International trade in textiles and clothing (T&C) has been subject quota restrictions since the 1950s. However, quota-free T&C trade will start from 1 January 2005 with the expiration of the Agreement on Textiles and Clothing (ATC).

 

Competition among exporters for post-ATC market shares will be even more intensified across the globe. This brief looks at some of the implications, both negative and positive, and policy options on ASEAN countries. A more detailed Background Note is also available from the Studies Unit.

 

Structure of Demand- and Supply

 

The value of world trade in clothing (US$ 200 billion in 2002) had exceeded that of textiles (US$ 152 billion) from the late 1980s. The combined shares of Canada, the EU (excluding intra-EU trade) and the US in world textiles import were 35 and 43.5 per cent between 1995 and 2002, with respectively 14 and 21 percentage points belonging to the US.

 

As regards clothing, the combined shares of these markets went up from 62 to 67 per cent in the same period. However, the EU’s share in global imports of clothing fell from 32 to 30 per cent while that of the US went up from 30 to 35 per cent between 1995 and 2002.

 

Thus, the US is not only a faster growing market. It has also remained by far the largest single destination for textiles, worth US$ 17.2 billion in 2003, and clothing, worth US$ 68.1 billion.

 

Several ASEAN countries are among the top exporters of clothing, but not textiles, to the US (Table 1).

 

Expected Impact of T&C Trade Liberalization

 

            Firstly, China’s share rises from 16 to 50 per cent of import demand for garments in North America, and from 18 to 29 per cent in the EU. The market shares in imported clothing gained by India are more modest – from 4 to 15 per cent in North America, and from 6 to 9 per cent in the EU.

 

Secondly, Indonesia is among the top 10 T&C exporters to the EU. It is likely to maintain its market shares in EU import demand for T&C, and in North American demand for imported textiles only.

 

            However, the shares of Indonesia and the Philippines in imported clothing in North America is expected to decline from 4 to 2 per cent in each case, due partly to stiffer competition from China. Thailand retains its 3 per cent share in North American clothing demand, a market foothold achieved only since the early 2000s.

 

            Thirdly, the shares of clothing exported by the rest of the world will also contract, from 30 to 24 per cent in the EU, and from as much as 28 to just 12 per cent in North America. This is a matter for concern because these two markets are very important to the smaller or relatively newer exporters in ASEAN such as Cambodia, the Lao PDR, and Viet Nam.

 

Fourthly, most of the top-ten exporters, who are the beneficiaries of various trading preferential programs from the US and EU, are expected to lose out to other competitors in the post-ATC environment. This is another matter for concern as several exporters in ASEAN are heavily dependent on tariff and other preferences (Charts 1 and 2).

 

Policy Options and Implications

 

1. The challenges and opportunities for regional LDCs and non-WTO members

 

Firstly, the ATC is not applicable to non-WTO members, including the Lao PDR and Viet Nam. Thus, T&C exports from these two countries can still be subject to quota restrictions from the beginning of 2005.

 

Secondly, exports from non-WTO members are subject to very high tariffs. Without a normalized trade relationship with the US, for example, the non-MFN tariffs are in the range of 45-50 per cent on cotton shirts and sweaters, compared to 17-20 per cent for the corresponding MFN tariff rates.

 

            Thirdly, the expansion in Cambodia’s T&C exports from May 2000 is due largely to favourable quota allocations and MFN tariffs from the US. Clothing exports account for some 76 per cent of all export earnings in Cambodia, with the US market absorbing 54 per cent of exported garments in 2002.

 

In the post-ATC environment, the margins on tariff preferences will be of great importance for LDCs such as Cambodia, Lao PDR and Myanmar. However, the magnitude of tariff preferences for LDCs is unknown currently as the issue is still under negotiation under the delayed DDA.

 

Fourthly, preferential tariff margins are helpful to the beneficiaries. But the expected losses in their market shares mean that preferential tariff are not a substitute for on-going improvements in efficiency, quality, flexibility and delivery timeliness in production and trade.

 

Additionally, such margins will be (relatively) eroded through further trade liberalization under the same Doha Round. This will create another adverse impact on the beneficiary countries’ ability to attract part of the increased relocation offshore of developed countries’ T&C production facilities post-ATC.

 

Fifthly, Canada imported US$ 3.8 billion of textiles and US$ 4.1 billion of clothing in 2002. The country’s market access initiative for quota- and duty-free exports from LDCs presents an appealing option for both Cambodia and Lao PDR.

 

From 2003, the ROO requirements are much more flexible: a minimum of 25 per cent of import content can come from Canada, from other LDCs, or from developing countries eligible for Canada’s General Preferential Tariff scheme.

 

Those developing countries include all economies in ASEAN (except Myanmar) and East Asia (except Chinese Taipei). This raises the attractiveness of an integrated T&C supply chain in ASEAN, or in both East and Southeast Asia.

 

2. The challenges and opportunities for other ASEAN exporters

 

Firstly, a shift of exports to the EU is another attractive option for some regional LDCs. There is still much scope for greater regional cumulation and greater use of EU-textiles in high-end garments for duty- and quota-free exports by LDCs (under the EU’s “Everything But Arms” (EBA) program).

