AGREEMENT in the form of an Exchange of Letters between the European Community and the People's Republic of China amending the Agreement between the European Economic Community and the People's Republic of China on trade in textile products as last amended by Agreements initialled on 14 December 1994

Letter from the Council of the European Union

Sir,

1. I have the honour to refer to the consultations held between our respective Delegations for the purpose of amending and extending the Agreement between the European Economic Community and the People's Republic of China on trade in textile products initialled on 9 December 1988, as last amended by Agreement initialled on 14 December 1994 (hereinafter referred to as 'the Agreement`).

2. As a result of the consultations, both Parties agreed to amend as of 1 January 1996 the following provisions of the Agreement:

2.1. The text of Article 5 is replaced by the following text:

'Article 5

1. In any Agreement year advance use of a portion of the quantitative limits established for the following Agreement year is authorized for each category of products up to 1 % of the quantitative limit for the current Agreement year, with a possibility to reach 5 % after consultations in conformity with Article 16, paragraph 2.

Amounts delivered in advance shall be deducted from the corresponding quantitative limits established for the following Agreement year.

2. Carryover to the corresponding quantitative limit for the following Agreement year of the amounts not used during Agreement year is authorized for each category of products up to 3 % of the quantitative limit for the current Agreement year, with a possibility to reach 7 % after consultations in conformity with Article 16, paragraph 2.

3. Transfers in respect of categories in Group I shall not be made from any category except as follows:

- Transfers between categories 2 and 3 may be made up to 4 % of the quantitative limits for the category to which the transfer is made.

- Transfers from category 1 to categories 2 and 3 may be made up to 1 % of the quantitative limits for the category to which the transfer is made.

- Transfers between categories 4 to 8 may be made up to 4 % of the quantitative limits for the category to which the transfer is made.

Transfers into any categories in Groups II and III may be made from any category or categories in Groups I, II and III up to 6 % of the quantitative limit for the category to which the transfer is made.

4. The table of equivalence applicable to the transfers referred to above is given in Annex I to this Agreement.

5. The increase in any category of products resulting from the cumulative application of the provisions in paragraphs 1, 2 and 3 above during an Agreement year shall not exceed 17 %.

6. Prior notification shall be given by the authorities of China in the event of recourse to the provisions of paragraphs 1, 2 and 3 above.`

2.2. The Text of Article 11 is replaced by the following text:

'Article 11

1. China will ensure that the supply to the Community industry of raw materials shall be made at conditions not less favourable than to Chinese domestic users.

2. Without prejudice to paragraph 1, China undertakes to take such measures as are required to make possible the export of the minimum annual quantities laid down in Annex IV of the products listed in that Annex.

In administering exports of the products referred to in subparagraph 1, China undertakes to give favourable consideration, taking into account its export possibilities, to requests from the Community textile industry with a view to meeting its needs.

For this purpose, the Community may submit to the Chinese authorities before the end of each year a list of interested manufacturers and processors and, if possible, the quantities of products requested by each of the firms in question.

The Contracting Parties are agreed that transactions in the products listed in Annex IV shall be carried out in accordance with Articles 8 and 9 of the Trade and Economic Cooperation Agreement taking account of market practice and normal trade flows.`

2.3. The text of the second, third and fourth sentences of Article 20, paragraph 1, is replaced by the following text:

'It shall be applicable until 31 December 1998.`

2.4. Annex I which sets out the products concerned by the Agreement is replaced by Appendix 1 to this letter.

2.5. Annex III which sets out the quantitative restrictions for exports from the People's Republic of China to the European Community is replaced for the period from 1 January 1996 to 31 December 1998 by Appendix 2 to this letter.

2.6. Annex IV which sets out the minimum quantities of textile raw materials which the People's Republic of China undertakes to reserve for the European Community each year is replaced for the period from 1 January 1996 to 31 December 1998 by Appendix 3 to this letter.

2.7. The Annex to Protocol E which sets out the quantitative restrictions for economic outward processing operations is replaced for the period from 1 January 1996 to 31 December 1998 by Appendix 4 to this letter.

2.8. In the Joint Declaration on the Berlin Fair set out in Appendix 8 to the Agreement initialled on 8 December 1992 the reference to 'the years 1993, 1994, 1995` is replaced by the words 'the years 1996, 1997 and 1998`.

2.9. All references made in the Agreement to the 'European Economic Community` shall be read as being made to the 'European Community`.

2.10. All Agreed Minutes and Declarations annexed to this letter shall form an integral part of the Agreement.

3. Should the People's Republic of China become a Member of the World Trade Organization before the date of expiry of the Agreement, the restrictions in force shall be phased out in the framework of the WTO Agreement on Textiles and Clothing.

