Price Dynamics in the US Market for Apparel Imports: Impact of Quota Elimination under the Agreement...

8/22/2019 Price Dynamics in the US Market for Apparel Imports: Impact of Quota Elimination under the Agreement on Textile

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Economics and REsEaRch dEpaRtmEnt

pre dy e Us

mrke fr arel ir:

William E. James and Juan Paolo Hernando

May 2008

RD WoRking PaPER SERiES no. 114

i f Qu Eluer e agreee texle clg sfegur

Rer epele Reubl f c


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ERD Wrin Paper N. 114

Price Dynamicsinthe Us marketfor aPParel imPorts:

imPactof QUota eliminationUnDerthe agreementon textilesanD clothing

anD safegUarD restrictionsonthe PeoPles rePUblicof china

William E. JamEsand Juan Paolo HErnando

may 2008

William E. James is Principal Economist and Juan Paolo Hernando is Economics Ofcer, Macroeconomics and Finance

Research Division, Economics and Research Department, Asian Development Bank.


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Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippines

www.adb.org/economics

2008 by Asian Development BankMay 2008

ISSN 1655-5252

The views expressed in this paper

are those o the author(s) and do notnecessarily reect the views or policies

o the Asian Development Bank.


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FoREWoRD

The ERD Working Paper Series is a orum or ongoing and recently completedresearch and policy studies undertaken in the Asian Development Bank or onits behal. The Series is a quick-disseminating, inormal publication meant tostimulate discussion and elicit eedback. Papers published under this Series

could subsequently be revised or publication as articles in proessional journalsor chapters in books.


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CoNtENts

Abstract vii

I. IntroductionI. Introduction 1

II. Review o iterature The Rise o Preerential Trade AgreementsII. Review o iterature The Rise o Preerential Trade Agreements 2

III. Price Dynamics in the S Import Market or Clothing 1III. Price Dynamics in the S Import Market or Clothing 12

A. Data 1A. Data 12 B. Elimination o Quotas and ower Consumer Prices in the S Market

20042006 13 C. Price Developments in 2007 Preliminary Analysis 20

I. utlook or Clothing nit Prices when Saeguards End in 200 2I. utlook or Clothing nit Prices when Saeguards End in 200 25

. Conclusions 2. Conclusions 26

Reerences 2Reerences 26


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AbstRACt

This paper evaluates the impact o the removal o quotas on unit prices oclothing imports rom various suppliers into the second largest global market orclothing imports, the nited States (S). New quota restrictions over 26 categories

o clothing were introduced on 1 January 2006 and will be in place through 31December 2008. The paper examines the impact o these new restrictions on pricemovements in 2006 and the frst three quarters o 2007. The dynamics o change in

unit prices or 26 major groups o suppliers in the S market are indicative o the

adverse eects that quantitative restrictions have on S consumers. However, therestrictions have benefted other Asian clothing suppliers. The paper also examinesthe strategic response to elimination o quotas under the Agreement on Textiles

and Clothing by the S using preerential trade agreements to carve out a captivemarket or S textile intermediate products through large preerential marginsin applied taris and rules o origin. The outlook or uture price developments

is assessed and conclusions regarding options or developing Asian suppliers tomaintain their ability to compete in the S market are briey considered.


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I. INtRoDuCtIoN

The use o quantitative measures to restrict imports o textile and clothing products began

with the successul negotiation o voluntary export restraints on Japans cotton textile exports in157 by the nited States (S) executive branch. However, the drop in Japanese cotton textileimports to the S ollowing the voluntary export restraints on Japan led to increases in imports

rom new players, such as Egypt; Hong Kong, China; India; Republic o Korea (henceorth Korea);and Portugal. To achieve a comprehensive solution to the inux o cotton textile imports intothe S, the presidents ofce negotiated the Short Term Cotton Textile Arrangement that wassigned in 161, which evolved into the ong Term Arrangement on Cotton Textiles the ollowing

year (Krishna and Tan 18, Rosen 2002). The ong Term Arrangement was urther extended to

cover wool and manmade fber textile and apparel products, leading to the establishment o theMulti-Fiber Arrangement (MFA) in 173. The MFA eectively removed trade in textiles and clothingrom the General Agreement on Taris and Trade (GATT) and its related disciplines, and explicitly

allowed developed countries to negotiate bilateral quotas with developing country exporters untilthe World Trade rganization (WT) was established. The MFA remained in place until 14 when itwas agreed that quota restrictions would be phased out under GATT 14, with the transition phase

toward total removal o quota restrictions in textile and apparel governed by the Agreement onTextiles and Clothing (ATC) starting on 1 January 15. The ATC was designed to integrate textilesand clothing trade into the GATT/WT system over a 10-year period. The ATC was characterizedby two tracks (1) increasing quota growth rates in three phases to enable developing countries

to export more goods under restriction; and (2) integrating an increasing number o tari lines

reed rom quotas gradually in our phases, with a huge leap in the ourth and fnal phase on 31December 2004 so that by 1 January 2005, quotas will have been completely eliminated or WTcontracting members.

The anticipated impact o the removal o quotas is popularly described in Snyder (2008,245)

What the World Trade rganization is doing by ... eradicating the convoluted quotasystem is, in essence, pretty simple. Its a giant do-over, sort o like God and the greatood.... As a result o the ending o quotas, starting January 1, 2005, consumer clothing

prices were expected to plummet by as much as 30 percent.... It was a death sentenceor any country anywhere that couldnt compete with the biggest producers.

However, despite the elimination o quotas, saeguards on shipments o textiles and apparel

rom the Peoples Republic o China (PRC) were levied by the S and the European nion (E), amongother contracting members. As part o its 2001 WT accession, a provision was included enablingWT members to restrict imports rom the PRC in the textile and apparel sector i surging importsrom the PRC threatened to disrupt domestic markets and production (Tan 2005). This provision

was invoked by the S and E to negotiate temporary saeguard measures on shipments o certaincategories o textiles and apparel rom the PRC, ollowing a surge in textile and apparel shipments


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May2008

Price DynaMicsinthe Us Marketfor aPParel iMPorts: iMPactof QUota eliMinationUnDerthe agreeMenton textiles

anD clothinganD safegUarD restrictionsonthePeoPles rePUblicof china

WilliaM e. JaMesanD JUanPaolo hernanDo

in the early part o 2005 to the S and E markets, as these rising imports were perceived to be

disruptive to the domestic market. The E has already phased out the saeguard measures as o 1January 2008, but is currently using import licensing and is closely monitoring the PRCs shipmentso textiles and clothing to the E. The S will end the saeguard restrictions on 1 January 200,

allowing quota growth in 2008, as in previous annual quota increases since the saeguards wereenacted on 1 January 2006.1

In this paper we will take stock o the postquota regime, ocusing on the trends in importprices as reected in textile and apparel items under restriction in the S market, and tracing the

unit price movements among other supplier countries.2 The particular metric will be unit prices,which take into consideration both the values and volumes o imports o a particular good to theS market.

The analysis takes into account the existing saeguards on the PRC, and treats the PRC as thebenchmark or prices in the restricted categories due to its role as by ar the predominant oreignsupplier o textiles and apparel in the S market. The role o the PRC and the perception that it

may become an even more dominant supplier will be explored, with comments on how the landscape

may change ater saeguards are lited. The paper will examine the competitive position o variousAsian suppliers and o preerential suppliers to the S market. It will also briey consider whatcountries may do to possibly vie or market share in the S textile and apparel market despite the

PRCs apparent dominance.

The paper will explore the use o preerential trade agreements (PTAs) as a strategic responseto global pressures in order to preserve and protect the textile industry in the S, and at the same

time allow clothing designers, brands, and retailers to avail o lower-cost labor in order to remainproftable. particular interest are rules o origin used to determine which suppliers and productsmay enjoy preerential access to these markets. Restrictive rules o origin requiring use o yarn

and abric originating rom S actories are essential in protecting the market share or textileintermediate product exports to developing members o PTAs (James 2007b).

II. REvIEW oF LItERAtuRE: thE RIsE oF PREFERENtIAL tRADE AgREEmENts

The GATT in 14 mandated that the quota system in textiles and clothing be phased out andreplaced by taris. This result can be attributed to the act that when choosing between protective

tools, the tari is the lesser evil in terms o welare eects and market efciency (Hubauer 14).Taris and quotas have the same impact only in very specifc circumstances. All types o protectionshare the characteristic o altering relative prices and changing quantities transacted, therebyreducing the gains rom trade (Bhagwati 168).

