necessity of selective incentives if individuals are to participate in a collectively beneficial activity that looks like a public good. Selective incentives alter the rewards and costs in such a way as to make support for collective action profitable (Scott 2000). The selective incentives for European textile and clothing producers are individual advantages connected to involvement in negotiations with political decision-makers through their interest organizations. These advantages have been cultivated in the decades when all imports to the EU were part of the GATT and WTO Multifiber Trade Arrangement. The existence of long standing and detailed quota import systems provided high motivation for European textile and clothing producers to become organized in interest groups because of detailed and reiterated negotiations on the size and content of quotas which meant that they could overcome the problems of collective action, because each

22 23

MacDonald and Vollrath (2005). This is an effect seen even more strongly in agriculture (cf. Nedergaard 2006a).


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individual producer could often have at least some influence on the administration of the quota 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 and clothing sector’s organizational strength relates to the economic conditions to which textiles and clothing producers are subject. The new pressure on prices of textiles and clothing after January 1, 2005 made it easy for producers to build consensus about the well-defined goal of easing the competitive pressure through political means. This new pressure was created by the new external competitors penetrating EU markets, which were already suffering from relatively low increases in demand. However, strong external competitive pressure is far from serving as an adequate explanation for the costly import policies. In other economic 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. The reason for this difference is partly that the organizational costs in the textile and clothing sector are lower and, more fundamentally, that there is no selective incentives in these other sectors. While textile and clothing producers can be regarded as demanders of protectionism and intervention, the demand of the retailers and consumers is expected to pull in the opposite direction. In this light, the actual level of protectionism can be regarded—according to the proposed theory in this paper—as a function of the investment made in political influence on behalf of the textile and clothing producers, retailers and consumers respectively. The result is assumed to be a partial equilibrium situation between opponents and supporters of textile and clothing protectionism against the background of calculations of the marginal costs and benefits of the investments made in political influence. The aim of more or less organized interest groups entering the political market is to achieve a political result. So, by means of a lobby-curve with “net gains from lobbying” and “resources used for lobbying” on the two axes, it is possible to illustrate the willingness or 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 slopes with 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 producers than for retailers, which is still higher than for consumers. It may be suggested that the slope of the lobby-curve is higher (1) the better the economic groups are organized (e.g. measured as a high affiliation percentage and few—preferably only one—interest 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 a particular interest group demands. The third point, not least, can change quite quickly as happened after the French referendum on May 29, 2005. There are 370 million consumers in the EU.25 In contrast, the retail sector employs about 1.7 million people26 and the EU’s textile and clothing industry employs less than 2.5 million.27 Nevertheless, the textile and clothing industry seems to have more influence on the EU’s textile and clothing import policy than both the retail sector and consumers.

24 As mentioned by economist.com (September 6, 2005): “Supporters of quotas are vociferous and potentially well-connected in their home countries.” 25 http://europa.eu.int/scadplus/leg/en/lvb/l32000.htm (accessed April 29, 2006). 26 http://www.aedt.org/index.php?page=STATISTICS&sub=Statistics_sub_menu_1&sub_sub=&langue=en (accessed April 27, 2007). 27

“EU admits ‘glitch’ on textile quotas”, The International Herald Tribune, August 25, 2005; Eurostat 2006.

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1 Net gains from lobbying

2

3

4

5

1) Textile and clothing producers before the French referendum on May 29, 2005

Ressources used for lobbying

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

As far as the organization of the interest groups mentioned above is concerned, the interest organizations in the retail sector are more diffuse than in the textile and clothing industry: at the European level, the Foreign Trade Association, EuroCommerce and the European Association of National Organizations of Textile Retailers (now European Association of Fashion Retailers) are all important bodies representing retailers and importers. On the other hand, there is only one major lobby group for textile and clothing producers—Euratex. As far as the consumers are concerned, the national consumer organizations (all of which have very few members, i.e. an affiliation percentage of a few percent) coordinate their European activities in the Bureau Européen des Unions de Consommateurs (BEUC); however, this euro-lobby organization is somewhat weak due to a lack of resources. Behind the slope of the lobby-curves are the selective incentives for the various groups to organize, and it is here that the textile and clothing industry is strong. The theoretical explanation of the empirical situation outlined above is as follows: the partial equilibrium situation in the textile and clothing industry’s political market is asymmetric because the producers are able to press the slope of their lobby-curve upwards due to the selective incentives.28 That is not the case for companies in the retail sector even though there are

28

See also Ballisacan and Roumasset (1987).