4. I should be obliged if you could kindly confirm the acceptance of your Government of the foregoing. Should this be the case, this Agreement in the form of an Exchange of Letters shall enter into force on the first day of the month following the day on which the Parties have notified each other that the legal procedures necessary to this end have been completed. In the meantime, it shall be applied provisionally from 1 January 1996 on conditions of reciprocity.

Please accept, Sir, the assurance of my highest consideration.

For the Council of the European Union

ANNEX I

PRODUCTS REFERRED TO IN ARTICLE 1

1. When the constitutive material of the products of categories 1 to 114 is not specifically mentioned, these products are to be taken to be made exclusively of wool or of fine hair, of cotton or of man-made fibres.

2. Garments which are not recognizable as being garments for men or boys or as being garments for women or girls are classified with the latter.

3. Where the expression 'babies' garments` is used, this is meant to cover garments up to and including commercial size 86.

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ANNEX 1A

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Appendix 2

ANNEX III (The full product descriptions of the categories listed in this Annex are to be found in Annex I to the Agreement)

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Appendix 3

ANNEX IV (referred to in Article 11)

Assured provision by China of textile raw materials

Minimum quantities which China undertakes to reserve for the Community each year:

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Appendix 4

ANNEX TO PROTOCOL E

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Appendix 5

Agreed Minute

Delegations of the European Commission and the People's Republic of China met in Brussels on 12 and 13 December 1995 to hold consultations on the basis of Article 14 of the Agreement between the European Community and the People's Republic of China on trade in textile products not covered by the MFA bilateral Agreement, initialled on 19 January 1995.

At the end of discussions concerning the implementation of Protocol B to the Agreement it was agreed that the European Commission will give favourable consideration to requests made by the People's Republic of China to open specific quantitative limits for textile products resulting from outward economic processing in China.

On the same occasion it was recalled that re-imports into the Community of the above products will be carried out up to the quantitative limits which will be agreed for the concerned categories, provided that they will be effected in accordance with the regulations on economic outward processing in force in the Community.

For the Delegation of the People's Republic of China

For the Delegation of the European Commission

Appendix 6

DECLARATION BY THE EUROPEAN COMMUNITY CONCERNING ANNEX IV AND DECLARATION MADE BY CHINA IN RESPONSE

1. Declaration by the European Community

The Community declares that it considers that China's undertaking under Annex IV to the Agreement (to reserve minimum quantities of textile raw materials to the Community industry and operators) can in no way be construed or applied in such a way that will negatively affect the rights granted to Community operators under Article 11, paragraph 1, of the Agreement and Article 12 of the Agreement initialled on 19 January 1995.

2. Declaration made by China in response

The Chinese Delegation declares that it considers that export of textile raw materials by China to the European Community has been developing normally within the availability of supply and in conformity with demand as stipulated in the bilateral Agreement, and that the Chinese side has no intention to impose any restrictions.

Therefore, the Chinese Delegation maintains that there is no necessity for the European Community to raise this issue by making a unilateral declaration.

Letter from the Government of the People's Republic of China

I have the honour to acknowledge receipt of your letter of . . . which reads as follows:

'Sir,

I have the honour to refer to the consultations held between our respective Delegations for the purpose of amending and extending the Agreement between the European Economic Community and the People's Republic of China on trade in textile products initialled on 9 December 1988, as last amended by Agreement initialled on 14 December 1994 (hereinafter referred to as "the Agreement").

2. As a result of the consultations, both Parties agreed to amend as of 1 January 1996 the following provisions of the Agreement:

2.1. The text of Article 5 is replaced by the following text:

"Article 5

1. In any Agreement year advance use of a portion of the quantitative limits established for the following Agreement year is authorized for each category of products up to 1 % of the quantitative limit for the current Agreement year, with a possibility to reach 5 % after consultations in conformity with Article 16, paragraph 2.

Amounts delivered in advance shall be deducted from the corresponding quantitative limits established for the following Agreement year.

2. Carryover to the corresponding quantitative limit for the following Agreement year of the amounts not used during Agreement year is authorized for each category of products up to 3 % of the quantitative limit for the current Agreement year, with a possibility to reach 7 % after consultations in conformity with Article 16, paragraph 2.

3. Transfers in respect of categories in Group I shall not be made from any category except as follows:

- Transfers between categories 2 and 3 may be made up to 4 % of the quantitative limits for the category to which the transfer is made.

- Transfers from category 1 to categories 2 and 3 may be made up to 1 % of the quantitative limits for the category to which the transfer is made.