1 In reality the S and E began to unilaterally impose restrictions on some categories o textiles and clothing romIn reality the S and E began to unilaterally impose restrictions on some categories o textiles and clothing rom

the PRC in mid-2005 but then ollowed up with comprehensive and mutually agreed saeguard restrictions ollowing

prolonged negotiations with the PRC. The subject o our analysis is the more comprehensive restrictions agreed uponby the governments o the PRC and the S, which became eective in limiting import volumes rom the PRC beginning

2006 (ADB 2006 and James 2007a).2 Previous analysis shows that Asian competitive suppliers in South and Southeast Asia have shown robust growth inPrevious analysis shows that Asian competitive suppliers in South and Southeast Asia have shown robust growth in

shipments to the S market since the end o ATC quotas, and have gained market share largely at the expense o

preerential suppliers and ormer big 3 quota holders in East Asia (see James 2008a). Analysis o E imports oclothing and price developments there is covered in a separate report (James 2008b).


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section ii

revieWof literatUre: theriseof Preferential traDe agreeMents

erD WorkingPaPer seriesno. 114

However, quotas are much costlier than taris since taris earn revenue or the importing

country and proceeds are directed to the national treasury. In contrast, the quota rent or the amountan importer or exporter would be willing to pay or a quota license is usually nontransparent innature, with proceeds going to private companies or individuals depending on how the quota is

administered. Thus, quotas not only restrict trade and raise import prices, as taris do, but theirimpact is also indirect and difcult to measure. Quota rents do not automatically go to the governmentbut are usually appropriated by private interest groups (Krishna and Tan 18). Quotas are costlyto administer and serve to directly reduce market entry resulting in a captive market or quota

holders (Markusen et al. 15). Their impact on consumers is similar to that o monopolyhigherprices, lesser choice, and more limited volumes relative to a reely competitive market. The lossin consumer surplus and efciency (dead-weight loss) associated with a quota always exceeds theextra producer surplus obtained by the quota holders, resulting in negative net welare eects.

The very reasons that make quotas undesirable due to their negative welare impacts are thevery same reasons that domestic frms typically preer quotas over taris. With prospective quotarents going to specifc interest groups upon enactment o protectionist policy, there is incentive or

rent seeking, wherein the interest groups are willing to spend signifcant amounts o time and moneyor lobbying to enact quotas in anticipation o gains to their specifc interest (Hillman 182).

The use o quotas as opposed to taris is based on control over the volume o imports andnot o the value. Thus quotas restrict the volume o imports to levels predictable to textile andclothing producers in the domestic market, and in eect preserve a market share or these producers(along with those obtaining the quota licenses). The quotas provide producers the ability to raise

the price o their products well above what would be obtained in a reely competitive market.

ne can iner that the persistence o quota protection in the textile and apparel industry,particularly in the S, means that signifcant quota rents are generated rom the policy. Several

authors have already pointed out the actions o interest groups in the textile and apparel industryto preserve quota arrangements (Rivoli 2005, Rosen 2002). thers have documented the resulting

quota rents and their appropriation by interest groups (Krishna and Tan 18).However, since the rise o Asia in labor-intensive manuacturing imports, textile and clothing

frms in the S have recognized that they need a source o low-wage workers or the highly labor-intensive work o putting pieces o cloth together to make apparel products. For this reason a series

o agreements came into being, wherein S frms where encouraged to invest in neighboring low-wagecountries in the apparel assembly industry. This gave rise to several agreements that ocused uponsetting up actories across the border with Mexico (the maquiladoras) and other production-sharingarrangements acilitated by trade preerence programs such as the Caribbean Basin Initiative (CBI),

the Andean Trade Preerence Act, and the Arican Growth and pportunity Act (AGA). In thesepreerential agreements, suppliers in the preerence-receiving countries imported textile intermediateproducts o S origin or processing (cutting and sewing) into garments, with duties levied only

on the oreign value-added in the fnished clothing items (Rosen 2002).3

In addition to o-loading labor-intensive jobs to low-wage countries to allow S textiles to

compete with low-cost Asian suppliers, the shit o labor-intensive clothing assembly operations

to o-shore locations with lower wages enabled the ocus o S-based production to be on the

3 The tari codes or such imports o processed clothing used to be 806.30 and 807.00 but with the adoption o theThe tari codes or such imports o processed clothing used to be 806.30 and 807.00 but with the adoption o the

Harmonized Tari System are now in chapter 8 including 802.00, 820.00, and 81.00. See the fce o Textilesand Apparel homepage http//otexa.ita.doc.gov/agoa-cbtpa/catv0.htm.


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4 May2008




more capital-intensive manuacture o intermediate textile yarns and abrics and accessories. PTAs

that gave a large tari preerence to suppliers using textile yarns and abrics o S origin helpedthe S to preserve jobs, profts, and market share or the textile industry and or upstream anddownstream segments o the clothing industry as well. These preerence programs themselves have

been precursors to more comprehensive ree trade agreements (FTAs) such as the North AmericanFree Trade Agreement (NAFTA) between Canada, Mexico, and S; and the Central American FreeTrade Agreement (CAFTA) between the S and six Central American countries (Costa Rica, DominicanRepublic, El Salvador, Guatemala, Honduras, and Nicaragua). The eective duty rate on S imports

o textile intermediate productsyarns and abrics (Table 1) and clothing (Table 2)or variousgroups o suppliers reveal that preerential suppliers enjoy a very signifcant margin o preerenceover nonpreerential Asian suppliers. For textile yarns and abrics, the margin o preerence orPTA suppliers averages around 6%, and or clothing, it is just under 13%.4

The GATT/WT was originally intended to discourage the prolieration o discriminatory bilateralpreerential trade treatment and to encourage the practice o nondiscriminatory trade under the

principle o most avored nation (MFN) treatment. The pre-GATT experience showed that a systembased on bilateral agreements and varying types o preerence programs would be increasinglycomplex and distorted. However GATT/WT allows exceptions to the principle o MFN treatmento GATT Article I under Article XXI and the Enabling Clause (Trebilcock and Howse 2005). Article

XXI allows contracting members to negotiate FTAs where members exchange tari concessions ona reciprocal basis. The Enabling Clause allows or nonreciprocal trade preerence programs such asthe Generalized System o Preerences where a developed country unilaterally extends preerentialtreatment to a developing country (or a group o developing countries such as the S in the case

o the CBI, AGA, and APTA agreements; or the E in the case o the Arican Caribbean and Pacifcand the Everything But Arms program o preerences or less developed countries).

An interesting dynamic arises wherein the S and other countries negotiate PTAs that beneft

the counterpart developing countries through preerential access to the S clothing market; andat the same time beneft S textile companies through the embedded rules o origin, whereingaining preerential access is contingent on the percentage o S content in the imported clothing

products. Such an arrangement will lead to a captive market or S textile intermediate goods inthe PTA countries, while PTA countries reap the preerential access gains. Such programs provideincentives to producers in both parties to participate; however, consumers suer via higher pricesthan would otherwise take place under ree multilateral trade. Thus the PTA acilitates collusion

in production sharing in order or producers to reap benefts rom the trade preerence policy. TheS PTAs under the 802 program (ormerly 807) are shown to be deliberately calibrated to providea captive market or S textile yarns and abrics in clothing assembled or the S market (Rosen

2002). The PTAs stipulated that taris o imports to the S rom PTA members are calculated onlyon the value-added done in the member country (the value o the S abric and yarn is tari-ree).These agreements have evolved into FTAs such as CAFTA and NAFTA. Such FTAs lock in protection

with highly restrictive rules o origin. Rules o origin matter or textiles and clothing because MFNtaris remain high so that the dierence between MFN and PTA taris is substantial. Kono (2007)fnds that FTAs promote MFN tari reduction in members with convergent comparative advantagesbut obstruct it in members with divergent comparative advantages. imao (2006) fnds that S

4 The margin o preerence is calculated as the dierence between preerential suppliers eective duty rate and that oThe margin o preerence is calculated as the dierence between preerential suppliers eective duty rate and that o

Asian nonpreerential suppliers or in 2006 6.140.2=5.85% or textile intermediate products.


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section ii



table

1

e

ffective

DUty

rates

on

imPorteDt

extile

intermeDiate

ProDUcts

bym

ajor

sUPPlier,

20062007

suPPLIER

Customs

vALuE

oFI

mPoRts

(us$

mILLIoNs)

Duty

PAID

(us$

mILLIoN

s)

EFFECtIvE

Duty

RAtE

(PERCENt)

006

006

ytD

007ytD

006

006

ytD

007ytD

006

006

ytD

007

ytD

AsianCompetitiveS

uppliers

ASEAN

Brunei

0.0

01

0.0

01

0.0

14

0.0

00

0.0

00

0.0

00

3.5

7

3.5

7

0.0

0

Cambodia

1.3

08

1.0

52

0.6

22

0.1

23

0.1

03

0.0

45

.3

7

.7

8

7.2

6

Indonesia

208.