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Table 1 Number of newspaper articles about the Chinese textile and clothing exports in 2005 in European news mentioning interest organisations of producers, retailers and consumers respectively January 1 to May 29, 2005

Producer Retailer Consumer In sum: N/percent

May 30 to December 31, 2005

Number of organisation names (N)

In percentage

Number of organisation names (N)

In percentage

67 34 0 101

66 34 0 100

25 77 4 106

24 73 4 101

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 National Organizations 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 Consommateurs’ for the consumer category. Search conducted in the ‘European News’ section of the LexisNexis News Database. Source: LexisNexis News Database

more selective incentives for retailers to organize than for consumers (e.g. in order to access help in obtaining import licenses). As a result, the textile and clothing producers are “over-motivated” to use money and time to safeguard their collective interests. The potential opponents of the producers are the retailers and consumers, but the consumers are only weakly organized and the retailers are more heterogeneously organized than the producers. In addition, the marginal benefit of opposing the textile and clothing producers resulting 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 sector changed rapidly after the French referendum on May 29, 2005. This is underpinned by the data presented in Table 1 below, which details the number of newspaper articles about the Chinese textile and clothing exports to the EU in 2005 in a large number of European news sources29 publicizing the views of the organized lobby groups of consumers, retailers and producers respectively. These data are regarded as a proxy for the organizational strength of the various lobby groups. As shown in the table, the voice of the textile and clothing producers 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 mentioning textile and clothing retailers; at the same time there was a 42% decline in pieces alluding to producers. 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 groups seemed willing to accept the consequences of the political decisions favoring the European textile and clothing producers, whereas after May 29, 2005 they were not. After the French referendum on the Constitutional Treaty there were no advantages for other social groups in accepting the demands for more protection from the European textile and clothing producers. They had accepted that quotas should be imposed in order to safeguard the French “yes” vote. However, when the referendum was over and perhaps especially after recognizing that more protectionism could not deliver the “yes” vote, the acceptance of textile 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.

28


the other hand, at this point, the investigation by the Commission into the surge in the export of Chinese textiles and clothing and the negotiations between the Commission and the 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 was negotiated between the Commission and the Chinese government even though at this point the slope of the lobby-curve for retailers had already moved in the direction of the lobbycurve of the producers due to changes in point 3) mentioned above. The fact that things changed in favor of the retailers after May 29, 2005 is illustrated by a statement made by Francesco Marchi, Director of Euratex, after the modification of the Shanghai Agreement was made public on September 5, 2005: “I think that part of my industry will be disappointed. Only 50% is being paid for by the Chinese. The other is a free gift to China”.30 The situation in the period between June 10, 2005 (when the Shanghai Agreement was signed) 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 from announcement to implementation of the Shanghai Agreement. This exploitation was officially criticized by Peter Mandelson on August 9, 2005, when he put the blame on European retailers for the difficulties concerning the Chinese textile and clothing exports being blocked in transit, suggesting that they had massively stepped up their 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 with immense difficulties.” The Foreign Trade Association, on the other hand, said it was disappointed by Peter Mandelson’s accusations. It criticized the Shanghai Agreement for not adequately addressing the issue of importers that completed orders before the agreement was finalized, even though all parties knew that many contracts with Chinese exporters had already been signed.31 Moreover, as mentioned, by having such a long time elapse between the signing of the Shanghai agreement and its implementation, Peter Mandelson invited retailers to exploit the situation according to retailers’ organizations32, thereby implicitly and, probably consciously, strengthening the EU textile and clothing retailers vis-à-vis the EU textile and clothing producers. When taking a rational theoretical route of reasoning, the many pieces of the puzzle seem to fit nicely together: the Commission had incentives to send a signal that it was willing to restrict the influx of Chinese textiles in order to help the “yes”-side in the French referendum; however, when these restrictions had been adopted, the immediate cause for them (i.e. the French referendum) had disappeared. The slope of the lobby-curve of the retailers now made their lobby efforts more effective, and the Commission was under pressure from this side as well because of the many textile goods being stuck in European ports. The long period of time before the implementation of the Shanghai Agreement can be seen as resulting from this counter-pressure from retailers. By prolonging the period of time, the Commission accommodated the retailers and opened the way for future modification 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.