- Transfers between categories 4 to 8 may be made up to 4 % of the quantitative limits for the category to which the transfer is made.

Transfers into any categories in Groups II and III may be made from any category or categories in Groups I, II and III up to 6 % of the quantitative limit for the category to which the transfer is made.

4. The table of equivalence applicable to the transfers referred to above is given in Annex I to this Agreement.

5. The increase in any category of products resulting from the cumultative application of the provisions in paragraphs 1, 2 and 3 above during an Agreement year shall not exceed 17 %.

6. Prior notification shall be given by the authorities of China in the event of recourse to the provisions of paragraphs 1, 2 and 3 above."

2.2. The Text of Article 11 is replaced by the following text:

"Article 11

1. China will ensure that the supply to the Community industry of raw materials shall be made at conditions not less favourable than to Chinese domestic users.

2. Without prejudice to paragraph 1, China undertakes to take such measures as are required to make possible the export of the minimum annual quantities laid down in Annex IV of the products listed in that Annex.

In administering exports of the products referred to in subparagraph 1, China undertakes to give favourable consideration, taking into account its export possibilities, to requests from the Community textile industry with a view to meetings its needs.

For this purpose, the Community may submit to the Chinese authorities before the end of each year a list of interested manufacturers and processors and, if possible, the quantities of products requested by each of the firms in question.

The Contracting Parties are agreed that transactions in the products listed in Annex IV shall be carried out in accordance with Articles 8 and 9 of the Trade and Economic Cooperation Agreement taking account of market practice and normal trade flows."

2.3. The text of the second, third and fourth sentences of Article 20, paragraph 1, is replaced by the following text:

"It shall be applicable until 31 December 1998."

2.4. Annex I which sets out the products concerned by the Agreement is replaced by Appendix 1 to this letter.

2.5. Annex III which sets out the quantitative restrictions for exports from the People's Republic of China to the European Community is replaced for the period from 1 January 1996 to 31 December 1998 by Appendix 2 to this letter.

2.6. Annex IV which sets out the minimum quantities of textile raw materials which the People's Republic of China undertakes to reserve for the European Community each year is replaced for the period from 1 January 1996 to 31 December 1998 by Appendix 3 to this letter.

2.7. The Annex to Protocol E which sets out the quantitative restrictions for economic outward processing operations is replaced for the period from 1 January 1996 to 31 December 1998 by Appendix 4 to this letter.

2.8. In the Joint Declaration on the Berlin Fair set out in Appendix 8 to the Agreement initialled on 8 December 1992 the reference to "the years 1993, 1994, 1995" is replaced by the words "the years 1996, 1997 and 1998".

2.9. All references made in the Agreement to the "European Economic Community" shall be read as being made to the "European Community".

2.10. All Agreed Minutes and Declarations annexed to this letter shall form an integral part of the Agreement.

3. Should the People's Republic of China become a Member of the World Trade Organization before the date of expiry of the Agreement, the restrictions in force shall be phased out in the framework of the WTO Agreement on Textiles and Clothing.

4. I should be obliged if you could kindly confirm the acceptance of your Government of the foregoing. Should this be the case, this Agreement in the form of an Exchange of Letters shall enter into force on the first day of the month following the day on which the Parties have notified each other that the legal procedures necessary to this end have been completed. In the meantime, it shall be applied provisionally from, 1 January 1996 on conditions of reciprocity.

Please accept, Sir, the assurance of my highest consideration.'

I have the honour to confirm that my Government is in agreement with the contents of your letter.

Please accept, Sir, the assurance of my highest consideration.

For the Government of the People's Republic of China

ANNEX I

PRODUCTS REFERRED TO IN ARTICLE 1

1. When the constitutive material of the products of categories 1 to 114 is not specifically mentioned, these products are to be taken to be made exclusively of wool or of fine hair, of cotton or of man-made fibres.

2. Garments which are not recognizable as being garments for men or boys or as being garments for women or girls are classified with the latter.

3. Where the expression 'babies' garments' is used, this is meant to cover garments up to and including commercial size 86.

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ANNEX 1A

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Appendix 2

ANNEX III (The full product descriptions of the categories listed in this Annex are to be found in Annex I to the Agreement)

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Appendix 3

ANNEX IV (referred to in Article 11)

Assured provision by China of textile raw materials

Minimum quantities which China undertakes to reserve for the Community each year:

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Appendix 4

ANNEX TO PROTOCOL E

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Appendix 5

Agreed Minute

Delegations of the European Commission and the People's Republic of China met in Brussels on 12 and 13 December 1995 to hold consultations on the basis of Article 14 of the Agreement between the European Community and the People's Republic of China on trade in textile products not covered by the MFA bilateral Agreement, initialled on 19 January 1995.