21

161.3

8

164.1

67

17.5

56

13.6

60

12.

05

8.4

0

8.4

6

7.8

6

Malaysia

54.

04

44.5

44

28.5

5

4.8

57

3.8

24

2.5

44

8.8

5

8.5

8.

0

Philippines

22.7

75

17.4

46

16.6

40

0.8

85

0.6

7

0.6

81

3.8

4.0

0

4.0

Singapore,ofwhich

1.6

0

1.3

1

0.

4

0.0

83

0.0

71

0.0

22

4.8

5.1

2

2.2

7

S-S

ingaporeFTA

0.3

33

0.2

71

0.4

55

0.0

00

0.0

00

0.0

00

0.0

0

0.0

0

0.0

0

Thailand

181.7

0

136.3

77

146.2

05

12.

47

.7

77

.5

41

7.1

3

7.1

7

6.5

3

ietNam

24.8

03

16.6

78

32.6

83

1.8

86

1.2

48

2.0

55

7.6

0

7.4

8

6.2

Subtotal*

46.1

11

378.8

86

38.8

75

38.3

36

2.3

80

27.7

2

7.7

3

7.7

5

7.1

3

SAARC

Afghanistan

2.3

1

1.6

55

2.4

78

0.0

03

0.0

01

0.0

02

0.1

1

0.0

0.0

8

Bangladesh

15.3

52

12.1

80

11.

43

0.1

80

0.1

61

0.0

08

1.1

7

1.3

2

0.0

7

India

1031.0

21

784.3

73

768.0

03

27.6

13

21.1

52

20.8

63

2.6

8

2.7

0

2.7

2

Nepal

35.

1

26.6

04

28.3

4

0.0

60

0.0

37

0.0

2

0.1

7

0.1

4

0.1

0

Pakistan

503.1

4

402.5

44

260.3

4

32.6

00

26.8

28

15.2

31

6.4

8

6.6

6

5.8

5

Srianka

12.2

5

.4

34

3.3

57

0.4

64

0.3

2

0.0

76

3.7

8

4.1

6

2.2

6

Subtotal

1600.0

1

1236.7

8

1074.5

70

60.

20

48.5

72

36.2

0

3.8

1

3.

3

3.3

7

PRC

10.

83

1420.7

34

1477.8

74

118.7

37

87.6

38

2.1

6

6.2

2

6.1

7

6.2

4

Subtotal

4006.1

85

3036.4

0

242.3

1

217.

3

165.5

1

156.1

70

5.4

4

5.4

5

5.3

1

cont

inued

next

page.


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6 May2008




AsianFormerarge

QuotaHolders

HongKong,

China

27.2

65

22.3

41

14.3

64

1.7

32

1.4

11

0.8

75

6.3

5

6.3

2

6.0

Korea,

Rep.of

7.4

27

74.5

35

727.8

76

78.8

18

60.3

08

55.8

81

8.0

5

8.0

5

7.6

8

Macau,

China

0.0

7

0.0

50

0.0

3

0.0

05

0.0

03

0.0

01

6.4

8

5.8

2

2.4

5

Taipei,China

525.4

7

32.8

5

410.1

03

41.6

64

30.

0

2.7

53

7.

3

7.8

7.2

6

Subtotal

1532.2

66

1164.8

21

1152.3

81

122.2

1

2.7

12

86.5

10

7.

8

7.

6

7.5

1

NonpreferentialAsia

n

Suppliers

5538.4

52

4201.2

30

404.7

00

340.2

12

258.3

03

242.6

80

6.1

4

6.1

5

5.

3

MajorPreferentialSuppliers**

NAFTA

Canada

174.3

70

1324.

57

1122.5

88

2.6

52

1.8

88

1.0

44

0.1

5

0.1

4

0.0

Mexico

52.5

34

718.4

11

603.7

8

2.2

41

1.5

36

1.2

73

0.2

4

0.2

1

0.2

1

Subtotal

2701.

04

2043.3

67

1726.3

86

4.8

2

3.4

24

2.3

17

0.1

8

0.1

7

0.1

3

BilateralFTA

Israel

232.8

6

177.5

53

124.6

4

0.0

64

0.0

53

0.3

36

0.0

3

0.0

3

0.2

7

BilateralQIZ

Egypt

13.2

76

116.8

87

107.7

62

3.8

21

3.3

08

2.7

75

2.7

4

2.8

3

2.5

7

PreferentialSubtota

l

3074.0

75

2337.8

07

158.8

41

8.7

77

6.7

85

5.4

27

0.2

0.2

0.2

8

YTD

=yeartodatecoveringJanuarytoSeptember;FTA

=freetradeagreement;ASEAN

=AssociationofSoutheastA

sianNations;SAARC=SouthAsianAssociatio

nforRegional

Cooperation;PR

C=PeoplesRepublicofChina;NAFTA=North

AmericanFreeTradeAgreement;=QIZ=Qua

lifyingIndustrialZone.

*SubtotalforASEAN

excludestradeundertheS-S

ingaporeFTA.

**Supplierswithatleast$100millionofshipmentsinHS50-6

0toth

eSmarket.

Source

Authorscompilationsfrom

SDepartmentofCommerce,

Inte

rnationalTradeCommissiondata(http//dataweb.usitc.gov/,

downloaded12

December2007).

table

1.continued.


17/38

section ii


erD WorkingPaPer seriesno. 114 7

table

2

effective

DUty

rates

on

imPorteD

clothing

by

major

sUPP

lier,

20062007

suPPLIER

Customs

vALuE

oFI

mPoRts

(us$

mILLIoNs

)

Duty

PAID

(us$

mILLIoN

s)

EFFECtIvE

Duty

RAtE

(PERCENt)

006

006

ytD

007ytD

006

006

ytD

007ytD

006

006

ytD

007ytD

AsianCompetitiveS

uppliers

ASEAN

Brunei

11.8

15

1.

28

81.5

44

21.0

22

16.0

40

14.5

35

17.5

5

17.4

5

17.8

2

Cambodia

2131.0

47

1578.3

17

1826.6

17

364.6

23

268.2

31

316.3

36

17.1

1

16.

17.3

2

Indonesia

3665.6

6

2766.7

64

3066.2

682.8

71

512.1

42

566.6

74

18.6

3

18.5

1

18.4

8

aoPDR

7.

57

5.8

46

8.6

02

1.2

85

1.0

11

1.4

3

16.1

5

17.2

17.3

6

Malaysia

705.2

70

532.4

08

526.

46

118.6

00

0.1

80

1.1

38

16.8

2

16.

4

17.3

0

Philippines

16.8

06

151.8

78

1340.3

07

350.1

8

264.3

66

231.4

17

17.5

4

17.3

17.2

7

Singapore,ofwhich

146.6

04

10.2

01

106.

26

8.

04

12.1

71

7.

76

6.0

7

11.1

5

7.4

6

S-S

ingaporeFTA

8.3

50

73.7

75

67.5

35

7.5

74

5.6

18

1.7

61

7.7

0

7.6

1

2.6

1

Thailand

1856.5

64

140.1

68

1355.8

65

304.3

1

230.1

1

226.5

5

16.4

0

16.3

4

16.7

1

ietNam

3152.5

64

2456.3

25

3144.2

73

535.1

5

420.7

37

541.6

44

16.

8

17.1

3

17.2

3

Subtotal*

13683.

74

1036.0

61

1138.8

46

237.5

05

180.4

50

16.0

48

17.3

17.4

1

17.5

2

SAARC

Bangladesh

2807.6

67

2120.

34

2306.2

04

471.4

10

356.7

43

31.0

10

16.7

16.8

2

16.

5

India

3233.

86

2553.0

88

2542.4

22

48.4

41

381.7

58

385.6

85

15.1

3

14.

5

15.1

7

Nepal

50.8

45

42.5

5

25.1

61

7.6

65

6.5

01

3.7

3

15.0

8

15.2

6

14.8

6

Pakistan

1426.2

0

1058.

70

1140.3

82

224.1

6

166.5

02

180.4

81

15.7

2

15.7

2

15.8

3

Srianka

1683.0

28

1268.

