Trade Policy, Retail Markets and Value Chain Restructuring in the Eu Clothing Sector
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View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Research Papers in Economics TRADE POLICY, RETAIL MARKETS AND VALUE CHAIN RESTRUCTURING IN THE EU CLOTHING SECTOR SALLY BADEN PRUS WORKING PAPER NO. 9 June 2002 Poverty Research Unit at Sussex University of Sussex Falmer, Brighton BN1 9SJ Tel: 01273 678739 Email:[email protected] Website: http://www.sussex.ac.uk/Users/PRU Contents 1. Introduction.......................................................................................................................... 1 1.1 Background to the study............................................................................................ 1 1.2 Trade policy and value chains ................................................................................... 3 1.3 Value chain restructuring in the garment sector........................................................ 5 1.4 Methodology and structure of the report.................................................................... 7 2. European T&C trade: Patterns and Partners.................................................................... 7 2.1 Introduction ................................................................................................................7 2.2 Overview of EU T&C clothing imports ....................................................................... 8 2.3 Overall Trends in Shares......................................................................................... 11 2.4 Performance of the Large Exporters ....................................................................... 16 2.5 Concluding comments ............................................................................................... 24 3. Trade policy reform in the EU garments sector ............................................................. 26 3.1 Changes to trade preferences in EU T&C trade...................................................... 26 3.2 EU implementation of the Agreement on Textiles and Clothing............................. 26 3.3 Stage III of ATC integration: A case study of the policy process ........................... 29 3.4 Influence of broader trade policy changes............................................................... 39 3.5 Other trade policy instruments................................................................................... 41 3.6 Changes to the hierarchy of trade preferences......................................................... 44 3.7 Concluding comments ............................................................................................... 48 4. Retail restructuring and value chains in the EU clothing sector.................................. 50 4.1 Introduction................................................................................................................ 50 4.2 Restructuring in the EU clothing manufacturing sector ............................................. 52 4.3 Changes in market demand/ consumption patterns.................................................. 54 4.4 The restructuring of the clothing retail sector in the EU ............................................ 56 4.5 Sourcing and buying practices in the EU clothing sector .......................................... 67 4.6 Concluding comments ............................................................................................... 81 5. Impacts of EU clothing trade and retail restructuring on South African suppliers 80 5.1 Background to South Africa’s T&C sector ................................................................. 82 5.2 Trade in the SA clothing sector ................................................................................. 84 5.3 South Africa-EU Clothing trade: trends and prospects ............................................. 86 5.4 Firm strategies in EU export markets ........................................................................ 92 5.5 Clothing sector restructuring and labour practices.................................................... 94 5.6 Concluding comments and questions for further research...................................... 100 6. Conclusions and recommendations………………………………………………………….99 6.1. Policy lessons and recommendations .................................................................... 110 6.2 Questions and approaches for further research.................................................... 111 1 1. Introduction 1.1 Background to the study The global garments industry is currently undergoing a significant process of transformation driven by two main factors. The first is the liberalisation of the trade regime governing textiles and clothing (T&C) with the phase out of the Multi-Fibre Arrangement (MFA) under the Agreement on Textiles and Clothing (ATC) of the World Trade Organisation (WTO), due for completion by 2005. The second is the restructuring of clothing ‘value chains’ due to changes in sourcing and buying strategies of large retailers in the major northern markets, as retail markets themselves undergo transformation. Quota and tariff restrictions under the existing trade regime affect both the volume and price of clothing imports into the European Union (EU). Whilst there are overall welfare effects associated with these restrictions (particularly negative welfare effects on consumers), some producers benefit whilst others lose out from the current arrangements. Current processes of trade liberalisation will have an impact on exporters’ comparative cost advantage by changing the relative hierarchy of trade preferences. At the same time, changes in the retail regime influence the competitive advantage of different exporters unequally, as non-price factors become an increasingly significant influence on sourcing decisions. These factors include quick response times, flexibility, design capacity and social and environmental standards. This study is concerned with understanding the influence of both competitive and comparative advantage on patterns of EU trade in clothing with developing countries and also with better understanding the links between the two. Conventional trade economics has some explanatory value in terms of the broad resource environments, which determine comparative advantage. But it does not assist with understanding, in a given environment, the extent to which governance structure and relationships between supplying and buying actors influence and shape the gains from trade and the unequal distribution of these gains both between and within region and firms. As arms-length market relationships are increasingly relegated to trade in low-value products, institutional factors and linkages have become key determinants of trade relationships. In this regard, value chain analysis can assist in understanding the competitive advantage of particular countries, locations and firms (Kaplinsky, 2000). A ‘value chain’ (VC) ‘describes the full range of activities required to bring a product or service from conception, through the intermediary phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers, and final disposal after use’ (ibid.: 8). It links all these processes and the economic agents involved, traversing traditional boundaries between sectors and economic activities. 1 Similarly, commodity chain analysis1 has been used to demonstrate how ‘buyer driven’ processes originating in retail markets are influencing sourcing patterns for garments. Specifically, commodity chain analysis has been used to understand the sourcing patterns of US retail companies world-wide, to show how Asian producers have been able to become strategic brokers in the global garments industry and to analyse how trade policy under the North American Free Trade Agreement (NAFTA) has shaped a consolidated, regional value chain in the Americas (Gereffi, 1994; Gereffi, 1999; ECLAC, 2000). Interest is currently growing in applying commodity chain and value chain analysis (VCA) to the garments industry in countries such as South Africa (SA) and Kenya (McCormick, 2000; Dunne, 2000). Box 1: What are ‘buyer driven’ chains? A basic distinction is made between ‘buyer-driven’ and ‘producer-driven’ chains. Producer driven chains are typically found in capital intensive, high technology, large-scale industries, with high barriers to entry in production (such as cars, aircraft). Buyer driven chains are usually found in consumer goods industries (e.g. garments, footwear, and toys), which are labour intensive in production and have lower barriers to entry in production. In buyer driven chains, lead firms are usually the merchandisers, branded manufacturers, retailers and marketers, who focus on design, product development, marketing, and brokering relationships. Globalisation processes, changes in markets and technology may be leading to shift towards a greater prevalence of ‘buyer driven chains’. Gereffi (1994,1999) argues that retail concentration in the US market is a key driver of intensified global sourcing in the garments industry.2 This study applies some of the conceptual and methodological tools from these existing studies to an analysis of European garments trade policy reform and value chain restructuring. Thus it provides an important basis for assessing critically whether the conclusions drawn elsewhere are robust in the EU context. In applying these tools to the EU context, an attempt is made to clarify the relationship between the trade policy regime and value chain restructuring.