At the end of discussions concerning the implementation of Protocol B to the Agreement it was agreed that the European Commission will give favourable consideration to requests made by the People's Republic of China to open specific quantitative limits for textile products resulting from outward economic processing in China.

On the same occasion it was recalled that re-imports into the Community of the above products will be carried out up to the quantitative limits which will be agreed for the concerned categories, provided that they will be effected in accordance with the regulations on economic outward processing in force in the Community.

For the Delegation of the People's Republic of China

For the Delegation of the European Commission

Appendix 6

DECLARATION BY THE EUROPEAN COMMUNITY CONCERNING ANNEX IV AND DECLARATION MADE BY CHINA IN RESPONSE

1. Declaration by the European Community

The Community declares that it considers that China's undertaking under Annex IV to the Agreement (to reserve minimum quantities of textile raw materials to the Community industry and operators) can in no way be construed or applied in such a way that will negatively affect the rights granted to Community operators under Article 11, paragraph 1, of the Agreement and Article 12 of the Agreement initialled on 19 January 1995.

2. Declaration made by China in response

The Chinese Delegation declares that it considers that export of textile raw materials by China to the European Community has been developing normally within the availability of supply and in conformity with demand as stipulated in the bilateral Agreement, and that the Chinese side has no intention to impose any restrictions.

Therefore, the Chinese Delegation maintains that there is no necessity for the European Community to raise this issue by making a unilateral declaration.

Appendix 7

AGREED MINUTE

1. Delegations of the European Community and the People's Republic of China met in Brussels from 12 to 13 December 1995 in accordance with Article 7 of the bilateral Agreement on Trade in Textiles initialled on 9 December 1988, as last amended by the Exchanges of Letters initialled on 14 December 1994, and with Articles 17 and 18 of Protocol A to the Agreement to resume the consultations held in Beijing from 30 October to 3 November and in Brussels from 27 November to 1 December 1995 on the question of the circumvention of the Agreement and the search for a satisfactory solution.

2. The Community Delegation in the course of the discussion recalled

(a) that by Notes Verbales of 9 February and 16 June 1995, the Community had transmitted to the Chinese authorities documents showing that the following pieces of textile products had been imported into the Community either under a false declaration of origin or illegally without being declared for customs clearance:

15 367 194 pieces of category 4,

304 040 pieces of category 6,

20 016 pieces of category 7,

15 438 pieces of category 8 and

9 000 pieces (2 tonnes) of category 78;

(b) that on the basis of the enquiries carried out in the territory of the Community and third countries, it had appeared that these products physically emanated from the territory of the People's Republic of China before either having been transhipped and imported into the Community under false declaration of origin or introduced illegally without being declared for customs clearance, that there were sufficient grounds to conclude that they had for origin the People's Republic of China, that they had been imported into the Community without having been set off against the quantitative limits established under the bilateral Agreement, and that they had, therefore, been imported into the Community in circumvention of the Agreement.

3. The Chinese Delegation, after having carried out enquiries on the circumvention cases presented by the European Commission in the territory of the People's Republic of China, agreed with respect to the following pieces of textile products on the Chinese origin:

13 077 778 pieces of category 4,

121 904 pieces of category 6,

20 016 pieces of category 7,

15 438 pieces of category 8 and

9 000 pieces (2 tonnes) of category 78.

The Chinese Delegation contested the Chinese origin in regard to 2 298 416 pieces of textile products of category 4 and 182 136 pieces of textile products of category 6.

4. The Chinese Delegation maintained that quota deductions should not be carried out in cases where the Community authorities have not demonstrated the intentional involvement of Chinese companies in the fraudulent importation into the Community.

5. The Community Delegation contested this opinion and maintained the view that, under the bilateral Agreement, nothing compelled the Community to demonstrate an active involvement of Chinese companies in order to seek an adjustment of the quantitative limits, equivalent to the quantities imported in circumvention of the Agreement.

6. As a consequence, the Delegation of the Community maintained that an adjustment be operated on the quantitative limits applicable to categories 4, 6, 7, 8 and 78.

7. While holding its positions unchanged, the Chinese Delegation accepted as a sign of goodwill that an adjustment be made on the 1995 quantitative limits applicable to categories 4, 6, 7, 8 and 78 as follows:

cat. 4: 13 077 778 pieces

cat. 6: 121 904 pieces

cat. 7: 20 016 pieces

cat. 8: 15 438 pieces

cat. 78: 9 000 pieces (2 tonnes)

8. In the course of consultations both parties reaffirmed the usefulness of strengthening cooperation in order to prevent circumvention of the provisions of the bilateral Agreement. Such cooperation should also provide for an exchange of information regarding Chinese exports to third countries and territories.