72

1232.8

10

272.3

30

205.

34

1.6

85

16.1

8

16.2

3

16.2

0

Subtotal

201.7

35

7044.5

5

7246.

80

1465.0

15

1117.4

38

1160.6

00

15.

2

15.8

6

16.0

1

PRC

1864.8

63

14143.

31

18227.6

07

25.2

73

173.6

86

2551.3

38

13.0

8

12.6

8

14.0

0

Subtotal

42750.5

72

31584.5

51

36864.4

32

6443.7

3

4720.5

74

5707.

85

15.0

7

14.

5

15.4

8

cont

inued

next

page.


18/38

May2008




AsianFormerarge

QuotaHolders

HongKong,

China

27.1

08

2232.8

6

1384.6

64

50.2

41

405.0

6

248.3

26

18.1

18.1

4

17.

3

Korea,

Rep.of

24.6

42

732.8

00

486.

4

165.

48

132.3

0

83.5

38

17.

5

18.0

6

17.1

5

Macau,

China

1160.3

78

41.8

4

748.1

78

201.3

82

160.5

60

12.0

46

17.3

5

17.0

5

17.2

5

Taipei,China

65.

48

748.4

14

622.7

04

207.5

62

160.5

60

12.0

46

21.4

21.4

5

20.7

2

Subtotal

5850.0

76

4655.

58

3242.5

40

1084.1

34

858.5

26

58.

56

18.5

3

18.4

4

18.1

NonpreferentialAsia

n

Suppliers

48600.6

48

36240.5

0

40106.

72

7527.

27

557.1

00

627.

41

15.4

15.3

15.7

0

PreferentialSuppliers

NAFTA

Canada

1173.1

7

00.4

38

744.7

62

5.6

48

2.7

84

2.3

14

0.4

8

0.3

1

0.3

1

Mexico

5447.5

81

417.7

08

3528.0

5

34.

61

23.

81

23.6

73

0.6

4

0.5

7

0.6

7

Subtotal

6620.7

61

5080.1

45

4272.8

58

40.6

0

26.7

65

25.

87

0.6

1

0.5

3

0.6

1

CAFTA-D

R

CostaRica

464.

10

343.4

17

323.

28

10.5

63

8.0

05

7.1

18

2.2

7

2.3

3

2.2

0

DominicanRepublic

1535.3

52

1153.7

73

817.3

7

24.3

51

18.4

0

25.7

53

1.5

1.6

0

3.1

5

ElSalvador

1407.3

33

1046.7

1

1100.5

4

64.1

0

52.2

58

30.6

81

4.5

6

4.

2.7

Guatemala

1666.3

42

1271.

3

1112.3

85

164.5

3

127.2

53

8.

76

.8

7

10.0

0

8.

0

Honduras

2517.4

75

1878.1

21

118.7

31

57.5

05

45.1

58

35.

3

2.2

8

2.4

0

1.8

8

Nicaragua

87.3

10

625.5

11

718.3

33

100.2

06

6.8

5

30.3

54

11.4

0

11.1

7

4.2

3

Subtotal

8470.7

22

631.5

34

51.3

48

421.2

73

320.

43

228.8

75

4.

7

5.0

8

3.8

2

ANDEAN

Bolivia

31.2

48

24.7

05

14.0

00

0.0

67

0.0

40

0.0

6

0.2

1

0.1

6

0.4

Colombia

505.8

4

377.7

57

24.1

15

7.5

24

6.2

72

4.3

88

1.4

1.6

6

1.4

Ecuador

14.3

48

.4

63

12.4

64

0.3

56

0.2

88

0.0

54

2.4

8

3.0

4

0.4

3

Peru

841.1

22

620.4

48

615.2

32

2.6

85

2.0

0

2.

45

0.3

2

0.3

4

0.4

8

Subtotal

132.6

12

1032.3

74

35.8

11

10.6

32

8.6

0

7.4

56

0.7

6

0.8

4

0.8

0

AGA

Botswana

28.4

48

23.0

25

25.6

56

0.0

48

0.0

48

0.0

31

0.1

7

0.2

1

0.1

2

Ethiopia

4.

55

3.5

68

3.3

54

0.0

13

0.0

13

0.0

02

0.2

6

0.3

5

0.0

6

Ghana

.5

02

6.3

40

6.4

52

0.0

7

0.0

4

0.0

23

1.0

2

1.4

8

0.3

6

Kenya

262.7

52

14.3

87

180.

6

0.8

57

0.7

23

0.2

58

0.3

3

0.3

7

0.1

4

esotho

387.0

10

28.2

30

301.0

43

0.4

0

0.3

27

0.5

68

0.1

3

0.1

1

0.1

Madagascar

238.3

32

181.1

47

214.

7

0.8

52

0.6

17

1.4

42

0.3

6

0.3

4

0.6

7

cont

inued

next

page.

table

2.continued.


19/38

section ii



Malawi

18.1

87

12.7

47

15.6

5

0.0

00

0.0

00

0.0

00

0.0

0

0.0

0

0.0

0

Mauritius

118.7

31

87.

0

87.2

33

1.4

6

1.1

60

0.

42

1.2

6

1.3

2

1.0

8

Mozambique

0.6

3

0.5

85

0.1

61

0.0

10

0.0

10

0.0

00

1.4

1

1.6

7

0.0

0

Namibia

33.0

87

25.3

15

26.2

0

0.0

14

0.0

00

0.0

03

0.0

4

0.0

0

0.0

1

SouthAfrica

46.7

21

33.0

31

17.8

65

0.8

2

0.4

07

0.3

0

1.7

7

1.2

3

1.7

3

Swaiziland

135.1

56

100.8

7

107.7

81

0.1

53

0.0

85

0.0

88

0.1

1

0.0

8

0.0

8

Tanzania

2.

8

1.7

11

2.0

17

0.0

01

0.0

00

0.0

01

0.0

2

0.0

1

0.0

7

ganda

1.2

52

1.2

01

0.

2

0.0

00

0.0

00

0.0

01

0.0

3

0.0

1

0.0

Subtotal

1287.8

24

61.1

54

0.4

68

4.8

60

3.4

83

3.6

67

0.3

8

0.3

6

0.3

7

CBI*

Barbados

0.1

1

0.1

11

0.0

77

0.0

08

0.0

07

0.0

10

6.3

0

6.7

3

12.7

8

Guyana

4.6

48

3.5

76

3.5

71

0.0

08

0.0

08

0.0

00

0.1

7

0.2

1

0.0

1

Haiti

450.1

62

325.2

08

336.4

07

5.6

47

4.6

35

1.

60

1.2

5

1.4

3

0.5

8

Jamaica

48.4

72

37.0

85

31.1

16

0.1

16

0.0

5

0.0

30

0.2

4

0.2

6

0.1

0

NetherlandsAntilles

0.0

2

0.0

54

0.0

36

0.0

08

0.0

04

0.0

05

8.2

4

8.1

1

13.4

6

Panama

1.7

61

1.1

3

1.4

14

0.1

85

0.1

27

0.1

37

10.5

0

10.6

2

.6

7

TrinidadandTobago

0.2

2

0.2

6

0.1

13

0.0

10

0.0

10

0.0

06

3.4

6

3.6

0

5.5

2

Subtotal

505.5

46

367.4

6

372.7

33

5.

80

4.8

87

2.1

48

1.1

8

1.3

3

0.5

8

BilateralFTAs

Australia

41.5

21

30.

2

7.4

25

7.4

0

5.5

07

1.0

48

17.8

4

17.8

1

14.1

2

Bahrain

85.0

64

67.1

7

52.

2

11.1

47

10.7

23

0.3

46

13.1

0

15.

6

0.6

5

Chile

25.6

67

1.4

71

11.0

07

0.4

3

0.3

4

0.2

70

1.

2

2.0

2

2.4

5

Eygpt

624.6

68

464.1

13

546.

01

5.8

44

4.7

63

3.0

14

0.

4

1.0

3

0.5

5

Israel

241.5

63

188.2

03

145.5

87

2.2

18

1.6

6

1.7

38

0.

2

0.8

1.1

Jordan

1252.1

78

55.4

01

883.7

8

5.6

6

4.8

00

2.7

12

0.4

5

0.5

0

0.3

1

WestBank-Gaza

2.0

74

1.7

35

1.0

81

0.0

00

0.0

00

0.0

00

0.0

0

0.0

0

0.0

3

Morocco

100.7

03

74.0

2

64.5

57

10.2

2

8.3

81

6.3

23

10.2

2

11.3

1

.7

Subtotal

2373.4

3

1801.1

41

1713.2

85

43.0

8

36.2

38

15.4

51

1.8

2

2.0

1

0.