29

exploit the situation and make the adaptations of the Shanghai Agreement a necessity that would 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 interest organizations of the retailers, and the consumers’ relatively weak interest organizations are necessary conditions for political decisions being pro-textile and pro-clothing producers oriented (however, after May 29, 2005 only moderately). In addition, political decisionmakers, politicians and bureaucrats, are required to be willing to fulfill the demands on political decisions (Grossman and Helpman 2002: pp. 52–54). In this context, it is a widespread notion that politicians and bureaucrats in a democratic society make decisions reflecting the wishes, attitudes and preferences of the people, in particular, political goals that are common among a majority within the electorate, and that these decisions are assumed to make up the foundation of the political decisions in society (Grossman and Helpman 2002: pp.47–49). The existence of such correspondence between the democratic, collective decisions and policy objectives based on individual preferences is much too optimistic, although longlasting in democratic theory (Nedergaard 2006a). While the gain from free imports of textiles is spread collectively among all consumers, extraordinary incentives are needed to mobilize consumers in the political process. In the same way, the costs of the expansion of protectionism have to be paid by all consumers. Again, extraordinary incentives are needed to 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 an expansion in protectionism and who are struck hard by more free trade. The gains and losses of this group are concentrated and private in character. The retailers, however, act as a “modifying sector” as far as textile and clothing protectionism is concerned, a group favoring not necessarily free trade (even though this is preferred), but predictable trade relations. Nevertheless, at first the retailers were ineffective in their lobbying; after the French referendum, however, things changed in their favor, even though political decisionmakers were still relatively pro-textile producer oriented due to the latter’s organizational strength. Or as stated by The International Herald Tribune: “The quotas [agreed upon in the Shanghai Agreement] have exposed the tensions between the two most powerful lobbies in Europe.”33 Because of the marginal impact of rising and decreasing protectionism in the textile sector, electorates in general have no incentives to acquire a specific interest in textile and clothing import policy. The individual producer, on the other hand, has revenue that is to a certain extent a function of political decisions. His or her motive for influencing the policy is therefore very strong.34 Textile and clothing producer organizations will therefore gather information about what national political representatives do as far as trade policies on textiles and clothing are concerned, whereas the general public do not bother to keep themselves informed on these matters.

33

“EU backpedals on textile quotas”, The International Herald Tribune, August 25, 2005.

economist.com (September 7, 2005) expressed it like this: “But it is not surprising that textile manufacturers have chosen to lobby for government intervention rather than quickly file for bankruptcy.” 34

