The latest US quota restrictions on certain mainland textile exports could be the first shot in a trade war between the two nations leading up to full liberalization of global textile trade in 2005 under the auspices of the World Trade Organization, according to Eden Woon, chief executive officer of the Hong Kong General Chamber of Commerce (HKGCC).

US textile manufacturers are obviously worried that the removal of the global textile trade quota system could drive them out of business, Woon says.

Their fierce lobbying in Washington has apparently forced the Bush administration to act, he says.

In an exclusive interview with China Daily, Woon says that the US authorities have made a lot of threats against mainland exports. "Now, they are taking real action," he says. "And I'm afraid that this has far greater implications than a straightforward trade dispute involving a limited range of textile products," he says. This, he says, is possibly the outbreak of a "trade war".

The Bush administration has apparently succumbed to pressure from the special-interest groups ahead of next year's presidential election.

Most worrisome is that the measures taken by the US Government are those that allow it to maintain some sort of trade barriers after textile quotas are eliminated after 2005, Woon says.

"The US Government is now invoking those provisions even before 2005," Woon notes. "This does not bode well for trade liberalization in 2005," he adds.

Woon says that the US action was most unfair because the increase in imports from the mainland stemmed mainly from strong demand.

"There is just too much demand in the US market for mainland goods," he says. For that reason, he says that he considers the trade quotas against the mainland by the US government are a "political action," which is an extension of the call on the mainland government to appreciate the renminbi. "What else would happen from here on?" Woon asks.

Answering his own question, Woon muses whether the US would contemplate imposing tariff and other trade barriers on "made in China" imports.

Another bothersome question is whether the European countries, Japan, Canada and Australia will follow the US example and impose their own restrictions on mainland imports.

On top of that is the question whether the mainland government will retaliate.

The mainland yesterday called off a shopping mission for US soybeans citing visa problems.

But concerns that the move was linked to the US trade quotas yesterday sent soybean futures tumbling at the Chicago Board of Trade.

Woon says that the mainland government can diffuse the "trade war" by giving the Bush administration a face-saving way to back down from its aggressive stance.

The mainland, he says, imports lots of farm produce from the US. Recognizing that the considerable strength of the agricultural sector in US politics, the mainland government can win some influential friends in Washington by "taking a closer look" in what can be done to further encourage the import of agricultural products from the US, Woon says.

What's more, the mainland can reaffirm its WTO commitments in opening its markets to foreign participations, Woon says.

It can do this through "better implementation" of the various market-opening arrangements allowing for greater ease in the importation and distribution of goods from the US and other foreign countries, he says.

Another card the mainland government can play in turning US sentiment in its favour is the key role it plays in easing the tension in North Korea, Woon says.

The US is keen on arriving at a settlement on the North Korean nuclear issue, he says. The US public should be reminded of the contributions the mainland has made in the tough negotiations, he says.

Woon believes that the latest US trade quotas against the mainland are a "tactical move" rather than a "strategic" one. As such, it is relatively simple to defuse and should never be allowed to flare up into a full-scale confrontation that can hurt the interests of both nations, he says.

The Hong Kong business community is closely watching the developments on the trade dispute, Woon says. As the most important entrepot for mainland's foreign trade, Hong Kong risks being trapped in the crossfire in any trade conflict between the mainland and its trade partners.

This issue is of particular concern to Hong Kong at a time when the surge in re-exports to and from the mainland is providing the main impetus for economic recovery.

Indeed, the closer economic integration with the mainland, especially the Pearl River Delta region, is widely seen as the future of Hong Kong. In that process, Hong Kong is becoming an increasingly-important testing ground for the opening of the mainland markets, Woon says.

As the market liberation is gathering pace, the mainland is finding greater use of Hong Kong "in an experimental way," he says. And the Hong Kong economy has benefited greatly in the process, he adds.

The recently-concluded Closer Economic Partnership Arrangement, or CEPA, has given Hong Kong businesses a headstart on their many foreign competitors in gaining entry to the mainland markets.

Woon says that there is a strong demand in the mainland for Hong Kong service providers, particularly those in logistics and distribution, to help upgrade the services sector in many provinces.

Allowing Hong Kong banks to operate personal renminbi banking services, announced on Tuesday, represents a major step in ensuring Hong Kong's future as a premier financial centre not only of the region but also the mainland, Woon says.

The HKGCC has played an important role in the economic integration with the mainland in general and the CEPA negotiations in particular, Woon says.

The chamber, he says, has to have a voice that will be heard by the public and the government on business issues. The economy is in a flux as it goes through the difficult restructuring process, he says.

"We must play a more active role in these critical times."

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