0

PreferentialSubtota

l

20650.

03

15561.8

45

14276.5

03

526.4

52

401.0

06

283.5

84

2.5

5

2.5

8

1.

YTD=yeartodatecover

ingJanuarytoSeptember;FTA=freetradeag

reement;ASEAN=AssociationofSoutheastAsianNations;PRC=PeoplesRepublicofChina

;SAARC=South

AsianAssociationforRegionalCooperation;NAFTA

=NorthA

mericanFreeTradeAgreement;

CAFTA

=Cen

tralAmericanFreeTradeAgreement;ANDEAN

=AndeanTrade

Preferenceand

DrugEradicationAct;AGA

=AfricanGrowthandpportunityAct;CBI=CaribbeanBasinInitiative.

*Subtotalexcludestrade

underS-S

ingaporeFTA.

Source

Authorscompilationsfrom

SDepartmentofCommerce,

Inte

rnationalTradeCommissiondata(http//dataweb.usitc.gov/,

downloaded7D

ecember2007).

table

2.continued.


20/38

10 May2008




participation in PTAs makes the S less likely to reduce MFN taris (and tari bindings) on PTA

goods such as textiles and garments in multilateral trade negotiations.

The world has seen a general decline in tari rates across countries and their respective

industries in the 60 plus years since the GATT system and its successor, the WT, have been in

existence. However, tari protection remains ar higher or the textile and clothing industries incomparison with average taris or all manuactured goods. This is true or both developed anddeveloping countries, with tari peaks recurring in developed countries and virtually prohibitive

tari rates prevailing in developing countries that export textiles and clothing, notably India andBangladesh (Audet 2007).5 Textile and clothing industries in developed countries also display tariescalation, wherein developed nations have increasingly higher tari levels the more processed animported good becomes, with raw materials entering at low duty levels, intermediate inputs entering

at moderate tari rates, and fnished goods entering at high duty levels.6 Tari escalation is seenas a barrier against attempts by developing countries to move into the production o higher valuedgoods and the export o fnal products (Balassa 165).

The role o trade preerence programs and ree trade areas in protecting S textile interests can

be appreciated by examining the share o S textile exports that are accounted or by shipmentsto partners in these agreements relative to the world as a whole. For yarn exports, over 80% or

$1.46 billion out o $1.83 billion are to partners within preerential trade agreements, and orabric over 75% or $6.01 billion out o $7.1 billion o global S exports are to preerential tradepartners (2006 fgures, Table 3). The combined S exports o textile intermediate products goingto partners within the preerential agreements is nearly 77% o world total exports in 2006. These

S exports are assembled into garments and sent back to the S market, paying low preerentialduties based upon only the value-added in the garment assembly process. The low duties paidgives these preerentially supplied garments a substantial competitive edge over nonpreerentialsupplies in the S market while providing S textile makers with a captive market or exports. With

intermediate textile products accounting or over 60% o value-added in such garments, and withretail margins going to S clothing retailers, this means the programs are extremely important inprotecting S business interests against competitive suppliers in Asia. In contrast to S exports o

yarn and abric to PTA partners in 2006 o $7.5 billion, imports were only about $2.4 billion.7 Thepreerence programs are clearly mercantilist in nature.8 The rules o origin in the preerential tradeagreements coupled with the substantial margins o preerence oered partner suppliers o garmentsmade rom S yarns and abrics are instrumental in this large amount o trade diversion.

5 It is important to note that the GATT/WT sets limits with respect to tari bindings as opposed to applied taris.It is important to note that the GATT/WT sets limits with respect to tari bindings as opposed to applied taris.However, as bound rates have been substantially reduced, applied rates have also come down so as to remain at or

below the agreed bindings. Applied tari rates determine the actual eective duties levied upon imports. Despite theGATT/WT principle o MFN tari treatment or members, applied rates vary depending upon whether or not the oreign

supplier is provided preerential access to a particular market and on what terms. The convoluted nature o eectiveduties deriving rom complex and varying preerence schemes is particularly evident in textiles and apparel (Snyder

2008).6 The S cotton fber industry may also beneft rom captive markets or S cotton textile products (Rivoli 2005).The S cotton fber industry may also beneft rom captive markets or S cotton textile products (Rivoli 2005).7 Based on authors estimates o S imports o FTA-qualiying yarn and abric imports. Imports o textile intermediateBased on authors estimates o S imports o FTA-qualiying yarn and abric imports. Imports o textile intermediate

yarns and abrics rom non-FTA preerential partners are negligible and are not usually provided preerential taritreatment.

8 The S allows less-developed members o AGA to use third country abrics in clothing assembled or shipment to theThe S allows less-developed members o AGA to use third country abrics in clothing assembled or shipment to the

S market subject to strict limits called tari preerence levels (Matoo, Roy, and Subramanian 2002). This limits theability o these lower-income Arican countries to expand shipments to the S market.


21/38

section ii



table 3Us exPortsof textile intermeDiate ProDUctsto fta anD Pta Partner coUntries:

yarnsanD fabrics (valUein Us$ millions)

yARN 00 006 006 ytD 007 ytDCanada 347.778 313.047 264.832 232.681Mexico 252.264 260.652 225.606 11.271NAFTA 600.042 573.6 40.438 423.52Honduras 406.375 464.670 35.058 48.603Dominican Republic 50.542 145.2 116.043 173.087Guatemala 74.002 64.540 53.347 61.161Costa Rica 30.061 32.4 27.168 28.48CAFTA 616.274 808.1 675.14 847.417Australia 16.02 1.565 16.384 23.447Singapore 8.4 15.036 12.136 8.588ANDEAN 20.7 35.432 31.330 26.02CBI 4.34 7.000 6.085 7.224

FTA/PTA Partners 1266.487 145.723 1232.287 1336.657

World 1554.031 1825.120 1540.053 1660.040

FTA/PTA Share (%) 81.47 7.80 80.016 80.520

FAbRIC

Canada 125.165 1270.244 1083.281 1037.535Mexico 3022.45 2826.818 2437.87 2242.81NAFTA 4282.110 407.062 3521.178 3280.354Honduras 588.780 526.410 456.556 48.403Dominican Republic 526.333 480.652 416.02 24.812El Salvador 351.605 303.50 262.185 252.30Guatemala 187.11 120.74 105.134 102.111

Costa Rica 66.207 84.145 70.136 78.31CAFTA 1781.433 1573.145 1361.740 1271.176Australia 53.60 52.673 44.686 47.478Israel 26.552 18.36 14.624 23.12Singapore 18.266 22.663 18.686 21.88Chile 14.77 16.158 13.58 10.36ANDEAN 107.270 124.470 10.244 83.213CBI 104.050 80.533 6.687 60.433AGA 26.61 26.256 22.588 23.120FTA/PTA Partners 6415.048 6011.356 5176.022 4821.800

World 8214.146 707.385 6767.625 6378.014

FTA/PTA Share (%) 78.10 76.02 76.48 75.60

yARN AND FAbRICFTA/PTA Partners 7681.535 7471.07 6408.30 6158.457

World 768.177 732.505 8307.678 8038.054

FTA/PTA Share (%) 78.64 76.76 77.14 76.62

YTD = year to date covering Januaryctober 2007 versus Januaryctober 2006; FTA = ree trade agreement; PTA = preerential tradeagreement; NAFTA = North American Free Trade Agreement; CAFTA = Central American Free Trade Agreement; CBI = CaribbeanBasin Initiative; ANDEAN = Andean Trade Preerence and Drug Eradication Act; AGA = Arican Growth and pportunity Act.

Source fce o Textiles and Apparel homepage (http//otexa.ita.doc.gov/, downloaded 1 December 2007).


22/38

1 May2008




The external impetus pushing or such PTAs was the elimination o quotas under the ATC,

and the act that MFN taris remained high enough to make preerences matter. For example,S MFN taris on clothing average 13% with peaks o over 30% on a number o tari lines (e.g.,womens sweaters made o synthetic abric). In addition there is the overarching shadow o the

PRC as the preeminent supplier o textile and clothing in the world. Fears o the PRC grabbingall are supported by standard computable general equilibrium model and gravity model predictionson postquota competitiveness (ECD 2003, Nordas 2004). The computable general equilibriummodels were based largely on models o standard technology and diering actor endowments, thus

importance was placed on relative prices, low wages, and a large production scale to determinecompetitiveness (Tewari 2006). Predictions by these models have the PRC garnering a much moresignifcant market share, at the expense o almost all other countries, once quotas are eliminated.This gain in market share or suppliers in the PRC arises rom scale economies, enabling them to

ship at lower prices than other competitors, thereore, a country must be large to compete with thePRC head on. Historical actors also are in play, wherein the PRC has been in the industry or a longtime developing the necessary technology and linkages to ourish in a competitive environment.