30


In this paper, it is suggested that politicians make political decisions according to how voters will react. Voters, on the other hand, have to consider the costs when they form their preferences and transmit them to the politicians. If the voter is rational, a minimum of individual benefits is necessary if he or she wants to incur the costs of collecting information and transmitting preferences to the political decision-makers (Grossman and Helpman 2002: pp. 126–131). As mentioned above, just getting information about the impact of protectionism of textile and clothing products is difficult and costly. The support is “hidden” in the prices as well as in bureaucratic measures. Alongside the politicians, the bureaucrats are important suppliers of trade policy decisions. In rational choice theory it is assumed that—even though politicians formally take the political decisions under counseling from the civil service—bureaucrats are also independent actors who want to preserve and expand their power bases, their career opportunities, etc. In trade policy, bureaucrats probably have quite a considerable amount of influence because this area is characterized by technicalities and many specific rules. As a result, politicians avoid dealing directly with many of the regulatory and distributive questions relevant to the sector. When political decisions are transformed into quasipolitical and bureaucratic-technical questions, textile and clothing import policy takes on a seemingly objective character. At the same time, it endows the bureaucrats making inputs into the political process with a large amount of influence (Mueller 2003: pp. 126–131). In the month after the signing of the Shanghai Agreement on June 11, 2005, a very large number of licenses to import Chinese textiles and clothing were granted by EU governments. This can be interpreted as a result of the cross-pressure from the strong organized textile and clothing producers as well as from the still more (after the French referendum) outspoken retailers. The licenses were granted on an objective basis due to the case handling by bureaucrats who nevertheless, at the same time, were also assumed to accommodate 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 Shanghai Agreement had been planned before the French referendum; after the referendum, however, the lobby-curve of retailers changed its position and they were compensated for the protectionist Agreement through excessive granting of licenses to import Chinese textiles and clothing. In other words, the many licenses to import Chinese textiles and clothing, as well 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 Shanghai Agreement 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 EU’s import quotas on textiles and clothing from China. The economic consequences of import quotas are a well-known phenomenon in macroeconomic literature. Import quotas are an import-restricting policy that operates directly through price mechanisms, and are probably the most important so-called non-tariff barrier to trade. The effect of the quotas is to raise domestic prices, since they restrict the supply to the domestic market to the benefit of domestic producers and to the disadvantage of consumers. In many ways, the welfare effects of quotas are similar to those of tariffs— which in industrialized countries mean a negative effect (Södersten and Reed 1994). Typically, the government will issue licenses for the import of various proportions of the quota. However, there are different economic consequences depending on how the licenses


31

are issued. If they are issued free of charge, then the holders of them will gain the rent resulting from the quotas. If the licenses are issued by the government of the exporting country—also known as a “Voluntary” Export Restraint arrangement (“VERs”)—then the resulting rent will probably go to the foreign suppliers taking part in the VER arrangements because it allows them to export at higher prices. This ability to earn rent is one of the reasons why foreign suppliers can often be persuaded quite easily to voluntarily restrict their exports (Södersten and Reed 1994, p. 206). Countries frequently resort to VERs partly because import quotas are not permissible under the WTO. Typically, it is the importcompeting industries that pressurize their governments into negotiating a VER with the exporting 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 Shanghai Agreement 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 prices on the (all things being equal) lower export of textiles and clothing and, thereby, harvest the rent paid for by the consumers in the EU.35 This was probably the reason why the Chinese government was not so unwilling to negotiate agreements on the textile and clothing quotas. Chinese Commerce Minister Bo Xilai said, “The Chinese government appreciates the EU’s 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 import quotas unilaterally (with licenses issued to European importers), China would probably not have been able to harvest the extra rent, as it would have gone either to the European importing firms or the importing countries. However, this would have also been a direct violation by the EU of its WTO obligations. China would then have had a direct interest in bringing the EU before the WTO panel set up to scrutinize WTO member compliance with the organization’s rules. At the same time, for the EU, the VERs on Chinese textiles and clothing were a rational solution to a delicate political problem because the price was paid mainly by the most weakly organized group within the EU, namely the consumers that (as analyzed in the sections above) have little chance of collectively resisting the introduction of VERs. This is what was predicted by the theory suggested in order to analyze the Chinese import quota case in this paper. There is no precise estimate of the effect of the quotas introduced in 2005, but it is estimated by OECD (2004) that the quotas before January 1, 2005 (which had a similar effect to the quotas introduced in the Shanghai Agreement) cost a family of four an average of 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 the adoption of the textile and clothing import policy. As seen in Table 1, the consumers’ voice as far as quotas on Chinese textiles and clothing in 2005 is concerned was only heard This rent is often called the “tariff equivalent revenue” in economics literature. See Francois and Wörz (2006) for an overview of studies estimating the impact of the pre-2005 quotas on textiles and clothing. As Chinese foreign trade is highly centralized, China will probably be able to administer its VER agreement with the EU in a way that includes all Chinese suppliers and not only the major ones as is typically seen in VER arrangements. Therefore, China will probably be able to capture all the tariff equivalent revenue (cf. Kreinin 1987: p. 331), which makes VERs more attractive for China than for less centralized economies.

35

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.

