This conference drew 800 people from 70 nations a
pretty good indication of the importance of 2005 in the textile trade
agenda. Delegates and speakers were drawn from trade and development
organizations, governments, NGOs, textile producers, suppliers and
customers. Hosting what was effectively a collective brainstorming
opportunity was the European Trade Commissioner, Pascal Lamy. Summing
up, he said that participants had "exchanged dreams and sometimes
nightmares." Nightmares were very much to the fore. Lamy added that
"the objective was not to draw conclusions but to share questions,
ideas, problems and solutions for future consideration," something
that was certainly achieved in two days of full and frank exchanges of
views. There were few answers. Central to the theme was the impact of
the 2005 textile quota elimination. According to speaker, Parks
Shackleford of the American Textile Manufacturers Institute "This
is an area that suffers from the elephant in the living room syndrome.
There's this huge thing there but no-one wants to discuss it." Well
not any more. The elephant in the living room is China. Since its entry
to the WTO and participation in the last round of trade negotiations
China's share of the textiles market in Europe and the US has risen
sharply, partly at the expense of domestic production but mainly at the
expense of smaller, poorer and less competitive countries. The final
phase-out of quotas at the end of 2005 bodes ill for almost everyone,
but China. As Parks told the conference, if nothing is done "China
wins." The final phase out of textile quotas, which restricted
access for textile products from the developing world to major consumer
markets in North American and Europe, is scheduled for 31 December 2004.
There will be no quotas for WTO members in 2005, although countries like
Vietnam, which are not members, will remain quota limited. The quota
system was agreed under the Multifibre Arrangement almost forty years
ago and abolished under the Agreement on Textiles and Clothing, ATC,
part of the Uruguay Trade Round. However, to facilitate adjustment to
free market economics for the textile producers in North America, Canada
and Europe a ten-year phase-out was allowed.
Textile producers in Europe and the US appear to
believe there was an element of conditionality in the agreement and
expected a payback in terms of improved market access for their own
textile goods in the markets of the developing world. However,
governments and the industry in the developing world perceived no such
conditionality and this was reiterated very strongly and frequently
throughout the two days of the conference. "ATC and the quota phase
out is not up for discussion," said Supachi Panitchpakdi of the WTO
and Rubens Ricupero, Secretary General of UNCTAD affirmed this stance.
"It is a done deal for which the developing countries paid the
price in the last round of negotiations (the Uruguay Round)." He
added that, λHowever hard the developed world argues that conditions
have to be attached to the phase out, there's no international legal
obligation for the quota bound countries to pay any attention. Whatever
happens market forces regain their sway in the textile sector (in
2005)." Pascal Lamy also appeared to accept this position.
By back-loading the withdrawal of quotas, the US,
Canadian and European industries may have ensured that 2005 is indeed
'Big Bang for Textiles' when it might have been an orderly, gradual
withdrawal over the ten-year phase out period.
If the developing world believes North America and
Europe have been dragging their feet, the textile industry in Europe or
North America have a similar view of the actions of their competitors in
the developing world. They believe they were promised improved market
access in return for quota elimination and that the removal of tariff
and non-tariff barriers is just not happening. Filiep Libeert, president
Euratex told delegates that Euratex, the European Textiles Trade
Organization, did not agree that ATC is on track. "All players must
obey all the rules." We can't have cherry-picking. Free Trade
implies low or no tariff barriers. The countries most expected to
benefit from quota removals had not lived up to this side of the
"Why will they respect Doha if they have not
respected the provisions of ATC." Of course the phase out of quota
limits will hurt the developed economies. In spite of the 10-year phase
out and the steady growth of imports textiles is not, as some would
suggest, a negligible part of the EU economy. The EU is still the
world's largest textile exporter and the second largest exporter of
EU Textiles and Clothing Some Facts 2002
EU total textiles trade Euro113 billion
EU textiles exports Euro43.8 billion
EU textile imports Euro72.4 billion (60% above 1995)
EU textiles employs 2.1 million people. (2.9 million after enlargement)
Agreement on Textiles & Clothing Some Facts 2002
Round 1, 1995-1997 16.2% of 1990 imports placed under GATT quota free
Round 2, 1998-2002 17.1%
Round 3, 2002-2004 18.0%
Round 4, 2005-onwards the rest
QUOTAS APPLY TO THE FOLLOWING WTO MEMBERS:
Argentina, Hong Kong, China, Macao, South Korea,
Singapore, India, Pakistan, Thailand, Indonesia, Peru and the
The Lesser Developed Countries, LDCs believe
governments and industry in the US, Canada and Europe have been dragging
their feet for too long. They point out that 18 months before the final
round of quota elimination:
49% of textile and clothing trade is still
governed by quotas.
