Issue of Allocation of China Wool Quota

Dear Members,

Since the rise of the issue of the allocation of China Wool Quota, numerous activities from IWTO and their members, respectively their governments have been done.

Here an overview what has been done so far:

IWTO is in intensive contact with our Chinese Member organization, CWTA.

They have made the following steps so far:

CWTA has contacted and met with officials who are responsible for the wool import in MOFCOM (Chinese Ministry of Commerce) several times since July, reflecting opinions from the wool companies. CWTA also handed over a report on wool demands in Chinese domestic wool textile industry, and expressed their point of views on the wool import administration in the report.

During the 3rd Chamber Meeting of CWTA on 20th August, CWTA members from the China wool industry commented on the quota issue with own opinions and suggestion. Officials from MOFCOM who are responsible for wool import attended the meeting, and listened to the opinions from enterprises of the Chinese wool textile industry. It is thought that MOFCOM officials have some understandings on existing problems of present wool import administration. Possibly there will be improvements on the regulation for wool tariff quota administration in 2008, which should be released in September.

CWTA is assuming that China wool import will realize free trade in the end. It should be just a question of time, and is influenced by many factors such as:

a)      China is a big nation for wool processing, meanwhile a nation for wool

producing, thus the government draw up relevant policies to compensate between the benefits of wool industry and livestock industry.

b)      b. The negotiation between China and Australia/NZ on FTA. High officials from China and NZ Governments confirmed that they will sign FTA agreements on the first half year of 2008. And then FTA agreement between China and Australia will be signed too. The trade for China wool import is supposed to be smoother after the FTA come into operation. There are many contents included in FTA agreements, and the key is whether the negotiation is smooth or not.

Bilaterally, our member countries (or their governments) have done the following steps:

Senior Australian Embassy and Department of Agriculture, Fisheries & Forestry (DAFF) officials met with MOFCOM at Director General level.  The MOFCOM Director General was well aware of the issues which allowed the discussion to proceed without the need to provide a lot of industry background.  Key points were:

*          The Chinese emphasised confirmed that:

-          The 287 mkg 2007 quota for greasy scoured and carbonised wool has been fully allocated.

-          Although fully allocated, only 177 mkg has been filled, leaving 110 mkg.  This lines up with calculations based on the May and June MOFCOM import data.

-          Only 10 mkg of the 80 mkg quota for tops has been filled.

*        The Chinese acknowledged awareness of the impact on the Chinese industry and the need for resolution.

*        They indicated that there is some flexibility and resolution would occur.  But no timetable was given or how it may occur.

*        It was suggested that the quota may not be completely filled this year and that this would be the result of reduced demand.

*        The Chinese acknowledged the need for greater transparency and will consider the possibility of the monthly publication of key data on the MOFCOM web site.

*        The possibility of taking “over-quota” wool at the 1% tariff rate, rather than the punitive 38% was raised, but appears unlikely.

DFAT advises that no further meetings are scheduled, but that the facility exists to reconvene if new information becomes available and that a meeting would be considered helpful.

International Activities:

ü      Australian Trade Minister Warren Truss met with the Chinese Ambassador to Australia and will meet with the Chinese Commerce Minister, Mr Bo Xilai, at a regional trade meeting in the Philippines on 26 August.  There will also be opportunities for meetings during the Asia Pacific Economic Conference (APEC) to be held in Sydney from 2 to 9 September. 

ü      Brian van Rooyen, Chairman of the AWI Trade Committee, has held meetings with Minister Truss.

ü      The New Zealand Minister for Trade has also written to Bo Xilai.

ü      New Zealand has been advised that the normal re-allocation of unused quota would commence in mid-September.  They also understood that consideration would given to an extension of the quota, if there is sufficient demand.

ü      The South African industry is working at an industry, rather than Government, level.

ü      Uruguay has made contact at the Government level.

ü      The United States industry has been in contact with its Government.

ü      Advice was received from the IWTO Argentinean National Committee that their Government has also been in contact the Chinese Government.

Looking ahead:

*        It is more than one month now since the processing of new applications for quota was suspended.

*        The Chinese advised on 10 August that there is 110 mkg of quota yet to be filled.

*        Deliveries against quota are still being made, but at a reduced level.

*        Quota is being traded in China.  Advice from the trade is that it has varied between 1,000 and 2,000 RMB the last weeks, but an expected price is around 1,300 RMB.

*        Receivals into Australian broker’s stores and auction offerings are well down on last year.  Although early in the season, as of this week, auction offerings were down by 19.8% compared with the same period last year and estimated offerings over the following four weeks are 18.6% below last year.  Also, AWTA data shows that they sampled 8.4% fewer bales in July than in 2006.  It is not clear how much of this is wool withheld because of uncertainty over the Chinese quota issues.  But, it is certain that not all of it would be due to this reason.

*        The combination of the above data and the reduced flow of wool into China since 17 July suggest that China will import less wool in the second half of the year than in the first half.

With only with only four and a half months left in 2007, global imports of around 20 to 25 mkg per month will be necessary to fill the remaining 100 mkg, or so, of quota left.  This is little different to the monthly average of 28 mkg over the first six months based on MOFCOM data).

*        This scenario will be very much the case if MOFCOM waits until the 15 September, the legislated date for the recall and re-allocation of unfilled quota.  We are half way to that date since the 17 July.

*        Thus it looks like it the level of Chinese imports for the rest of the year will take the total to around the 287 mkg limit, or may not reach it, depending on when quota is re-allocated.

*        However, if the 287 mkg limit is placed under pressure, it is hoped that MOFCOM will consider combining the raw wool and tops quotas to give a single figure of 347 mkg, as has been suggested by a number of people.

It would also reflect the changing nature of Chinese exports since the quotas were last set in 2002.  Since then the proportion of greasy wool has increased significantly.