 

            Secondly, through suitable procurement and production mixes, the EU market also has much to offer other ASEAN economies which are in a regionally integrated supply chain. Supply integration is necessary because the regional LDCs and several other regional economies cannot meet the ROO requirements from the EU.

 

            Thirdly, India is expected to be a strong competitor of ASEAN. However, there is also evidence that the larger ASEAN economies can meet the potential challenge from India post-ATC.

 

In 2000, for example, labour productivity in textiles (indexed at 107) and clothing (107) in India was much lower than that in Indonesia (158 and 148 respectively), Malaysia (209 and 151) and the Philippines (140 and 145). In addition, labour efficiency has risen at a generally slower pace in India than in ASEAN.

 

The challenges and Opportunities from China

 

China, currently the world’s largest clothing supplier and second largest textiles producer, is an actual competitor of the regional producers. For example, Japan is a non-quota market with textiles and garment imports valued at US$ 4.5 billion and US$ 17.6 billion respectively in 2002,

 

China managed to account for 41.1 and 66.5 per cent of imported textiles, and strikingly 59.1 and 77.5 per cent of imported clothing in Japan between 1995 and 2002. There are other example of China’s speedy dominance, especially in Australia and South Africa.

 

Significantly, Chinese firms can make almost any type of T&C products at any quality level and at a competitive price – for Wal-Mart and K-Mart, and for up-scale Burberry, Giorgio Armani, Hugo Boss, Nike and Polo etc. In fact, survey results indicate that China is expected to be the “supplier of choice” for major retail groups and brand-name marketers in the US.

 

Despite these significant commercial advantages, China is facing a number of potential problems. Firstly, a regional supply chain can be an alternative T&C source, thus reducing the excessive dependence by buyers and importers.  

 

Secondly, a steady, orderly and uninterrupted flow of T&C exports from China remains uncertain in the coming decade. Power shortages have disrupted considerably T&C production in China, in 2003 for example.

 

Thirdly, China’s “non-market economy” status for 15 years (or to 2016); means that anti-dumping duties on T&C products from China can be higher than those from other market-economy members of the WTO. Losses from State-owned enterprises in T&C and in the manufacturing of T&C machinery are equivalent to 1.8-3.7 per cent of outputs.

 

Fourthly, a greater problem relates to the textiles safeguard provision (effective until the end of 2008) and the transitional product-specific safeguard mechanism (valid until December 2013) associated with China’s WTO accession. The US, for example, invoked on 19 November 2003 the textiles safeguard provision to limit for a 12-month period the growth of imports into the US of knitted fabrics, brasseries, and dressing gowns from China.

 

To minimize uncertainties, China announced on 27 December 2004 that export duties to be levied over the next three years on six major T&C categories (coats, skirts, knit and non-knit shirts, pajamas and underwear) from the beginning of 2005. Generally, however, those export duties are perceived as a token gesture, with limited real impact (Browne, 2004, p. A10).

 

            Fifthly, another option is for some regional countries to make direct investment in the T&C sectors in China. For example, Lu Thai Textile Company, a Chinese-Thai joint venture, has a share of 13 per cent in the global market for high-quality, yarn-dyed weave cloth for undergarments (Lee, 2004, p. M3).

 

The Republic of Korea, among several others, has relocated textiles production facilities with China being the host country for one third of the offshore investment of US$ 2.6 billion (Thomas, 2005, p. 42).

 

 

 

 


 

Table 1. Textiles and Clothing Exports from Asia to the United States, 2003

(US$ million)

 

Countries

Textiles (T)

Clothing(C)

Total

 

 

 

Value

% of T/T&C

China

3,347.1

11,341.2

14,688.3

22.8

India

1,415.4

2,158.7

3,574.1

39.6

Pakistan

1,173.8

1,102.3

2,276.1

51.6

Republic of Korea

924.2

1,925.9

2,850.1

32.4

Japan

506.3

0.0

506.3

100.0

Turkey

500.2

1,297.6

1,797.8

27.8

Thailand

298.5

2,154.6

2,453.1

8.2

Indonesia

166.4

2,208.6

2,375.0

7.0

Bangladesh

110.4

1,849.0

1,959.4

5.6

Iran

129.7

0.0

129.7

100.0

Philippines

106.7

1,868.6

1,975.3

5.4

Hong Kong SARC

98.7

3,760.3

3,859.0

2.6

Malaysia

64.3

1,189.9

1,254.2

5.1

Sri Lanka

53.6

1,474.9

1,528.5

3.5

Viet Nam

37.4

2,337.6

2,375.0

1.6

Cambodia

11.6

1,239.9

1,251.5

0.1

Singapore

0.9

270.0

270.9

0.0

Lao PDR

0.0

3.9

3.9

0.0

Myanmar

0.0

152.4

152.4

0.0

Total (including rest of the world)

17,198.8

68,060.1

85,258.9

20.2

 

 

Source: USITC at http://dataweb.usitc.gov

 

 


 

 

Source: Hildengunn Nordas, 2004, The Global T&C Industry post ATC, Geneva, WTO, p. 30.

 

 

 

 

Source: As above, p. 28.