32


relatively few times in the large number of newspaper articles about the introduction of European import quotas on Chinese exports in 2005. As a matter of fact, the voices of producers 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 clothing producers very closely, one can identify two opposite coalitions of member states as far as the implementation of quotas on Chinese textiles and clothing in 2005 is concerned, two coalitions that underscored the north-south divisions inside the EU.39 The first consisted of Spain, 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. The second was made up of Sweden, the Netherlands, Denmark, Finland and—from August 15, 2005 onwards—Germany (Financial Times, August 16, 2005). These countries had a small, efficient and relatively modern textile and clothing production capability, and most of the wage-intensive production in these member states was already outsourced to other countries. In between these two coalitions were the United Kingdom and Germany (until mid August 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 July 2005 and stayed neutral (this is a normal self-imposed constraint in the EU) in the ongoing debate between the two coalitions in the run-up to the presidency and during its period of office.41 In the first period Germany supported the protectionist coalition at some critical moments before the French referendum on May 29, 2005. As mentioned, however, Germany changed course due to new pressure from retailers’ organizations at some point after the French referendum.42 It is clear that France had a special interest in the question of EU quotas even though it had to some extent outsourced wage-intensive textile and clothing production. Already in April 2005, the French foreign minister, Michel Barnier, said that he wanted the EU “to act without delay” to save European textile and clothing jobs.43 As mentioned, France (together with Italy) is the main producer of flax yarn which has suffered from the sharp increase in Chinese textile and clothing exports since January 1, 2005.44 Last but not least, the French

38 39

“EU urged to review Chinese textile quotas”, Financial Times, August 16, 2005. “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, April 26 2005. It was also claimed that this first coalition defended the interests of developing countries such as Bangladesh, Turkey, Tunisia and Morocco, which had built their textile businesses on the back of the old quota system or on access to the EU market (The International Herald Tribune, April 9, 2005; The International Herald Tribune, August 30, 2005). An anonymous top official at the French Trade Ministry spelled out the rationale for this position: “This is a very important concern for France.” “This is not only because French businesses have factories in these countries,” he said, “but also because the textile industry is often the largest employer. It will create social and political problems if thousands of people become unemployed in Tunisia or Morocco.” (The International Herald Tribune, August 30, 2005). 42

E.g. “EU–China textiles deal comes apart at the seams”, Financial Times, August 17, 2005.

42

E.g. “EU–China 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 International Herald Tribune, May 18, 2005.


33

government wanted to use restrictions on Chinese textiles and clothing as a signal in the domestic campaign on the EU’s Constitutional Treaty that the EU was a wall against trade liberalization—not a champion of the same. For the French government, quotas on Chinese goods were also a signal to other groups (e.g. French farmers) that could potentially suffer from increased trade liberalization. Generally, as predicted by rational choice theory, the position of member states vis-à-vis quotas was first and foremost determined by whether or not the state had national producers suffering 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 decisive than diffuse welfare-economic losses or benefits for member states as a whole. However, these asymmetries can change due to extraordinary circumstances such as a referendum because 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 a defender of the common interest of the EU together with the Commission) has to be evaluated. Such an explanation has to broaden the picture of Germany’s national interests and has to include an interpretation as to why Germany has so often in the history of European integration sacrificed its short-term interests for the sake of long-term general European interests. On the surface, factors influencing such an explanation should be sought outside the rational framework of this paper: the defeat in World War II and the road back to becoming a normal European country, the fact that German influence on the world scene occurs through the EU more often than for the UK and France because it is not a member of the UN’s Security Council, the German interests in adhering to its alliance with France, and the constitutional constraints on German decision-makers which outlaw, for example, referendums.45 However, none of the above means that German politicians and bureaucrats are not under strong influence from organized interest groups as it has also been pointed out above.46 Therefore, the German behavior might still be interpreted within the rational choice framework, but in a fashion where promotion of its interests is functioning on a somewhat more complex background than for most other member states due to its semihegemonic role within the EU. In the area of trade policy, the general asymmetry which—according to rational choice theory—is always present in collective political decisions, is sharpened by the “suppliers” of decisions who often have independent reasons for reinforcing a complicated, protectionist trade policy because it enhances their power base. In rational choice theory it is recommended that institutions should be set up in order to place restraints on utilitymaximizing actors, no matter whether they are interest groups or member states. These institutions should be designed with the aim of encouraging a larger degree of correlation between 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 the Commission 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. “EU–China textiles deal comes apart at the seams”, Financial Times, August 17, 2005.

