Looming EU Trade War with China?

The World Trade Organization (WTO) is urging the European Union and China to talk through their dispute over China's booming textiles exports amid fears that an outright clash would be a severe test for the global trade body.

"If there is a way of resolving this short of applying sanctions, it should be taken," WTO spokesman Keith Rockwell told AFP. "Two months of data are not sufficient to make a true assessment."

The WTO's plea came as the European Union's executive commission was ready to decide on Thursday whether to launch a probe into surging Chinese clothing imports, in an escalating trade dispute with the Asian economic giant.

An investigation -- which would mark the first step towards formal limits on some Chinese clothing imports -- comes amid mounting pressure for action from some EU states, led by France and Italy, but also growing warnings about the fallout from a potential trade war. An EU spokesman told AFP that Brussels also considered the probe an opportunity to talk the issue over with Beijing.

Beijing, meanwhile, is calling the move "a big mistake."

A official announcement on the decision is expected Friday.

Worried over jobs

EU textile producers are worried that thousands of jobs could be lost if urgent action is not taken to hold back a flood of Chinese clothing that was unleashed by the end of a 31-year-old global textiles quota system on January 1.

Chinese textile imports into the EU have soared by as much as 534 percent for some garments since the end of the quota system, which is far beyond limits the commission considers tolerable.

Normally, launching an investigation would open a 60-day period during which informal consultations are to be held between Brussels and Beijing to try to find a solution. But if the EU goes ahead with emergency procedures, the process would more quickly to a much more serious formal consultation period.

French Foreign Minister Jean-Pierre Raffarin told French television channel France 2: "There is a real problem and I think that the Chinese should acknowledge it and that we find a solution in dialogue straight away and, if necessary, by safeguard measures in the coming weeks."

Proving material injury

The two sides are bound by WTO rules which limit the actions member states can take to temporarily protect domestic producers, as well as the agreement on China's accession to the WTO in 2001. When China joined the organization, it accepted that a trading partner could place a temporary cap on its textile and clothing imports from the moment talks were requested.

Under WTO rules, the EU must first prove claims of "material injury" to its own producers, and that that injury is caused by Chinese imports, before it can levy temporary trade barriers on some products.

With the US also conducting a review of Chinese textile imports, the WTO is likely to end up arbitrating between trade titans if China formally objects to any safeguard measures, experts said.

"This is bigger than just textiles," said John Weekes, a trade consultant and former Canadian ambassador to the WTO. "It does provide a test of the WTO. This is a challenge that

can't be avoided but one that, if managed well, can show the importance of the organization."

Warning of fallout

Meanwhile, in Bangkok during an Asian trip, EU trade commissioner Peter Mandelson urged European manufacturers calling for limits on Chinese textiles to consider the possible fallout on other companies.

"I have to be mindful of all those European interests," he said in a press conference. "It doesn't work one way, you have to see both sides of the coin, and I hope that those who are debating this issue and representing industrial interests will bear in mind that there is

more than one set of European interests in this question."

Mandelson told reporters during his first official visit to Thailand that while some Europe-based manufacturers wanted safeguards, European firms with factories in China exporting to the EU would not welcome them.