July 27, 2007 - As of July 17, the Chinese Ministry of Finance and Commerce (MOFCOM) suspended the processing of applications by Chinese importers and mills for the global quota (licenses to import wool) until September. This means that as the situation currently stands, quota wool exports to China may be filled and subject to a 38-percent "out-of-quota" tariff.

There are many questions to be answered about this abrupt decision and Australian and New Zealand wool organizations have motivated their government organizations to contact the Chinese government.

The Chinese government sets an annual quota of commodities that importers may bring into the country for domestic use. Its current global quota for wool is 287 million kg for greasy wool and 80 million kg for wool tops. Peculiarly, at the end of May, MOFCOM stated that 147 million kg of the 287 million kg quota remained to be allocated, meaning that 140 million kg had been allocated for the January through May period (an average of 28 million kg per month). Then, last week, MOFCOM advised that only 15 million kg remained for allocation, implying that 132 million kg had been allocated in the six-week period since the end of May, compared with 140 million kg in the five months up to the end of May, and that therefore at least 100 million kg of the allocation of quota was unfilled.

The timing of this announcement comes on the heels of an outbreak of contaminated water in Chinese scouring plants, as well as occurring just days before the start of the Australian spring wool season.

China currently takes a majority of the Australian clip (around 65 percent), around one-third of the New Zealand clip and significant amounts of wool from Uruguay, the United Kingdom, South Africa and the United States. Because of this international influence, the global wool market could be affected in various ways, including the market in the United States.

The president of the Australian peak grower body WoolProducers Australia (WPA), Robert Pietsch, has urged wool growers not to overreact to this news, but to take a long-term view of the market for wool while every effort is made to address this impasse.

Pietsch stressed that the decision does not mean a cessation in wool buying activities by Chinese companies, although growers must be conscious of the possible impacts in the very short term.

"The key message is that the market for wool will continue, albeit with less immediate involvement from a very large customer."
Reprinted in part from The Wool Record Weekly and IWTO

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