47

Also the European Parliament expresses views of general interest in the EU’s textile policy as they did on September 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 “where necessary”, 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 the political asymmetry of the European Union in the area of trade policy, perhaps the opposite is true.

34


reflection of the position of the member states analyzed in the last section. However, even though 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 the decision-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 EU’s trade policy because of its (in international comparison) unique right and obligation to make proposals to the Council of Ministers, and due to its central role in the administration of the customs 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. Its official aim in both its forms is—according to the treaty—to work for stronger European integration (“an ever closer union among the peoples of Europe”). Success in achieving this aim 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 minds of the commissioners in the spring of 2005 was an increasingly negative French citizenry that was threatening to vote against the constitutional treaty in the upcoming referendum on May 29, 2005. The question of the surge in the exports of Chinese textile and clothing was overwhelmingly seen in this light.48 As late as April 2005 Peter Mandelson urged China to voluntarily slow shipments to the EU. He also signaled that he was unlikely to respond to the vocal demands from various member states to impose immediate limits on Chinese textile and clothing imports.49 The French campaigners for a “no” vote also used the sharp rise in Chinese textile imports as a symbol of the perils of globalization, which they interpreted as a process driven 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 demonstrating decisive action, decided to cut short talks with Chinese trade officials and initiate action at the WTO which could lead to the re-imposition of quotas on some of the Chinese textile and clothing exports to the EU.51 Despite this, the French referendum resulted in a “no” vote on the Constitutional Treaty. Nevertheless, a political process had already been set in motion 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. The Commission was criticized for letting more than a month slip by between signature and implementation. Member state governments (including the protectionist ones) were blamed for handling out too many import licenses.52 Mandelson was also accused of taking the situation too lightly by not coming back from holiday to deal with the crisis.53 Part of the problem 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.

“EU backpedals on textile quotas; Potential shortages force Mandelson to seek to renegotiate with China”, The International Herald Tribune, August 25, 2005. 53

“Jobs in EU aren’t root of quotas on China; Imports most hurt some Arab nations”, The International Herald Tribune, August 30, 2005.

54


35

management terms the agreements could have been better thought through”.55 Additionally Peter Mandelson acknowledged that the system of quotas of the Shanghai Agreement had a “serious glitch”.56 However, in this paper it has been argued that rational explanations can replace the culture of blame. The Commission did act in what it perceived to be the common interest of the EU—taking into consideration the upcoming French referendum. The relatively long period before the Shanghai Agreement was implemented can be interpreted as the Commission’s way of dealing with the fact that its raison d’etre had to a certain political extent disappeared after the French referendum. In connection with this, the Commission used a rather advanced method to safeguard the possibility of future adaptation of the Shanghai Agreement. This consisted of placing the EU in a situation where the new pressure from retailers enforced the needed adaptation.57

8 Conclusion: the EU’s U-turn on import quotas on Chinese textiles and clothing Potentially, the economic problems experienced by textile and clothing producers bring them into contact with political decision-makers in cases of trade liberalization. This communication is in general successful because of strong selective incentives. The selective incentives for European textile and clothing producers are individual advantages connected to involvement in negotiations with political decision-makers that have been cultivated throughout the decades when all imports to the EU have been part of the GATT and WTO Multifiber Trade Agreement. These negotiations meant that producers could overcome problems of collective action because each individual manufacturer could have at least some influence on the administration of the quota system that was relevant for his 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 is higher in the textile and clothing industry than in the retail sector, which is still higher than for consumers due to selective incentives—even though consumers and retailers by far outnumber the producers. This means that textile and clothing producers have more net gains 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 social groups accept the consequences of political decisions that a particular interest group demands, the lower the lobby-curve. However, as noted in this paper, the lobby-curve for the retailers as well as for textile and clothing producers changed rapidly after the French referendum on May 29, 2005. This is underpinned by the fact that the voice of the producers was heard far more often in European news media before May 29, 2005 than it was after that date: the opposite is true for 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.

