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SCMP Reporter

CHINA and Hong Kong yesterday attacked the United States' threat to cut imports of Chinese textiles by up to 35 per cent this year, with Beijing warning it would retaliate to the same extent.

  A spokesman for the Ministry of Foreign Trade and Economic Co-operation in Beijing said the move, made after the failure of Chinese and US negotiators to reach a new bilateral textile agreement by the December 31 deadline, would ''seriously affect'' Sino-US trade relations.

  Beijing lodged a strong protest with the US Embassy.

  ''The irresponsible action taken by the United States has caused strong reaction in China and extensive dissatisfaction in the United States,'' the ministry spokesman was quoted by Xinhua (the New China News Agency) as saying.

  Talks in Washington designed to reach a bilateral textile agreement are still on the agenda and China would continue to seek a negotiated settlement, the spokesman said, adding that ''if the US clings to its course, China may be forced to take relevant retaliatory action''.

  The surprise announcement that China's 1994 quotas would be slashed by between 25 and 35 per cent was prompted by the findings from an 18-month covert operation in Hong Kong.

  The industry estimated that a cut of that size would reduce China's export revenue by up to US$10 billion (HK$77.25 billion).

  A joint US-Hong Kong investigation found locally-based companies doing business across the border and exporters in other Asian countries were circumventing US quotas for Chinese textiles by re-labelling vast quantities of textile products made on the mainland.

  But Hong Kong trade groups accused Washington of ''playing up'' to its domestic apparel industry.

  Government officials said they were hopeful that the row could be defused before the quota cuts were implemented.

  Financial Secretary Sir Hamish Macleod said that if a cut were made in the long-term, the flow of goods from China through the territory as well as investments by Hong Kong companies in China would be affected.

  Re-exports, which make up more than three-quarters of the territory's exports, would be hit.

  Trade Secretary Brian Chau Tak-hay said: ''Any significant trade dispute between the US and China would affect the territory's re-export trade, as approximately 70 per cent of China's exports to the US are re-exported through Hong Kong.

  ''However, until it has happened, it is not possible to forecast how it would affect Hong Kong's re-export trade.''   Responding to claims that many illegal transshipments of Chinese goods were made through Hong Kong, he said: ''We have always been very vigilant, and even the US Government has admitted that we have one of the best export control systems in the world.

  ''However, there will always be some illegal activities no matter how tight the system is, but we are doing our best.''  The imposition of reduced Chinese textile quotas this year is being seen as a significant setback to Sino-US relations which have been slowly improving since the summit meeting between President Bill Clinton and President Jiang Zemin in Seattle last year.

  China's textile exports to the US reached US$6.02 billion in 1992 and form a key element in Sino-US trade. The value of the re-exports through Hong Kong was said to be about $26 billion last year.

  American Chamber of Commerce spokesman Roy Delbyck said the US Government was playing up to its domestic apparel industry, whose representatives wanted blood because they felt President Clinton had sold them out at the recently-concluded Uruguay round oftalks.

  Mr Delbyck said President Clinton had promised that he would try his hardest to get a 15-year phase-out period for the quota system in exchange for votes from congressmen from textile-producing states on the North America Free Trade Agreement (NAFTA).

  ''When the talks concluded with 10-year phase-out period instead of a 15-year period, the US domestic apparel industry was angered because that meant that they could not keep the trade barriers up for a longer period.

  ''The current tactics are partially attributable to the US Government being sensitive to the domestic apparel industry charges'' said Mr Delbyck.

  He reiterated his stance that any cut in quotas would only worsen the illegal transshipment situation as China had an enormous manufacturing capability.

  ''A cut would only mean that the goods will spill over to other countries and be re-exported out of other countries which have excess or no quotas,'' he said.

    Hong Kong General Chamber of Commerce chairman Paul Cheng hoped that the latest threats were only a negotiating position by the Americans.

        ''However, if this is to become a reality, there will certainly be an impact on Hong Kong's textile and garment industry.''  Analysts said any dispute over textiles would have a far-reaching effect on overall economic and trade relations between the two countries.

  ''This is potentially more damaging than the disputes over prison labour and arms sales,'' a Western diplomat in Beijing said.

  ''There is still a good chance this can be worked out through negotiations but if it can't, it could get very messy,'' he added.

  US negotiators have said they are hopeful a new bilateral textile agreement can be reached but insist that three key issues - the transshipment of textiles, overshipment of goods and the infringement of US copyrights and trademarks - have to be resolved before any quotas can be worked out.

  China's Trade Ministry and Customs Service have drawn up specific regulations to more effectively control transshipments, which accounted for more than US$2 billion in imports to the US last year, but US trade officials say they have seen little evidencethe regulations are being enforced.

  A Chinese trade official claimed five companies were punished last December for illegal shipment of textiles.

  In another Xinhua dispatch, an official of the China National Textile Council hinted that imports of textile technologies from the US might become victim to the trade dispute.

  He noted that China was striving to upgrade its technological transformation of the textile industry, adding some which might involve American participation.

  ''The Sino-American textile trade, as well as imports of textile technologies from the US and other Sino-American co-operation projects are bound to be affected by the headstrong action taken by the US as regards the textile import quota from China,'' hesaid.

  He added that the obstinacy on the part of the US in this regard was in fact a kind of power politics, ''coercing the Third World countries with its economic supremacy''.



Sino-US trade war threat