04 April 2003

The Agreement on Textiles and ClothingThe Agreement on Textiles and Clothing

The Challenge of a QuotaThe Challenge of a Quota--free Marketfree MarketUnderstanding What Might HappenUnderstanding What Might Happen

Presentation by Presentation by Mr. Matthias KNAPPEMr. Matthias KNAPPE

Senior Market Development Officer Senior Market Development Officer International Trade Centre UNCTAD/WTOInternational 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

What Might Happen:

Market Indications andNew Challenges for Market Entry

What Might Happen:

Market Indications andNew Challenges for Market Entry

Structure

04 April 2003

Regionalisation of Trade

Trade develops along regional linesExport 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.

Guatemala

Australia

BulgariaCanada

Estonia

Hong Kong

Hungary

Israel

Japan

Korea, Rep.

Macao

Mongolia

New ZealandPoland

Romania

Singapore

Turkey

Swaziland

Lithuania

Taiwan

Korea, Dem. Rep.

Algeria

Cyprus

Egypt

Lebanon

MaltaMorocco

SyriaTunisia

Micronesia

ArmeniaAzerbaijan

Belarus

Bosnia & HerzegovinaChina

Iran

Iraq

Kyrgyzstan

Libya

Moldova

Palau

Russia

Saudi Arabia

Tajikistan

Turkmenistan

Ukraine

Vietnam

Yemen

Uzbekistan

Marshall Isl.

Oman

Nauru

Albania

ArgentinaBahrain

Brazil

Brunei

Ivory Coast

Croatia

Cuba

Georgia

Guyana

Indonesia

JordanKazakhstan

Malaysia

Mali

Mexico

Namibia

Pakistan

Paraguay

Philippines

Qatar

St. Kitts

Slovenia

South Africa

Sri Lanka

Thailand

UruguayIndia

Dominican Rep.

Kuwait

Laos

Afghanistan

Nepal

Bhutan

Cambodia

Maldives

MyanmarBangladesh

Bahamas

Cape Verde

Comoros

Congo Dem.Rep.

Eq. Guinea

Eritrea

Ethiopia

Kiribati

Liberia

Samoa

Seychelles

Somalia

Sudan

Tonga

Tuvalu

Vanuatu

Sao Tome

Antigua

Belize

Benin

Botswana

Burkina Faso

Burundi

Cameroon

Barbados

Ctrl. Afr. Rep.

Chad

Congo

Djibouti

Dominica

Fiji

Gabon

Gambia

Ghana Grenada

Guinea

Guinea-BissauHaiti

Jamaica

Kenya

Lesotho

Madagascar

Malawi

Mauritania

Mauritius

Mozambique

NigeriaPapua

St. Lucia

St. Vincent

Sierra Leone

Tanzania

Togo

Trinidad

Uganda

Zambia

Zimbabwe

W.T.O.

G.S.P

AndeanGroup

A.C.P.

C.A.C.M.

L.D.C.

Euromed

E.F.T.A.

Chile

Rwanda

Angola E.E.A.

Czech Rep.

Bermuda

Senegal

Niger

Slovakia

YugoslaviaMacedonia

Suriname

Latvia

East Timor

Solomon Isl.

Greenland

Montserrat

Aruba

Anguilla

Gibraltar

Niue

Tokelau

Cook Isl.

Costa RicaNicaragua

HondurasEl Salvador Panama

Norway

Liechtenstein

Iceland

Switzerland

PeruBolivia

VenezuelaEcuador

Colombia

U.A.E

U.S.

Andorra

Bil.

Complex Patchwork of International Trade Agreements: European Trade Policy

04 April 2003Source: Robin Anson, Director Textiles Intelligence; Hong Kong 3 October 2002; www.textilesintelligence.com

Prices will Fall Further

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 RequirementsImposed 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

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.