“EU admits ‘glitch’ on textile quotas; Fearing shortages, Mandelson sends team to China to renegotiate deal”, The International Herald Tribune, August 25, 2005. 57 The interview with trade commissioner Peter Mandelson in Politiken (September 18, 2005) clearly illustrates that he is thinking in terms of pressure and counter-pressures from the various interest groups when talking about the series of events that led to second agreement with the Chinese government in September 2005: “At this period of time [before the French referendum] the retailers were rather silent. There were no counter-pressures from the retailers.” 56

36


The reason for this change in the lobby-curve of retailers and textile and clothing producers is that before May 29, 2005, other social groups seemed amenable to accepting the consequences of political decisions favoring the European textile and clothing producers, 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 government had already been set in motion and could not be halted. Hence, the Shanghai Agreement was 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 get goods into the EU before 12 July 2005 deliberately exploited the long period of time between signature and implementation. As a result, large amounts of Chinese textiles and clothing became blocked in transit in European ports. The Commission was heavily criticized for its handling of the Shanghai Agreement. However, by prolonging the period of time before the implementation, it accommodated the retailers and opened the way for future modification of the Agreement because it probably knew that the retailers—who had been kept fully informed—would certainly exploit the situation. In other words, the many licenses granted by government bureaucrats to import Chinese textiles and clothing can be rationally explained on the part of the EU’s member states’ governments and bureaucrats, as can the long period of time between the signing and the implementation of the Shanghai Agreement. The reason is that it was a precondition for the later modification of the Agreement on September 5, 2005, needed to bring the situation into line with the post-referendum lobby-curves. The import quotas that were negotiated between the EU and China were so-called Voluntary Export Restraints (VERs), meaning that they enabled China to set higher prices on the (all things being equal) lower export of textiles and clothing. Thereby China could harvest a rent that was paid for by the most weakly organized group within the EU, namely the consumers that have so few opportunities of collectively resisting the introduction of VERs even though the welfare losses implicit in VERs are enormous. Two opposing coalitions of member states may be identified as far as the implementation of quotas on Chinese textiles and clothing in 2005 is concerned. The first consisted of Spain, Portugal, Italy, France and several of the new member states in eastern and central Europe. The second was made up of Sweden, the Netherlands, Denmark, Finland and, from mid August, Germany. Generally, as predicted by rational choice theory, the position of member states vis-à-vis quotas on Chinese textiles and clothing was first and foremost determined by whether or not they had national producers suffering from the surge in Chinese textiles and clothing into the EU after January 1, 2005. In short, the asymmetries of the national political systems are more decisive than the welfare-economic benefits for member states as a whole. However, the asymmetries can alter due to extraordinary circumstances such as a referendum, because the lobby-curve of the various interest groups changes at the same time. There is plenty of blame to go around concerning the Shanghai Agreement. The Commission, being the most important institution in coordination and administration of the EU’s textile policy, was blamed for letting more than a month slip by between signature and implementation, and many other things. However, in this paper it is argued that rational explanations can be more usefully employed in offering an evaluation. The relatively long period before the Shanghai Agreement was implemented can be interpreted as the Commission’s way of dealing with the fact that its political raison d’etre had to a certain extent disappeared after the French referendum. Hence, the Commission decided to safeguard the possibility of a future adaptation of the Shanghai Agreement in


37

order to bring it more in line with the new positions of the lobby-curves after the French referendum of May 29, 2005. This method consisted of putting the EU in a situation where the new pressure from retailers enforced the needed adaptation. Thus the analysis of this case has illustrated how a rational choice theoretical model, combined with contextual sensitivity, can help to interpret even extremely volatile political decision-making. Acknowledgements In preparing this paper, I have received help from my research assistants, Monica Thurmond, Thomas Horn Hansen and Rune Bolding Bennike, as well as from Susana Borrás; University of Roskilde, and Jens Ladefoged Morgensen, University of Copenhagen. Also the comments of an anonymous referee 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 Guide European News Sources FILE-NAME: ALLNWS HIER-LOC: Country & Region (excluding U.S.)/Europe/News News/By Country & Region/Europe CONTENT-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 other news sources. COMPLETE FILE: ABC Magazine Aberdeen Evening Express Aberdeen Press & Journal Accountancy Age Actusnews—English Africa Energy Intelligence Africa Mining Intelligence AFX International Focus Air Transport Intelligence Airline Business Airline Industry Information ANP English News Bulletin ANSA English Corporate Service ANSA English Corporate Service—Most Recent 2 Weeks ANSA English Media Service ANSA English Media Service—Most Recent 2 Weeks The Argus ArtReview Arts & Books Review AUSTRIA TODAY Automotive News Europe Automotive News German Auto Industry Newsletter Axis (UK) B2B Marketing Magazine

