TRADE tensions between China and the EU rose sharply yesterday as Beijing scrapped export tariffs designed to curb the flood of cheap Chinese textiles into Europe.

The Chinese action came as a swift retaliation to steps by Brussels on Friday to raise the stakes in its dispute over China’s exports of T-shirts and flax yarn by lodging a formal request for talks with Beijing under a disputes procedure at the World Trade Organisation (WTO).

In a tit-for-tat move that raised the spectre of a damaging confrontation between the two powerful trading blocs, China announced that it would ditch export tariffs on 81 textile products, following through on its threat to roll back the levies if Western countries threw up barriers to its goods.

Both sides now face an edgy two-week countdown as they struggle to resolve their stand-off during a window for negotiations at the WTO in Geneva, where talks were due to begin yesterday.

The Chinese move means not only an end to some taxes that China voluntarily imposed on 148 items at the end of last year to cushion the impact on European and US manufacturers of the ending of decades-old export quotas on January 1. China also announced that it would revoke some of the higher export tariffs that only last week it said that it would impose on 74 textile products.

The humble T-shirt found itself at the heart of the dispute as China defended its right to export cheap shirts, socks and sweaters to Europe and America.

Beijing said that the EU had failed to prove that its domestic markets had been disrupted by a rise in Chinese exports since the scrapping of the quotas under the former Multi-Fibre Agreement.

Bo Xilai, the Chinese Commerce Minister, said: “In our opinion, this move lacks legal grounding and therefore is incorrect.”

Europe hit back to say that not only had it proved its case, but that its companies were at risk, with the threat of mass job cuts and plant closures.

Claude Veron-Reville, spokeswoman for Peter Mandelson, the EU Trade Commissioner, said: “We have shown that not only is there a surge in imports from China, but also . . . that there is an immediate risk for companies.”

Ms Veron-Reville said that Brussels still hoped that agreement could be reached with the Chinese during the 15-day window for negotiations. “We are still willing to find a negotiated and amicable solution,” she said.

Earlier, Mr Bo said: “China is still willing to have consultations with the EU and the US sides to resolve this question.”

TRADING BLOWS

December 31, 2004: end of 40-year-old quotas that limited poor nations’ textile exports

December 31, 2004: China voluntarily puts small export tax on 148 textile items

May 15, 2005: US quotas on some Chinese textiles

May 20: China raises export taxes on 74 items

May 27: EU takes dispute to WTO

May 30: China cuts tariff on 81 textile items

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