New Restrictions for T&C Exporters

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 labour2. Working conditions3. No forced labour4. Compensation

5. No discrimination6. Working hours7. Minimum wages8. Freedom of associations

04 April 2003

Some NGOs Active on/in Labour Standards

US: www.behindthelabel.orgwww.wrapapparel.comwww.cepaa.org (SA 8000)www.fairlabor.org

Canada: www.maquilasolidarity.orgEU: www.cleanclothes.org

04 April 2003

What Might Happen:

Survey the Performanceof the Major Players

What Might Happen:

Survey the Performanceof the Major Players

Structure

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

US Textile and Apparel Imports from China1/2002-7/2002

-100

-50

0

50

100

150

200

250

300

350

400

Total M

FAApp

arel M

FANon

-A M

FAFba

rics

MadeU

ps

Cotton

Prod

ucts

Cotton

App

arel

Cot Non

-AWoo

l Prod

ucts

Wool A

ppare

lWoo

l Non

-AMMF Prod

ucts

MMF Appare

l

MMF Non

-App

arel

S&V Produc

tsS&V App

arel

S&V Non

-A

Change in Volume Change in Unit Value

04 April 2003

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

Category 350: Cotton Dressing Gowns, Robes, etc. 7/2001-7/2002 YTD Comparison

18.54 27.79

439.23

40.09

681.36

-43.53-35.6 -21.15 -13.08-1000

100200300400500600700800

WorldBan

glade

shCambod

ia CBI

ChinaGua

temalaMex

icoSri L

anka

Sub-S

ah Afr.

% C

hang

e

04 April 2003

Effect of Liberalisation of US Category 847 on Major Exporters

Category 847: Trousers, Shorts Silk/Veg. 7/2001-7/2002 YTD Comparison

11.15

111.65125.08

6.55-38.28-45.37-33.13 -64.21

82.99

-100

-50

0

50

100

150

WorldBan

glade

shCambod

ia CBI

ChinaGua

temalaMex

icoSri L

anka

Sub-S

ah Afr.

% C

hang

e

04 April 2003

Quota Saturation for Cotton Trousers (347/348) 10/ 2002 YTD

100

62.4

85.7 83.196.3 92.9

75 69.5 69.1 68.8

94.4 89.7 91.5100

020406080

100

Bangla

desh

Cambo

diaChin

aHon

g Kon

gInd

iaInd

ones

iaKore

aMac

auPak

istan

Philipp

ines

Sri Lan

kaTha

iland

Turkey UAE

Quo

ta S

atur

atio

n R

ate

Source: www.emergingtextiles.com

US Quota Saturation October 2002

04 April 2003

US Quota Saturation for Cotton Coats(334/335) 10/2002 YTD

90.581.1 83.7 86.9

0

20

40

60

80

100

Bangladesh China Indonesia Macau

Quo

ta S

atur

atio

n R

ate

US Quota Saturation for Cotton Knit Shirts and Blouses(338/339) 10/2002 YTD

9882.2 84.9

100

80.487.4 85.1 88.5

0102030405060708090

100

BangladeshChina

Hong KongIndia

Malaysia

PhilippinesSri Lanka

Thailand

Quo

ta S

atur

atio

n R

ate

Source: www.emergingtextiles.com

04 April 2003

EU Quota Saturation for Category 4 (Shirts, T-Shirts) 11/2002 YTD

86.7699.7

110.67 112.21

0

20

40

60

80

100

120

China Hong Kong India Vietnam

Quo

ta S

atur

atio

n Ra

teEU Quota Utilisation Rates

04 April 2003

EU Quota Saturation RateCategory 5 (Pullovers, Jackets, Coats) 11/2002

020406080

100120140

Hong K

ong

India

Indon

esia

Macao

Malays

iaN. K

orea

Pakist

anS. K

orea

Taiwan

Thail

and

Quo

ta S

atur

atio

n R

ate

EU Quota Utilisation Rates

04 April 2003

Next PP Presentation:

How To Prepare

Next PP Presentation:

How To Prepare

Structure