The Agreement on Textiles and Clothing
The Challenge of a Quota-free Market
Understanding What Might Happen
Presentation by
Mr. Matthias KNAPPE
Senior Market Development Officer
International Trade Centre UNCTAD/WTO
04 April 2003
With the Phasing-out of the ATC in 2005
the question is not…
Whether there will be a change or not!
The question is whether it will be a:
• Sudden collapse
• Or an immense and unstoppable but
somewhat predictable change
04 April 2003
Structure
What
What Might
Might Happen:
Happen:
Market
Market Indications
Indications and
and
New
New Challenges
Challenges for
for Market
Market Entry
Entry
04 April 2003
Regionalisation of Trade
Trade develops along regional lines
Export of final garments
• US: NAFTA, Free Trade with SADC,
CACM, Andean Countries, etc.
• EU: Turkey, Mexico, Brazil, South Africa,
ACP, etc.
Sourcing of fabrics and ancillaries:
• SADC/AGOA, ASEAN, SAARC,
CACM/CBI, Andean region, etc.
04 April 2003
Complex Patchwork of International Trade Agreements: European
Trade Policy
G.S.
P
L.D.C.
Afghanistan
Myanmar
Yemen
A.C.P.
Cambodia
Cape Verde
Samoa
Bhutan
Ethiopia
Tuvalu
Angola
Kiribati
Lesotho
Togo
Zambia
Vanuatu
Mali
Comoros
Haiti
Somalia
Rwanda
Eritrea
Chad
Liberia
Gambia
Burundi
Tanzania
Guinea
Cuba
Sierra Leone
Norway
Marshall Isl.
Montserrat
Bermuda
Macedonia
Uzbekistan
Anguilla
Bahrain
Mozambique
Indonesia
Belize
Aruba
Uruguay
India
Gibraltar
China
Azerbaijan
New Zealand
Singapore
Mongolia
Morocco
Egypt
Vietnam
Syria
Algeria
Jordan
Lebanon
Iraq
Ukraine
Moldova
Croatia
Tajikistan
Saudi Arabia
Yugoslavia
Israel
Malta
Turkey
Cyprus
Georgia
Greenland
Bosnia &
Herzegovina
Korea, Rep.
Kuwait
Tunisia
Iran
Canada
Hungary
Pakistan
Oman
Turkmenistan
Bulgaria
Poland
Brazil
Fiji
Romania
Hong Kong
Andean
Group
Ecuador
Philippines
Belarus
Kazakhstan
Venezuela
W.T.O.
Japan
Peru
Nigeria
Papua
St. Kitts
Brunei
Chile
Bolivia
Colombia
E.F.T.A.
Switzerland
U.A.E
Kyrgyzstan
South Africa
Bahamas
Russia
Libya
Niue
Czech Rep.
Iceland
Thailand
Mauritania
Ivory Coast
U.S.
Liechtenstein
Argentina
Suriname
St. Lucia
Kenya
Dominica
Congo
Barbados
Antigua
Nauru
Dominican Rep.
Namibia
Gabon
Jamaica
Swaziland Congo Dem.Rep.
Cook Isl.
Cameroon
Trinidad
Guyana
Mauritius
Palau
St. Vincent
Albania
Micronesia
Ghana
Grenada
Tokelau
Paraguay
Malawi
Guinea-Bissau
Djibouti
Sri Lanka
E.E.A.
Macao
Niger
Zimbabwe
Seychelles
Slovenia
Costa Rica
Mexico
Uganda
Andorra
Guatemala
Nicaragua
Benin
Solomon Isl.
Eq. Guinea
Estonia
Latvia
Panama
El Salvador
Bil.
Slovakia
C.A.C.M.
Honduras
Burkina Faso
Madagascar
Sudan
Maldives
Botswana
Ctrl. Afr. Rep.
Senegal
Sao Tome
Laos
Australia
Bangladesh
Tonga
Nepal
East Timor
Qatar
Malaysia
Armenia
Euromed
Taiwan
Lithuania
Korea, Dem. Rep.
Prices will Fall Further
Source: Robin Anson, Director Textiles Intelligence; Hong Kong 3 October 2002; www.textilesintelligence.com
04 April 2003
Possible New WTO-conform Protective
Measures after 2004
• Increased use of trade remedies.
a) Safeguards (fairly traded imports).
b) Antidumping & countervailing duties
(unfairly traded imports).
• T&C products as targets for retaliation in
dispute settlement cases.
• Increase of administrative burdens (record
keeping).
04 April 2003
New Possible Protective Measures until 2004
• Attempts to divide the developing world.
• Reciprocal market access demands.
• Tough rules of origin, transhipment and
customs enforcement.
• No unilateral concessions.
04 April 2003
Likely Post-2004 US sourcing pattern
The US Congressional Textile Caucus:
• Sourcing is driven by quota constraints (retailers
buy from 40-60 countries).
• To be cut by half by end 2005/2006.
• Further drop to 1/3 to ¼ by 2010.
• LDCs will especially be hard hit.
Source: US Department of Commerce: Report to the Congressional Textile Caucus on the administration’s efforts on
textile issues; Washington, September 2002
04 April 2003
US Customs-Trade Partnership Against
Terrorism: Burden for T&C Exporters
• Under the Department of Homeland Security
• Envisaged a supply chain covering manufacturers
• Manufacturer-monitoring to include security
compliance
• E.g. verification of job applications
• US customs to visit manufacturers randomly
• Mandatory advanced cargo electronic information
• That could add extra transit time
04 April 2003
Enterprise Record-keeping Requirements
Imposed by Importing Country Customs
• Understandable records, in which steps of
production are clear.
• Actual production machinery necessary.
• Payment for materials & payroll.
• Export documentation, incl. shipping records.