Brussels, 13 December 1995.

For the People's Republic of China

For the European Community

(1) For the purpose of setting off exports against the agreed quantitative limits a conversion rate of 5 garments (other than babies' garments) of a maximum commercial size of 130 cm, for 3 garments whose commercial size exceeds 130 cm may be applied for up to 5 % of the quantitative limits.

(2) These figures include the following quantities reserved for European industry for a period of 180 days each year:

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(3) For products of category 5 (other than anoraks, windcheaters, waister jackets and the like) of fine animal hair, the following sublimits apply within the quantitative limits established for category 5:

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(4) These figures include the following quantities reserved for European industry for a period of 180 days each year:

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The following additional quantities of shorts (CN codes 6203 41 90, 6203 42 90, 6203 43 90 and 6203 49 50) may be exported to the EEC by China:

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(5) These figures include the following quantities reserved for the European industry for a period of 180 days each year:

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(6) These figures include the following quantities reserved for the European industry for a period of 180 days each year:

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(7) These figures include the following quantities reserved for the European industry for a period of 180 days each year:

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(8) These figures include the following quantities reserved for the European industry for a period of 180 days each year:

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(9) For the purpose of setting off exports against the agreed quantitative limits a conversion rate of 5 garments (other than babies' garments) of a maximum commercial size of 130 cm, for 3 garments whose commercial size exceeds 130 cm may be applied for up to 5 % of the quantitative limits.

(10) For the purpose of setting off exports against the agreed quantitative limits a conversion rate of 5 garments (other than babies' garments) of a maximum commercial size of 130 cm, for 3 garments whose commercial size exceeds 130 cm may be applied for up to 5 % of the quantitative limits.

(11) These figures include the following quantities reserved for European industry for a period of 180 days each year:

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(12) For the purpose of setting off exports against the agreed quantitative limits a conversion rate of 5 garments (other than babies' garments) of a maximum commercial size of 130 cm, for 3 garments whose commercial size exceeds 130 cm may be applied for up to 5 % of the quantitative limits.

(13) These figures include the following quantities reserved for European industry for a period of 180 days each year:

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(14) For the purpose of setting off exports against the agreed quantitative limits a conversion rate of 5 garments (other than babies' garments) of a maximum commercial size of 130 cm, for 3 garments whose commercial size exceeds 130 cm may be applied for up to 5 % of the quantitative limits.

(15) These figures include the following quantities reserved for European industry for a period of 180 days each year:

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(16) For products of category 5 (other than anoraks, windcheaters, waister jackets and the like) of fine animal hair, the following sublimits apply within the quantitative limits established for category 5:

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(17) These figures include the following quantities reserved for European industry for a period of 180 days each year:

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The following additional quantities of shorts (CN codes 6203 41 90, 6203 42 90, 6203 43 90 and 6203 49 50) may be exported to the EEC by China:

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(18) These figures include the following quantities reserved for the European industry for a period of 180 days each year:

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(19) These figures include the following quantities reserved for the European industry for a period of 180 days each year:

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(20) These figures include the following quantities reserved for the European industry for a period of 180 days each year:

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(21) These figures include the following quantities reserved for the European industry for a period of 180 days each year:

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(22) For the purpose of setting off exports against the agreed quantitative limits a conversion rate of 5 garments (other than babies' garments) of a maximum commercial size of 130 cm, for 3 garments whose commercial size exceeds 130 cm may be applied for up to 5 % of the quantitative limits.

(23) For the purpose of setting off exports against the agreed quantitative limits a conversion rate of 5 garments (other than babies' garments) of a maximum commercial size of 130 cm, for 3 garments whose commercial size exceeds 130 cm may be applied for up to 5 % of the quantitative limits.

(24) These figures include the following quantities reserved for European industry for a period of 180 days each year:

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(25) For the purpose of setting off exports against the agreed quantitative limits a conversion rate of 5 garments (other than babies' garments) of a maximum commercial size of 130 cm, for 3 garments whose commercial size exceeds 130 cm may be applied for up to 5 % of the quantitative limits.

(26) These figures include the following quantities reserved for European industry for a period of 180 days each year:

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(27) China will accord favourable consideration to requests from Community economic operators for additional quantities, within the limits of availability.

(28) China will accord favourable consideration to requests from Community economic operators for additional quantities, within the limits of availability.