China has scrapped export tariffs on many classes of textile products in retaliation against the decision by the United States and the European Union to restore quotas on mainland garment imports.

The move sets the stage for a high-level showdown on textile trade starting Thursday, when US Commerce Secretary Carlos Gutierrez is scheduled to arrive in Beijing for talks.

China's decision Monday to remove export tariffs on 81 classes of textile products came just a week after it pledged to increase them in an attempt to pacify the protectionist lobbies in Washington and Brussels.

Since the worldwide textile quota system expired at the start of the year, US and EU manufacturers have protested against what they say is a deluge of low-cost mainland imports that could drive them out of business.

The United States was the first to move, imposing "safeguards'' on over 10 categories of imports this month.

Then Friday, the EU moved to restrict T-shirt and flax yarn imports. It said mainland imports in these categories had increased by 187 percent and 56 percent in the first quarter. Safeguard quotas will allow the United States and the EU to limit to 7.5 percent the year-over-year increase of mainland imports in specific textile categories.

Commerce Minister Bo Xilai said Monday that to leave the export tariffs in place would subject Chinese manufacturers to "two sources of pressure.''

``If the EU and the US put one kilogram of pressure on our companies, we must reduce our pressure on them by the same amount,'' he said. Bo said the United States and EU had failed to show proof that Chinese textile imports were ``market-disruptive.''

But EU spokeswoman Claude Veron-Reville said ``we have shown that not only is there a surge in imports from China but also there is an immediate risk for [European] companies.''

Daniel Poon, assistant chief economist at the Hong Kong Trade Development Council, said that under World Trade Organization rules, the United States and EU would need more than a few months of trade data to prove market disruption.

Poon also pointed to discrepancies between the data cited by the disputants.

``The United States and EU use import data, while China uses export data, which has a lag time of at least several weeks,'' he said. China said textile exports grew by only 18.4 percent to US$31.2 billion (HK$243.36 billion) in the first four months of the year, slower than the growth rate over the same period last year, when the international quota system was still in effect.

Canceling export tariffs now will give China an additional weapon in talks with US trade representatives in a last-ditch effort to head off safeguard quotas. ``This doesn't mean the export tariffs will be scrapped forever,'' said Peter Liu, chairman of the textile and apparel committee of the American Chamber of Commerce in Hong Kong. ``The export tariffs will be an item for the negotiations on the visit to Beijing by Commerce Secretary Gutierrez.''

Standard Chartered economist Tai Hui said China and the United States will be looking for a middle ground. ``The middle ground can be quite broad - from 7.5 percent growth, as permited by the safeguard quotas, to the growth China exports are experiencing so far this year.''

Hui said the row over textiles made a yuan revaluation less likely in the short term. ``The bottom line is we feel that when it comes to exchange rate reform, China is likely to be basing any change on domestic factors rather than international pressures.'' mark.lee@singtaonewscorp.com

grace.lam@singtaonewscorp.com