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Assessing the Impact of the Phasing-Out of the Agreement on Textiles and Clothing on Apparel Exports on the Least Developed and Developing Countries

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Assessing the Impact of the Phasing-Out of the Agreement on Textiles and Clothing on Apparel Exports on the Least Developed and Developing Countries UC Santa Barbara Other Recent Work Title Assessing the Impact of the Phasing-out of the Agreement on Textiles and Clothing on Apparel Exports on the Least Developed and Developing Countries Permalink https://escholarship.org/uc/item/6z33940z Author Appelbaum, Richard P. Publication Date 2004-05-10 eScholarship.org Powered by the California Digital Library University of California DRAFT VERSION ONLY – MAY NOT BE CITED OR QUOTED WITHOUT PERMISSION OF THE AUTHOR Assessing the Impact of the Phasing-out of the Agreement on Textiles and Clothing on Apparel Exports on the Least Developed and Developing Countries report by Richard P. Appelbaum Center for Global Studies Institute for Social, Behavioral, and Economic Research University of California at Santa Barbara Santa Barbara, CA 93106 phone: (805) 893-7230 fax: (805) 893-7995 web: www.isber.ucsb.edu email: [email protected] May 10, 2004 Acknowledgements This project was conducted in part for the United Nations Conference on Trade and Development, and in part for sweatshop Watch (under a grant from the University of California’s Institute for Labor and Employment). I wish to especially acknowledge the assistance of Joe Conti and Francesca deGiuli, who gathered and analysed much of the research collected for this report. 1 Assessing the Impact of the Phasing-out of the Agreement on Textiles and Clothing on Apparel Exports on the Least Developed and Developing Countries Abstract On January 1, 2005, the Multifiber Arrangement (MFA), which establishes quotas on different categories of apparel and textile imports to the US and the EU, will be fully phased out. The quota system, which has been in force for nearly thirty years, has resulted in the global dispersion of textile and apparel production, by restricting imports from countries that – based on market conditions – would have a larger volume of exports were they not constrained by their quota allocations. There is concern among many developing countries that the elimination of quotas will result in a loss of apparel and textile exports to a relative handful of countries that will have a competitive advantage. This research addresses these questions, in an effort to better understand the dynamics of global sourcing in the textile and apparel industries. It is based primarily on a review of existing research, both macro-level research that simulates world trade patterns, and case studies of individual countries. It also examines World Bank data on textile and apparel exports. The study shows that large retailers play an increasingly important role in determining the nature apparel production, including a preference for “lean retailing” that favors Hong Kong, Taiwanese, Korean, and Chinese suppliers. The changing nature of production is discussed, including the importance of well-established relationships between Asian suppliers and U.S. and EU buyers – relationships that enable the Asian suppliers to operate effectively across many different countries. The impact of MFA phase-out is discussed, with special emphasis on several sub-Sahara African countries, for which some information is available concerning the role of foreign suppliers. The paper concludes with a number of policies that might mitigate the anticipated effects of MFA phase-out. Key Words: MFA, Multifiber Arrangement, Multifibre Agreement, Agreement on Textiles and Clothing, atc, FDI, Textile and Apparel Quotas, Textile and Apparel Exports 2 Table of Contents 1.0 Introduction ................................................................................................................................. 4 2.0 Review of the Impact of Quotas, the Agreement on Textiles and Clothing, and other arrangements with an impact on the allocation of export-oriented production in the textiles and clothing industry.................................................................................................................. 6 2.1 Quota Phase-Out: The Agreement on Textiles and Clothing (ATC) ..................................... 8 2.2 Quota Constraints Vary From Country to Country ................................................................ 10 2.3 Preferential Trade Agreements Already Weaken the Impact of Quotas and Tariffs.............. 10 2.4 Other Factors Mitigate the Current Impact of Quotas............................................................ 12 3.0 The Importance of Textile and Apparel Exports in the Developing and Least Developed Countries .................................................................................................................................... 14 3.1 Apparel Exports...................................................................................................................... 15 3.2 Textile Exports....................................................................................................................... 18 3.3 Textile and Apparel Exports Combined................................................................................. 20 3.4 The Changing Regional Geography of Apparel Sourcing: The US, EU, and Japan.............. 21 4.0 The Role of Retailing and Foreign Production in Textile and Apparel Exports in the Developing and Least Developed Countries.............................................................................. 23 4.1 The Growing Importance of Large Retailers.......................................................................... 24 4.2 The Growing Importance of Major Producers ....................................................................... 25 5.0 The Impact of Quota Elimination................................................................................................ 26 5.1 Impact on Consumers in Developed Countries...................................................................... 27 5.2 Impact on Least Developed and Developing Countries ......................................................... 27 5.3 China’s Advantages and Disadvantages................................................................................. 30 6.0 The Impact of Quota Elimination: Case Studies......................................................................... 34 6.1 Africa...................................................................................................................................... 35 6.1.1 South Africa ................................................................................................................... 38 6.1.2 Lesotho ........................................................................................................................... 38 6.1.2 Madagascar..................................................................................................................... 41 6.1.2 Kenya.............................................................................................................................. 42 6.1.2 Mauritius ........................................................................................................................ 42 6.2 Mexico, Central America, and the Caribbean ........................................................................ 44 6.2.1 Mexico............................................................................................................................ 44 6.2.2 Dominican Republic....................................................................................................... 45 6.2.3 Guatemala and Honduras ............................................................................................... 46 6.3. South Asia ............................................................................................................................. 46 6.3.1 Bangladesh ..................................................................................................................... 47 6.3.2 Nepal .............................................................................................................................. 49 6.3.3 India................................................................................................................................ 50 6.3.4 Pakistan .......................................................................................................................... 51 6.3.5 Sri Lanka ........................................................................................................................ 52 6.3.6 Cambodia ....................................................................................................................... 52 7.0 Conclusions and Policy Options ................................................................................................. 54 7.1 The Role of FDI in Textile and Apparel Production.............................................................. 55 7.2 Industry-Level Policies........................................................................................................... 55 7.2 National Economic Policies ................................................................................................... 56 Works Cited ...................................................................................................................................... 58 3 1.0 Introduction Global trade in textiles and apparel has exploded sixty-fold during the past forty years, from under $6 billion in 1962 to $342 billion in 2001 (see Figure 1). Today textile and apparel trade represents nearly 6% of total world exports. The more labor-intensive apparel export sector has grown more rapidly than textile exports (apparel has increased
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