• Contracts, incl. with subcontractors.
• Cutting, assembly and out-processing records.
• Certificates of Origin.
04 April 2003
What buyers request from enterprises
• Strong buyer’s market: concentration on a few countries
where they can source best.
• Critical Mass needed.
• Pure CMT business will phase out, buyers will ask for
services (approach to customer satisfaction).
• Retail-Supplier Partnership (transparency, joint planning).
• Craftsmanship is taken for granted.
• Lean retailing: transfer of inventory management to supplier
• Sales- and demand-driven strategies replace supply-driven
strategies.
04 April 2003
New Restrictions for T&C Exporters
ECO Labelling
• Eco labelling schemes remain “voluntary”.
• Choice of buying environmentally-friendly
products serves those using it as a marketing
tool to distinguish from competitors.
• For others it can reduce market access.
• No international standards.
04 April 2003
Codes of Conduct - Ethical Sourcing
• Social sourcing as a criteria for trade.
• Increased insistence on social responsibility of
manufacturers/suppliers.
• Corporate CofC/ business values to guarantee
certain standards.
1. No child labour
2. Working conditions
3. No forced labour
4. Compensation
04 April 2003
5. No discrimination
6. Working hours
7. Minimum wages
8. Freedom of associations
Some NGOs Active on/in Labour Standards
US:
www.behindthelabel.org
www.wrapapparel.com
www.cepaa.org (SA 8000)
www.fairlabor.org
Canada: www.maquilasolidarity.org
EU:
www.cleanclothes.org
04 April 2003
Structure
What
WhatMight
MightHappen:
Happen:
Survey
Surveythe
thePerformance
Performance
of
ofthe
theMajor
MajorPlayers
Players
04 April 2003
Expected Winners & Losers
• Countries now fully using their quotas will increase
their exports.
• Countries not using their quotas:unlikely to benefit.
• DCs not under quota will face intense competition.
• DCs without meaningful export quantities: it will
become even more difficult to enter world markets.
• Mass products: high competition.
• More specialised/ wider range: lower impact.
• Overall: Pure economics favour large suppliers to
the detriment of SME suppliers.
04 April 2003
China: Will the Winner Take it All?
• China penetration into US market: Increase
of exports by 50 % in 2002
• Is the quota-free Japanese market an
example? In 2001 Japan imported 87.7% of
its total garment requirements from P. R.
China, an increase of 66 % over 10 years.
• Increased US and EU Quota-utilisation
• Increase in volume; decrease in prices
04 April 2003
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04 April 2003
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US Textile and Apparel Imports from China
1/2002-7/2002
Change in Volume
Change in Unit Value
400
350
300
250
200
150
100
50
0
Reasons for China’s Performance
• As a WTO-member China enjoys MFN, removal
of certain quotas and quota phase-out by 2005.
• Low cotton prices in 2001
• Rise in investments (import of T&C machinery
up 31% in 2001) = rise in productivity
• Decline of US$ (RMB linked to US$)
But:
• T&C and product specific safeguards under
China accession protocol
04 April 2003
Effect of Liberalisation of US Category 350 on
Major Exporters
681.36
439.23
-43.53
Sr
iL
an
ka
Su
bSa
h
Af
r.
o
ex
ic
M
G
ua
te
m
al
a
na
-13.08
Ch
i
Ca
m
bo
di
a
-21.15
CB
I
-35.6
Ba
ng
l
04 April 2003
40.09
27.79
18.54
ad
es
h
800
700
600
500
400
300
200
100
0
-100
W
or
ld
% Change
Category 350: Cotton Dressing Gowns, Robes, etc.
7/2001-7/2002 YTD Comparison
Effect of Liberalisation of US Category 847 on
Major Exporters
Category 847: Trousers, Shorts Silk/Veg.
7/2001-7/2002 YTD Comparison
125.08
111.65
82.99
04 April 2003
ex
ic
M
Ch
i
6.55
-38.28
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-33.13 -64.21 -45.37
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I
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50
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% Change
100
o
Sr
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ka
Su
bSa
h
Af
r.
150
US Quota Saturation October 2002
100
100
80
94.4 89.7 91.5 100
96.3 92.9
85.7 83.1
75
62.4
69.5 69.1 68.8
60
40
20
04 April 2003
UA
E
ist
an
Ph
ili p
pi
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s
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Th a
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Tu
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ey
au
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ea
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r
sia
do
ne
di
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Source: www.emergingtextiles.com
In
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gl
ad
Quota Saturation Rate
Quota Saturation for Cotton Trousers
(347/348) 10/ 2002 YTD
US Quota Saturation for Cotton Coats
(334/335) 10/2002 YTD
Quota Saturation Rate
100
90.5
81.1
83.7
86.9
China
Indonesia
Macau
80
60
40
20
0
Bangladesh
US Quota Saturation for Cotton Knit Shirts and
Blouses(338/339) 10/2002 YTD
04 April 2003
B
100
98
Quota Saturation Rate
100
90
80
70
60
50
40
30
20
10
0
h
des
a
l
an g
82.2
84.9
ng
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Ko
Ch
g
n
Ho
80.4
ia
In d
Source: www.emergingtextiles.com
87.4
85.1
88.5
a
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ila n
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EU Quota Utilisation Rates
EU Quota Saturation for Category 4
(Shirts, T-Shirts) 11/2002 YTD
Quota Saturation Rate
120
100
110.67
112.21
India
Vietnam
99.7
86.76
80
60
40
20
0
China
04 April 2003
Hong Kong
EU Quota Utilisation Rates
EU Quota Saturation Rate
Category 5 (Pullovers, Jackets, Coats) 11/2002
Quota Saturation Rate
140
120
100
80
60
40
20
04 April 2003
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Structure
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04 April 2003