80% of quotas are still in place.
There is therefore a huge degree of apprehension and
mistrust attached to the 2005 quota withdrawal. The European and US
textile manufacturers feel they are pawns in a vast political chess
game. Their governments want both improved access to trade with the LDCs
and need to offer something in exchange. Access to lucrative textile
markets in the developed world is a powerful bargaining tool. In
addition both the European and US administration are powerful advocates
of free trade and are the major backers of a new round of trade talks.
It makes it extremely difficult to argue for quota restrictions for any
sector of their industrial base, however hard the consequences.
Equally the major textile powers of the developing
world, China and India, feel access to European and North American
textile markets has been unjustly denied for years. The 2005 quota
phase-out date has been known for ten years. The huge increase in
concern that has surfaced over the past year is not just because the
date for total quota withdrawal is only 18 months away. Two major
additional factors look likely to enormously increase the impact of
quota elimination. These are China's entry to the WTO; the last year
demonstrated just how rapidly China would win market share in the US and
Europe at the expense of virtually all other market participants. If
this is repeated following the final round of quota withdrawal, the
damage to the domestic industry and to its weaker competitors amongst
the LDC's will be devastating.
The second factor is the Doha Trade Round where
proposals by the US and EU for reduced tariff barriers on all
industrialized products could compound the impact of quota withdrawal.
The current timing for completion of the Doha Trade
Round is end 2004. Textile producers in North America and Europe could
face the final elimination of quotas at exactly the same time they also
are hit by a first round of tariff reductions under Doha. However, the
timing and the final outcome of the Doha Trade Round are unknowns.
The Uruguay Round overran by years and this round
could be even more tricky with recent suggestions that the rising US
trade deficit could encourage the US administration to reconsider their
Doha stance. The elimination of tariffs and China's WTO membership are
known and as such delegates attention tended to focus on the anticipated
impact of these two factors on global markets in 2005.
WINNERS FROM QUOTA ELIMINATION
One of the major beneficiaries is likely to be
consumers in the developed world, the main market for all textiles.
Rubens Ricupero of UNCTAD says studies estimate that
each European family loses Euro250/year because of quota restrictions on
trade. However, delegates at the conference were virtually unanimous in
their belief that by virtue of its WTO entry, China would be the major
beneficiary of the final round of tariff elimination and India would be
next in line. China already has a well-developed textile industry. It
has 20% of the global apparel market and a huge low cost labour force.
It has the financial and banking expertise of Hong Kong. Some believe
China will win 50% of the global apparel market after tariff phase out.
The evolution of imports into the EU after China's
accession at the beginning of 2002, just in time to benefit from the
third round of quota withdrawals, is evidence of this capability. In
these product categories imports from China increased 53% by value and
164% by volume while average unit prices decreased 42%.
EU total imports of these products from all origins
increased 10% by volume and 1% by value, suggesting substitution of
imports from other countries. With only one exception there were drops
in imports from other countries. China's market share in EU textile
imports increased in one year to 35% in value from 23% in 2001 and to
30% in volume from 12% in 2001. The US marketplace tells an even more
extreme story, partly, perhaps because the US has been back-loading
tariff elimination, to a greater extent than Europe. Parks Shackleford
offered compelling evidence of China's huge increase in market position
in the US textiles market, particularly in the textile categories where
quotas were eliminated at the start of 2002. US imports of cloth in
these categories rose by 412 million square meters while the average
price per square meter of imported cloth of Chinese origin fell 44%.
