Unstitched by China, WTO
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TEXTILES TRADE REFORM/Christi van der Westhuizen
AMONG developing countries some are more equal than others, especially after the meteoric expansion of China's economy. On January 1 next year the implementation of the World Trade Organisation agreement on textiles and clothing will be concluded, and with that most developing countries will lose their small foothold in clothing markets in the developed world to China in particular. These include SA's ailing clothing sector already reeling from cheap imports, which have caused a jobs haemorrhage since 1995.
The agreement on textiles and clothing brings to an end the Multi-Fibre Agreement, enacted in 1974 and renewed several times since. While the agreement has been widely acknowledged as trade-distorting, this distortion has had paradoxical effects.
The agreement protects industrialised countries' markets by limiting clothing imports from developing countries through quotas. However, the quotas have produced unexpected positive spin-offs by enabling industrial growth in some less-developed countries.
The reason for this is that as clothing exporters reached the ceilings of their allotted Multi-Fibre Agreement quotas in their countries, they started clothing manufacturing in other countries which still had open quotas. In the process they boosted development and employment in several less developed countries. This happened from the 1970s onwards when manufacturers from Hong Kong, South Korea and India kick-started clothing manufacturing industries in Bangladesh, Cambodia, Nepal, Haiti, Laos, Burma, Madagascar and Lesotho.
At the Uruguay round of international trade negotiations in 1994, it was agreed that the Multi-Fibre Agreement would be dismantled in phases, ending on January 1 2005 when rich countries would finalise the removal of all quota allocations. Poor countries agreed to this, convinced that the removal of these trade barriers would benefit them. But, given the unequal effect of the agreement, lifting it has had mixed results.
In a perverse outcome all indications are that the benefits of the removal of these last clothing trade barriers will largely accrue to firstly China, with India picking up the rest. Clothing exports from smaller developing countries will be hugely disadvantaged. The reason for this outcome is simple: China and India are able to produce clothing at much lower costs than any other developing countries. The basis for these countries' competitiveness in labour-intensive industries arguably lies in labour that is kept cheap through authoritarianism and a lack of a human rights regime.
The expected blow of unbridled competition on an unequal footing prompted nine poor countries to make a submission to the WTO's Council for Trade in Goods at the end of September. Bangladesh, the Dominican Republic, Fiji, Madagascar, Mauritius, Sri Lanka, Uganda, Jamaica and Nepal are requesting country-specific analyses to measure the effect of the agreement's abolition.
They argue for assistance from other WTO member states for the large-scale restructuring needed to prevent "disastrous" economic and social consequences in their countries. Part of their argument is that less-developed countries have neither the capacity nor the resources to mitigate the social effects and to become competitive through modernising their industries.
While SA's government did not join the group of nine countries in their plea to the WTO, our industry will in all likelihood also meet its nemesis next year.
Like the rest of the world, the industry has been singularly unable to compete with China, resulting in Chinese clothing imports rising from 11-million units in 1995 to 213-million last year. Formal employment in the industry in SA dropped from 96443 in 1995 to 59580 in 2001; the recent buoyancy in rand value boosted Chinese imports, leading to further job losses. This is not unique to SA. Estimates place the number of job losses at the agreement's expiry at between 27million and 31-million worldwide.
Hope that the US Africa Growth and Opportunity Act (Agoa) will ameliorate the effects of the end of the agreement were dashed. A US International Trade Commission study found sub-Saharan Africa's share of US imports would fall after January notwithstanding Agoa's provision of preferential access to US markets. This should not come as a surprise, given that African states' use of Agoa garment quotas has been sitting at about 34%.
The primary reason is the onerous "rules of origin" conditions that have dampened participation. Under Agoa, clothing imports to the US are duty free and quota free if made from US cotton yarn or fabrics. If made from cotton yarn and fabrics from eligible sub-Saharan states, the clothing can be imported duty free but the quantity can be capped.
African states face a conundrum as transport costs make US textiles expensive while African textiles are not only of medium quality but supply is limited because of low productivity and ageing equipment. So Agoa is not an answer to China's and India's competitive advantages of cheap labour.
While African states scrounge around for textiles that meet Agoa's criteria, China and India will be accessing the US market at a trot. The only Agoa participants not hamstrung by the rules of origin condition are less developed countries like Kenya and Lesotho, but this privilege has been extended only to 2007, when they will also have to source textiles from the US or Agoa states.
What to do? The likelihood of any action after the nine countries' plea for assistance at the WTO is virtually nil, given that lobbying about the deterioration of the clothing and textiles industries has fallen on deaf ears for years. Some options exist regarding the improved use of Agoa. It is improbable that US legislators will drop Agoa's stringent "rules of origin" condition.
One African response is Mauritius building its supply capacity with new spinning units to overcome the "rules of origin" obstacle. Mauritius and Zambia have emphasised vertical integration between the textile and clothing industries; Zambian textile producers have been lobbying for strategic alliances on a regional basis aimed at boosting capacity.
SA does not seem to be pursuing these options, given that textile imports from China have shown the second-most growth from 1997 to 2002. China has been a verse to SA's proposal to buffer vulnerable industries in the proposed free-trade agreement between China and the Southern African Customs Union.
A medium-term option would have been diversification of the economy into other sectors to catch the workers jettisoned from the clothing industry, but that should have started a long time ago.
We have two options: sink or swim. And in this case it's going to be sink.
Van der Westhuizen is senior researcher at the Institute for Global Dialogue. |