In the ollowing section we examine the price dynamics o clothing imports in the S market with

regard to various suppliers using average import prices rom all suppliers (World) and rom thePRC as benchmarks to measure price competitiveness.10

III. PRICE DyNAmICs IN thE us ImPoRt mARkEt FoR CLothINg

A. Daa

nit values were constructed or 26 individual and groups o suppliers (including World) orthe 26 categories o clothing that are under saeguard restrictions in the S market or imports. The

current dollar value o shipments and the volume o shipments in terms o square meter equivalents(SME) are used.11 This metric o S$ per SME makes the unit prices comparable across categories o

clothing and across all suppliers (James 2006 and 2007). The fce o Textiles and Apparel makesthese data available on a monthly basis with only a two-month lag. We compare annual data or2004, 2005, and 2006. The rationale or selecting these annual observations is to take into accountunit prices in a year in which ATC quotas still applied to these items (2004) or most o the groupso suppliers, but especially or the PRC and other competitive Asian suppliers. Then we observe the

unit prices in 2005, a year in which quotas were eectively eliminated on these items. In 2006,comprehensive saeguard quotas were adopted on shipments rom the PRC. Thus, one would expectmean unit prices o these items to decline in 2005 compared with 2004 and then or mean unitprices to rise again in 2006 relative to 2005. Whether or not unit prices are signifcantly dierent

in 2006 and 2004 is an open question. We expect mean unit prices to rise relative to 2005 but notnecessarily relative to 2004 when almost all suppliers were quota-constrained.

The S customs levies duties on the basis o the ree on board value o imports at the point o export (WT SecretariatThe S customs levies duties on the basis o the ree on board value o imports at the point o export (WT Secretariat

2006). This means that the eective duty rates are calculated without taking into account costs o insurance andreight.

10 For an evaluation o the E clothing market, see James (2008b).For an evaluation o the E clothing market, see James (2008b).11 These categories are among those that were only liberalized in the ourth and fnal phase o the ATC ater 31 DecemberThese categories are among those that were only liberalized in the ourth and fnal phase o the ATC ater 31 December

2004.


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section iii

Price DynaMicsintheUs iMPort Marketfor clothing


b. Eliinain f Qa and Lwer Cner Price in e us mare:

004006

First we adopt World (all oreign suppliers o restricted clothing items to the S market) meanunit values o clothing or the 26 restricted items as our benchmark. We then use t-tests to determine

i the null hypothesis o no signifcant dierence between mean values o world prices over theyears o 2004, 2005, and 2006 (Table 4) can be rejected, and then ascertain whether any signifcantdierences emerge between annual mean unit values and in what direction. The statistical test takesthe dierence between the mean o two sample prices (dierence=mean[sample1]-mean[sample2])

and uses t-tests to determine i the dierence is signifcantly dierent rom zero. The tests wereurther calibrated to determine whether the dierence is signifcantly less than zero (to assess thedirection o the dierence). Probability values were directly computed rom the t-values, whichare the test statistic derived rom the price data and compared with the T-critical values obtained

rom t-tables. The t-values were derived rom the dierence o the mean between the two samples,considering that a negative value or the dierence implies that the mean o sample 1 is less thanthe mean o sample 2. To check or statistical signifcance, the t-values were compared against

T-critical, with probability values showing whether or not the test statistic lies within the criticalregion. I the probability that the T-critical value is less than the t-value (Pr[T


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14 May2008




dynamics indicate that removal o quotas led to signifcantly lower import prices or clothing in

the S market in 2005. In contrast, imposition o saeguard quotas in 2006 drove mean unit pricesup to a level that was not signifcantly dierent rom mean unit prices in 2004. Next, we adoptthe PRCs mean unit values as an alternative benchmark and ocus on whether mean unit prices

o the restricted items show a similar pattern to world mean unit prices in the S import market(Table 5). With the PRC as benchmark, we fnd we can reject the null hypothesis o no dierenceacross all three pairs o years or mean unit prices. Hence, removal o quotas on the restricteditems led to signifcantly lower mean unit prices or imports rom the PRC in 2005 compared with

2004 and 2006. However, or imports rom the PRC in restricted clothing, mean unit prices in 2006were signifcantly lower than in 2004, indicating that saeguard quotas were apparently not asrestrictive as quotas under the ATC, in the sense that the PRC could not raise prices all the wayup to levels that existed in 2004.

table 5testingfor eQUalityof mean Prc Pricesof clothing shiPmentstothe Us

across time (UnitmeasUre, Us$/sme)

Ho underlying prices have the same mean across relevant years

H1 underlying prices do not have the same mean across relevant years

004 PRC price er 00 PRC price

Aerae Price 5.30 3.35

Paired, P(T < t) 0.00

ConclusionReject Ho, 2005 mean prices signifcantly lower than

2004 mean prices



Paired, P(T < t) 0.01Conclusion

Reject Ho, 2006 mean prices signifcantly lower than

2004 mean prices



Paired, P(T < t) 0.00

ConclusionReject Ho, 2005 mean prices signifcantly lower than2006 mean prices

The imposition o quotas had signifcant impacts on price competitiveness o the PRC relative

to the world and on various groups o suppliers compared with the PRC. In 2004 and 2006, meanunit prices in the PRC were not signifcantly dierent rom those o the world, yet or 2005, inthe absence o quota restrictions, the PRCs mean unit prices were signifcantly lower than those

o the world (Tables 68). Relative to the PRC, individual suppliers and groups o suppliers werestrongly impacted by the removal o quotas in 2005 and by the imposition o saeguards on the PRC


25/38

section iii



in 2006. For example, it can be seen that in 2004 (Table ) six suppliers had signifcantly lower

mean unit prices than the PRC (including AGA, Bangladesh, Cambodia, Egypt, Pakistan, and ietNam) but only two (Canada and the E-15) had signifcantly higher mean unit prices than the PRC.nly Hong Kong, China had a higher mean value among Asian suppliers than the PRC (although not

signifcantly higher in a statistical sense). When quotas were removed in 2005, only one supplier(Pakistan) had signifcantly lower mean unit prices than the PRC, yet 15 suppliers (includingCambodia; Hong Kong, China; India; Korea, Philippines; Sri anka; and Thailand) had signifcantlyhigher mean unit prices (Table 10). Mexico, the largest individual preerential supplier o the S

market, also had signifcantly higher mean unit prices compared with the PRC in 2005 whereasthere was no such dierence in 2004. nce saeguard restrictions were introduced in 2006, oursuppliers (including Bangladesh, Malaysia, Pakistan, but also the CBI) had signifcantly lower meanunit prices than the PRC but only fve suppliers (including the ANDEAN group; Canada; E-15; Hong

Kong, China; and Turkey) had signifcantly higher mean unit prices (Table 11). Thus, in the nitedStates market, the use o quotas has a major impact on the relative price competitiveness o thePRC and other major suppliers. Ater 2004, the competitive position o most preerential suppliers

in the S market deteriorated relative to the PRC. The CBI was an exception but the amount o

imports rom the CBI (which excludes the CAFTA) is very limited.

table 62004 mean Pricesof shiPmentstothe Us in categoriesrestricteDby safegUarD QUotas (UnitvalUe Us$/sme)

ECoNomy PRICE, 004 stAtIstICAL sIgNIFICANCE

Pakistan 2.27 Signifcantly lower*Egypt 3.10 Signifcantly lower**Bangladesh 3.42 Signifcantly lower**CBI 3.67 Not signifcantiet Nam 3.83 Not signifcantAGA 3.2 Not signifcant

Cambodia 4.11 Not signifcantCAFTA 4.27 Not signifcantTaipei,China 4.30 Not signifcantPhilippines 4.38 Not signifcantIndonesia 4.4 Not signifcantMacau, China 4.73 Not signifcantMalaysia 4.80 Not signifcantMexico 4.82 Not signifcantSri anka 4.85 Not signifcantWorld 4.0Korea, Rep. o 5.03 Not signifcantIndia 5.05 Not signifcantThailand 5.2 Not signifcant

PRC 5.30 Not signifcantJordan 5.8 Not signifcantANDEAN 6.17 Not signifcantTurkey 6.8 Not signifcantHong Kong, China 7.1 Signifcantly higher**Canada .47 Signifcantly higher*E-15 15.78 Signifcantly higher*

CBI = Caribbean Basin Initiative; AGA = Arican Growth and pportunity Act; CAFTA = Central American Free Trade Agreement; ANDEAN= Andean Trade Preerence and Drug Eradication Act.