Imports from the rest of the world declined by 201 meters.
US Cloth Imports Pre
& Post Quota Removal.
US Cloth Imports Pre
& Post Quota Removal.
(Million Square Meters)
Imports from China in categories where quotas were
removed January 2002 have gone up on average by 600% in the past year,
Shackleford asserted and this is in spite of tariff barriers of between
A tariff barrier of 20% has been no defence against
China, which has increased its exports of luggage to the US by 536%. At
the same time Mexico, with tariff free access has seen exports of
luggage to the US drop 52%.
Thailand, the Philippines and the Dominican Republic
all lost market share. China's market share of the US market has risen
from 10% to 70%. In the dressing gown category where there is an 8-16%
tariff, China's market share has risen from 5% to 28% in one year. The
major losers are Mexico, Bangladesh, the Philippines and Thailand.
For brassieres, with a 17% tariff China's market
share has risen from 5% to 27%. Once again Mexico is a major loser.
China's market share in gloves has risen from 10% to 36%. Here the major
losers are Sri Lanka, Bangladesh, Guatemala and Taiwan. Following
China's WTO entry at the beginning of 2002.
China's exports to the US market have increased by
2.8 billion square meters and 96% of this increase was in quota
decontrolled categories. China's production is extremely competitive.
China is expected to win at least 25% of the increased market available
as quotas disappear. Some put the figure closer to 50%. This statement
and all the above indications of increased market share in the US and
Europe do not include any value judgement on the situation. However, it
does inevitably raise concerns as to the impact on the textile industry,
its employees and their dependants, and their suppliers in North America
and Europe as well as its impact on textile producers in the LDCs.
Chinese delegates pointed out that the surge was a response to
artificial restrictions on textile trade that had held back market
forces for too long. They countered ATMI's requests for quotas to be
re-imposed on Chinese exports under the safeguard provisions allowed
under the agreement for China's accession to the WTO by pointing out
that it is not US producers who have lost business but weaker
competitors in the developing world. China's huge gain in market share
in the US and European markets in the categories freed of quotas were
largely at the expense of weaker competitors in the developing world,
competitors who can least afford to lose export income. In one year
China has overtaken Mexico as the main exporter of textile goods to the
US marketplace. In 2002 clothing exports are up 45% and textiles are
This is partly at the expense of Mexico and the
Caribbean where product contains a large amount of US produced yarn and
fabric. However, the export gains are also at the expense of less
competitive LDCs. China is expected to win at least 25% of the increased
market available as quotas disappear. Some put the figure closer to 50%.
LOSERS FROM 2005 QUOTA ELIMINATION
It is clear that the textile industry in the
developed world will have a difficult period adjusting to quota
withdrawal. However, "Financial assistance to facilitate adjustment
should be considered. There is a need for adjustment all round. Policy
makers must support it, not panic at difficulties," Supachai
Panichpakdi, the Director General of the WTO told the conference. The
most difficult and worrying impact will be on textile producers in the
LDCs who have had a guaranteed market share in Europe and North America
as a result of the quotas. This did not mean that quotas should be
retained for these countries. They had distorted trade flows for too
long and worked against the economic doctrine of comparative advantage.
However, "We need to find a compromise between competitiveness and
solidarity with the weak, the LDCs," suggested UNCTAD's Ricupero.
The agreed slower phase out may have protected the position of smaller
producers and some LDCs. They may have a small industry and weak
infrastructure that makes it virtually impossible to compete on level
Some do not fully utilize their quotas even now, and
have been the subject of "quota hopping," where production has
been established there purely to utilize the free quotas. The
elimination of quotas could lead not just to competitive pressures but
also the repatriation of businesses that no longer have any requirement
to trade from that location. There were suggestions finance,
training, retention of preference, but few compelling answers to the
possibility that major social problems could emerge in these
non-competitive LDCs in 2005. For some of the least developed countries,
textiles are a major employer and an important source of foreign
currency earnings. Losing their quota-moderated share of the developed
market could be devastating, not just to the textile business but to
society and the whole economy.