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Baltic News Service Bath Chronicle BBC Music Magazine Belarus Business Weekly Belarus General Newswire Belfast News Letter Belfast Telegraph Belfast Telegraph Home Finder Belfast Telegraph Job Finder Belfast Telegraph Saturday Magazine Birmingham Evening Mail Birmingham Post Brand Strategy Bray People Breakingviews.com Bristol Evening Post Broadcast news powered by produxion.com Budapest Business Journal Business & Finance Magazine Business & Money Business News From Poland Business Spain Business Telegraph Campaign Carlow People Central Asia & Caucasus Business Weekly Central Asia General Newswire Central Asia News—Most Recent 2 Weeks Central Europe Banking & Finance Weekly Central Europe Energy Weekly Central Europe IT & Telecom Weekly Central Office Of Information (Hermes Database) Chemical News & Intelligence Children Now (UK) Citywire CMP Information The Compact Traveller CompanynewsGroupe (English) Computer Reseller News UK Computer Weekly Computeractive ComputerWire Computing Conference and Incentive travel (UK) Contract Journal Control and Instrumentation Corkman Corporate IT Update Corporate Money


Coventry Evening Telegraph Creative Review CTK National News Wire Czech Republic and Slovakia Business Weekly Czech Republic Business Newswire Czech Republic Business Newswire—Most Recent 2 Weeks The Daily Mail and Mail on Sunday (London) Daily Post (Liverpool) Daily Record & Sunday Mail The Daily/Sunday Telegraph (London) Datamonitor CommentWire Datamonitor Expert View Datamonitor NewsWire De Gelderlander Derby Evening Telegraph—Europe stories Design Engineering Design Week Direct response(UK) Drogheda Independent e.Business East Anglian Daily Times EASTBUSINESS.ORG Eastern Daily Press Eastwood Advertiser Economic News The Economist Economist Intelligence Unit (EIU) Business Eastern Europe—Europe Economist Intelligence Unit (EIU) Business Europe—Europe Economist Intelligence Unit (EIU) European Trends—Europe Economist.com EDN Europe The Electronic Commerce Briefing Electronics Weekly Employee Benefits Energy in East Europe The Engineer Enniscorthy Guardian Estates Gazette EUobserver.com Eurasia Economic Weekly Europe Information Service The European European Daily Electricity Markets European Gas Markets European Pensions & Investments News European Rubber Journal European Spot Gas Markets EuropeMedia EuroProperty Magazine

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Evening Chronicle (Newcastle, UK) Evening Herald (Plymouth) Evening News (Edinburgh) Evening News (Norwich) The Evening Standard (London) Evening Star EXE Express & Echo (Exeter) Farmers Weekly Financial Adviser Financial Director Financial Times (London) Financial Times Mandate Het Financieele Dagblad (English) Fingal Independent Fortune International FT Energy Newsletters FT Expat Gateshead Post (UK) The Gloucester Citizen Gloucestershire Echo Gorey Guardian GP Magazine Grimsby Evening Telegraph The Grocer Growing Business The Guardian (London) Guardian Unlimited The Guardian Weekly Health Media Group Hedgeweek Herald Express (Torquay) The Herald (Glasgow) Herald & Post (UK) Hospital Doctor HUGIN AS HUGIN AS—Most Recent 2 Weeks Hull Daily Mail Hungary Business Newswire Hungary Business Newswire—Most Recent 2 Weeks Hungary Business Weekly IAC Europe ICIS Chemical Business ICIS Chemical Business America In Store Marketing The Independent and Independent on Sunday (London) The Independent Education The Independent Extra The Independent Media Weekly


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