Note Benchmark World 4.0.* At 5% one-tailed test.** At 10% one-tailed test.


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16 May2008





ECoNomy PRICE, 00 stAtIstICAL sIgNIFICANCEPakistan 2.16 Signifcantly lower*CBI 2.66 Signifcantly lower*Bangladesh 3.27 Signifcantly lower**Egypt 3.27 Not signifcantPRC 3.35 Signifcantly lower**AGA 3.7 Not signifcantTaipei,China 3.0 Not signifcantiet Nam 4.05 Not signifcantIndonesia 4.17 Not signifcantMalaysia 4.17 Not signifcant

CAFTA 4.23 Not signifcant

Philippines 4.36 Not signifcant

Cambodia 4.53 Not signifcantWorld 4.74Korea, Rep. o 4.75 Not signifcantIndia 4.88 Not signifcantMexico 4.8 Not signifcantMacau 4.3 Not signifcantThailand 5.30 Not signifcantSri anka 5.45 Not signifcantANDEAN 6.21 Not signifcantJordan 6.32 Not signifcantTurkey 7.50 Signifcantly higher**Hong Kong, China 7. Signifcantly higher**Canada 11.60 Signifcantly higher*

E-15 17.10 Signifcantly higher*CBI = Caribbean Basin Initiative; AGA = Arican Growth and pportunity Act; CAFTA = Central American Free Trade Agreement; ANDEAN

= Andean Trade Preerence and Drug Eradication Act.Note Benchmark World 4.74.* At 5% one-tailed test.** At 10% one-tailed test.


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section iii




ECoNomy PRICE, 006 stAtIstICAL sIgNIFICANCEPakistan 2.03 Signifcantly lower*CBI 2.28 Signifcantly lower*Bangladesh 3.13 Signifcantly lower*Malaysia 3.17 Signifcantly lower*

AGA 3.56 Not signifcant

Taipei,China 3.68 Not signifcantEgypt 3.74 Not signifcantiet Nam 4.01 Not signifcantCambodia 4.03 Not signifcantPhilippines 4.07 Not signifcantIndonesia 4.14 Not signifcantKorea, Rep. o 4.33 Not signifcant

PRC 4.44 Not signifcantCAFTA 4.61 Not signifcantMacau 4.77 Not signifcantSri anka 4.8 Not signifcantMexico 4.8 Not signifcantWorld 4.Thailand 5.30 Not signifcantIndia 5.32 Not signifcantJordan 5.40 Not signifcantANDEAN 6.65 Signifcantly higher**Hong Kong, China 7.68 Signifcantly higher**Turkey 8.16 Signifcantly higher*Canada 13.07 Signifcantly higher*

E-15 1.45 Signifcantly higher*CBI = Caribbean Basin Initiative; AGA = Arican Growth and pportunity Act; CAFTA = Central American Free Trade Agreement; ANDEAN

= Andean Trade Preerence and Drug Eradication Act.Note Benchmark World 4..* At 5% one-tailed test.** At 10% one-tailed test.


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1 May2008




table 92004 mean Pricesof shiPmentstothe Us in categories restricteD

by safegUarD QUotas (UnitvalUe Us$/sme)

ECoNomy PRICE, 004 stAtIstICAL sIgNIFICANCEPakistan 2.27 Signifcantly lower*Egypt 3.10 Signifcantly lower*Bangladesh 3.42 Signifcantly lower*CBI 3.67 Not signifcantiet Nam 3.83 Signifcantly lower*AGA 3.2 Signifcantly lower**Cambodia 4.11 Signifcantly lower**CAFTA 4.27 Not signifcantTaipei,China 4.30 Not signifcantPhilippines 4.38 Not signifcantIndonesia 4.4 Not signifcantMacau, China 4.73 Not signifcant

Malaysia 4.80 Not signifcantMexico 4.82 Not signifcantSri anka 4.85 Not signifcantWorld 4.0 Not signifcantKorea, Rep. o 5.03 Not signifcantIndia 5.05 Not signifcantThailand 5.2 Not signifcantPRC 5.30Jordan 5.8 Not signifcantANDEAN 6.17 Not signifcantTurkey 6.8 Not signifcantHong Kong, China 7.1 Not signifcantCanada .47 Signifcantly higher*E-15 15.78 Signifcantly higher*


Note Benchmark PRC 5.30.* At 5% one-tailed test.** At 10% one-tailed test.


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section iii





ECoNomy PRICE, 00 stAtIstICAL sIgNIFICANCEPakistan 2.16 Signifcantly lower*CBI 2.66 Not signifcantBangladesh 3.27 Not signifcantEgypt 3.27 Not signifcantPRC 3.35AGA 3.7 Not signifcantTaipei,China 3.0 Not signifcantiet Nam 4.05 Not signifcantIndonesia 4.17 Not signifcantMalaysia 4.17 Not signifcantCAFTA 4.23 Not signifcantPhilippines 4.36 Signifcantly higher**

Cambodia 4.53 Signifcantly higher**World 4.74 Signifcantly higher**Korea, Rep. o 4.75 Signifcantly higher*India 4.88 Signifcantly higher**Mexico 4.8 Signifcantly higher*Macau, China 4.3 Signifcantly higher*Thailand 5.30 Signifcantly higher*Sri anka 5.45 Signifcantly higher*ANDEAN 6.21 Signifcantly higher*Jordan 6.32 Signifcantly higher*Turkey 7.50 Signifcantly higher*Hong Kong, China 7. Signifcantly higher*Canada 11.60 Signifcantly higher*E-15 17.10 Signifcantly higher*


Note Benchmark PRC 3.35.* At 5% one-tailed test.** At 10% one-tailed test.


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0 May2008






ECoNomy PRICE, 006 stAtIstICAL sIgNIFICANCEPakistan 2.03 Signifcantly lower*CBI 2.28 Signifcantly lower*Bangladesh 3.13 Signifcantly lower*Malaysia 3.17 Signifcantly lower*AGA 3.56 Not signifcantTaipei,China 3.68 Not signifcantEgypt 3.74 Not signifcantiet Nam 4.01 Not signifcantCambodia 4.03 Not signifcantPhilippines 4.07 Not signifcantIndonesia 4.14 Not signifcantKorea, Rep. o 4.33 Not signifcant

PRC 4.44CAFTA 4.61 Not signifcantMacau, China 4.77 Not signifcantSri anka 4.8 Not signifcantMexico 4.8 Not signifcantWorld 4. Not signifcantThailand 5.30 Not signifcantIndia 5.32 Not signifcantJordan 5.40 Not signifcantANDEAN 6.65 Signifcantly higher*Hong Kong, China 7.68 Signifcantly higher*Turkey 8.16 Signifcantly higher*Canada 13.07 Signifcantly higher*E-15 1.45 Signifcantly higher*


Note Baseline PRC 4.44.* At 5% one-tailed test.** At 10% one-tailed test.

C. Price Deelpen in 007: Preliinar Anali

In 2007 the PRC was allowed to increase shipments by 1517% over quota limits o theprevious year. This growth allowed a moderation o mean unit prices in the PRC to $4.30 per square

meter equivalent o clothing in the restricted items, down rom $4.44 in 2006 (Table 12). Hence,

in comparing prices in 2007 (through the third quarter o the year) with previous years, it is seenthat mean unit prices were signifcantly lower than those in 2004 or 2006 but were still signifcantly

higher than in 2005. However, through time and as quotas become binding, unit prices may rise asthey did in 2006. The insignifcant dierence in mean unit prices in the PRC between the frst threequarters o 2006 and the same period o 2007 may not hold or the ull year i perormance turnsout to be similar in the ourth and fnal quarter. There are strong reasons to suppose why this will

not be the case, given the expected slowdown in the S market with the all o the dollar, and ears


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section iii



that the S economy may be nearing a recession. The PRCs relative position among suppliers can

be characterized as not signifcantly dierent rom the World in 2007 (Table 13), and with similarnumbers o suppliers with signifcantly lower mean unit prices and with signifcantly higher meanunit prices (Table 14). South Asian suppliers (Pakistan and Bangladesh) have signifcantly lower

unit mean prices than either the PRC or the World.12

nit prices increased in India, Philippines,and Thailand in 2007, and were above the world average (although not in a statistically signifcantamount), perhaps reecting the appreciation o their currencies against the S dollar.