Textiles and clothing represents 84% of Bangladesh's
merchandise exports. Bangladesh has 1.8 million people working in the
sector 80% of them women. 10 million people are dependent on the
income from this sector. To absorb the shock of quota withdrawal and the
free-for-all that will ensue they need concessions.
Piero Coin, of Coin Spa said he believed the biggest
losers would be countries like Vietnam, Laos, Myanmar etc, where many of
the textile companies are led by Chinese entrepreneurs trying to get
round quotas. Zero quotas and they will repatriate their production.
Vietnam's recently agreed $2 billion quota's for the US market may have
angered ATMI, but will continue to restrict Vietnam's imports when other
textile producers like China, India and Pakistan have quota free access.
For developed countries, textiles and clothing overall amount to only 5%
of exports and less than 5% of manufacturing value-added. For countries
like Bangladesh and Pakistan, textiles and clothing account for 84% and
72% respectively of export earnings.
Other major losers are the US and Europe's bilateral
trade partners, some of whom are also relatively poor countries.
Over the past years the US has agreed several
regional trade arrangements and unilateral preference agreements like
NAFTA, the Caribbean Basin Initiative, the Andean Trade Preference Pact,
the Africa Growth and Opportunity Act. Europe has the Euro-Mediterranean
Association Agreements, the ACP/EU Trade Arrangement, the Everything but
Arms Initiative, and EU enlargement. These agreements offer preferential
or tariff-free access and additional or quota-free access to selected
trading partners in return for improved access for US or European
textiles or other industrial goods and/or use of American or European
cloth or yarns. These partners are already losing share as a result of
existing quota withdrawal and stand to lose more in 2005. Even with
tariff-free access Mexico has not been able to withstand China's growing
US textile exports.
Non-tariff barriers were seen as a major obstacle to
trade by delegates from both sides of the quota divide. "The WTO
must address non-tariff barriers for the first time" Fileep Libeert,
President Euratex. "We need item by item research to remove all
barriers set up on spurious grounds. We need bound tariffs no higher
than 15%. We face customs valuations, and administrative procedures,
solely calculated to keep imports out."
The LDC's are equally concerned about non-tariff
barriers. They perceive buyers imposing labour and environmental
standards as effectively barriers to trade.
Pascal Lamy asserted that Europe accepted that
"low salary is part of comparative advantage but child labour
should not be." He also added that "Labour laws are not part
of the Doha Round, we couldn't achieve that but if we cannot get it
multilaterally we must try to get it bilaterally. It can be part of
bilateral trade talks." Retailers from the US and Europe have
increasingly socially responsible shareholders and cannot risk low
standards. This was borne out by buyers from Marks & Spencer, Levis
and the Spanish chain COIN. Standards are fast becoming global. For
retailers, low cost is an issue but it is not the only one. They all
talked of a whole list of requirements quality/cost, social
responsibility, reduced lead times, and responsiveness to fashion trends
to name a few. In the same way as there are "horses for
courses" as we say in the UK, there are textile suppliers for
different product ranges. For instance Marks & Spencer pointed to
fashion conscious ranges tending to be made in East Europe and the
Middle East because of short lead times. Where the main factor is low
cost but good quality then India comes high on the agenda. However, he
added that Asia scores well on a lot of fronts.
Use of anti-dumping investigations and duties was
also seen as a highly contentious issue. In particular, there was
disquiet, particularly amongst the LDCs over the way it was sometimes
invoked and disrupted trade, only for there eventually to be a finding,
after due investigation, that no dumping had taken place. Many felt it
would be heavily abused post-2005. "Once you lose your place in the
market you can't get it back," said Humayun Akhtar Khan, the Trade
Minister for Pakistan. "It is being used as a trade cooling
It tends to freeze imports." Pascal Lamy said
"we take the point that investigations are disruptive."