table 12testingforeQUalityofmean chinese Pricesof clothing shiPmentstothe Us acrossyears

vs. ytD 2007 (UnitmeasUre, Us$/sme)



ytD 007 PRC price er 004 PRC priceAerae Price 4.30 5.30

Paired, P(Tt) 0.00

ConclusionReject Ho, YTD2007 prices signifcantly higher than2005 pricesytD 007 PRC price er 006 PRC price

Aerae Price 4.30 4.44Paired, P(T


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May2008




table 13testingfor eQUalityof mean WorlD Pricesof clothing shiPmentstothe Us across years

vs. ytD 2007 (UnitmeasUre, Us$/sme)



ytD 007 Wrld price er 004 Wrld price


Paired, P(T


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section iii



table 14ytD 2007 mean Pricesof shiPmentstothe Us in categories restricteD


ECoNomy PRICE, ytD 007 stAtIstICAL sIgNIFICANCEPakistan 2.16 Signifcantly lower*CBI 2.17 Signifcantly lower*AGA 3.10 Signifcantly lower**Bangladesh 3.1 Signifcantly lower**Malaysia 3.35 Signifcantly lower**Taipei,China 3.57 Not signifcantCambodia 3.72 Not signifcantiet Nam 3.83 Not signifcantEgypt 3.85 Not signifcantIndonesia 4.25 Not signifcantPRC 4.30 Not signifcantCAFTA 4.4 Not signifcantMacau, China 4.53 Not signifcantSri anka 4.60 Not signifcantKorea, Rep. o 4.73 Not signifcantWorld 4.78India 5.13 Not signifcantMexico 5.13 Not signifcantPhilippines 5.26 Not signifcantThailand 5.76 Not signifcantJordan 6.24 Not signifcantANDEAN 6.1 Signifcantly higher**Hong Kong, China 8.4 Signifcantly higher**Turkey .50 Signifcantly higher*Canada 13.45 Signifcantly higher*E-15 21.37 Signifcantly higher*

YTD = year to date covering JanuaryJune 2007. CBI = Caribbean Basin Initiative; AGA = Arican Growth and pportunity Act; PRC= Peoples Republic o China; CAFTA = Central American Free Trade Agreement; ANDEAN = Andean Trade Preerence and DrugEradication Act.

Note Benchmark World 4.78.* At 5% one-tailed test.** At 10% one-tailed test.


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4 May2008




table 15ytD 2007 mean Pricesof shiPmentstothe UniteD statesin categories restricteD


ECoNomy PRICE, ytD 007 stAtIstICAL sIgNIFICANCEPakistan 2.16 Signifcantly lower*CBI 2.17 Signifcantly lower*AGA 3.10 Signifcantly lower*Bangladesh 3.1 Signifcantly lower**Malaysia 3.35 Signifcantly lower**Taipei,China 3.57 Not signifcantCambodia 3.72 Not signifcantiet Nam 3.83 Not signifcantEgypt 3.85 Not signifcantIndonesia 4.25 Not signifcantPRC 4.30CAFTA 4.4 Not signifcant

Macau, China 4.53 Not signifcantSri anka 4.60 Not signifcantKorea, Rep. o 4.73 Not signifcantWorld 4.78 Not signifcantIndia 5.13 Not signifcantMexico 5.13 Not signifcantPhilippines 5.26 Not signifcantThailand 5.76 Not signifcantJordan 6.24 Signifcantly higher**ANDEAN 6.1 Signifcantly higher*Hong Kong, China 8.4 Signifcantly higher*Turkey .50 Signifcantly higher*Canada 13.45 Signifcantly higher*

E-15 21.37 Signifcantly higher*YTD = year to date covering JanuaryJune 2007. YTD = year to date covering JanuaryJune 2007. CBI = Caribbean Basin Initiative;

AGA = Arican Growth and pportunity Act; PRC = Peoples Republic o China; CAFTA = Central American Free Trade Agreement;ANDEAN = Andean Trade Preerence and Drug Eradication Act.

Note Baseline PRC 4.30.* At 5% one-tailed test.** At 10% one-tailed test.


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section iv

oUtlookfor clothing UnitPricesWhen safegUarDs enDin 2009


Iv. outLook FoR CLothINg uNIt PRICEs WhEN sAFEguARDs END IN 00

Saeguards on clothing items originating rom the PRC are scheduled to be withdrawn on1 January 200. n that date, producers in the PRC will be ree to ship as much as they wish to theS market, provided that prices accurately reect costs o production and market exchange rates. ne

caveat is that the S textile lobby is likely to seek new orms o protection and is already agitatingor countervailing duties to oset alleged subsidies. It may also seek to make use o trade remedies(i.e., antidumping investigations and measures) in order to limit the PRCs market access. The current

S administration has been selective in the use o trade remedies but ollowing the orthcomingNovember 2008 elections, the new administration may seek to earn their spurs by adopting a morevigorous (and protectionist) approach. Such contingent orms o protection are unlikely to have asstrong an impact on import prices than more general quantitative restrictions.

The outlook then is or prices to decline, a view that may be reinorced i S growth slows oreven turns negative. The ination concerns that emerged in late 2007 and early 2008 are unlikelyto reverse the outlook or lower prices o clothing in 200. A rise in the renminbi against the

dollar may help to moderate the decline in prices but is unlikely to reverse such an outcome. Thus,

suppliers o clothing to the S market rom South and Southeast Asia had better prepare or fercercompetition with the PRC suppliers in the coming years.

How can Asian suppliers maintain their competitive edge? With the recognition that no othercountry can be as big as the PRC, and taking into account its historical experience, it is clearly notadvisable to tackle the PRC head on. It would be very difcult to replicate the relative prices, lowwages, and large scale produced by the PRC. However, studies o competitiveness in the post-ATC

trade environment reveal that Asian competitive suppliers have increased, rather than lost, marketshare (James 2008a). In act, it is ormer large quota holders among the Big 3 (Hong Kong, China;Korea; and Taipei,China) and preerential suppliers that have experienced a loss in market shares.

As many studies have advised (James, Minor, and Dourng 2007; Tewari 2006) improving sot

skills such as working within transnational production networks, exercising better corporate qualitycontrol, timeliness, and taking ull advantage o inormation technology are means to adapt to a

more competitive textile and apparel industry, which has shorter product cycles and lead times.Thus, exibility, quality, product dierentiation, and management skills are likely to be the primarytools in engaging the PRC in the competitive global textile and apparel industry.

The other alternative route o joining PTAs may or may not be open depending on the attitudeo the incoming administration. Seeking to improve access through the Doha Round o the WT alsomay or may not be possible. However, Asian governments will need to consider various avenues to

improve market access or their garment exporters in various important global markets.


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6 May2008




v. CoNCLusIoNs

This paper has demonstrated that prices o restricted clothing items have behaved in a mannerconsistent with economic theory. The metric used is not perect as there are numerous individualproducts within the categories used to allocate quota restrictions. Nonetheless, there are statistically

signifcant dierences in prices in expected directions when quotas are present or are removed.

The outlook is or lower clothing prices once restrictions are eliminated rom the perspectiveo exporters in Asia and among preerential suppliers to the S market (in S dollar terms) in 200.

Competition is likely to become stronger and ewer players will be let standing. Competitive Asiansuppliers that depend on exports o textiles and apparel products will need to keep costs down andimprove their sot skills in order to remain competitive in the S market.

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Asian Development Bank. 2006.Asian Development Outlook 2006. Manila.Audet, D. 2007. Smooth as Silk? A First ook at the Post MFA Textiles and Clothing andscape.Journal o

International Economic Law10(2, May)26784.Balassa, B. 165. Tari Protection in Industrial Countries An Evaluation. Journal o Political Economy

73(6)5734.Bhagwati, J. N. 168. More on the Equivalence o Taris and Quotas. American Economic Review58142

46.Hillman, A. . 182. Declining Industries and Political Support Protectionist Motives. American Economic

Review72118087.Hubauer, G. C. 14. Surveying the Cost o Protection: A Partial Equilibrium Approach. Institute or International

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James, W. E. 2006. Structural Change and Competitiveness in Indonesias Garment Industry in the Post QuotaEra. World Bank, Final Report, Consultant Report, 10 July.

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Economics and Research Department, Asian Development Bank, Manila. Forthcoming.James, W. E., P. J. Minor, and K. Dourng. 2007. An Investigation into the Measures Aecting the Integration

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