Slide1: T&C Trade Challenges
for Latin America
The ATC Ended
Is T&C a Normal Sector?
Presentation by
Mr. Matthias KNAPPE
ALADI Secretariat Montevideo, Uruguay, 25-26 May 2005
T&C is not (yet) a Normal Sector for Business: T&C is not (yet) a Normal Sector for Business Purely rules-related: T&C is a normal sector
But:
Non-optimal preparation for competition despite 10 years anticipation
Industry is swimming and a new competition wave is expected with DDA
Present concerns distract from DDA
No special treatment anymore (1 classroom)
Structure: Structure T&C Trade
in Latin
America
Characteristics of T&C industry in South America: Characteristics of T&C industry in South America Poor market diversification: mainly to US
Poor product diversification: underwear, knit-shirts, trousers & nightwear
Mainly CMT/maquila: « full-package » to be developed; only few countries are vertically integrated
Poor linkage between foreign investors & local industry
Insufficient use of regional opportunities
US Imports 1st Quarter 2005: US Imports 1st Quarter 2005 Jan & Feb strong, March lower growth
China: up 107%* for apparel but strong increase in key cotton products (338/9): 1257%; 347/8: 1521%; 352: 308%
But: strong growth from preferential suppliers (CAFTA:knit; Andean: knit & woven; focus is on duties; rather shifts within than between regions
But: how reliable is the data: e.g. EU confusion * For Jan/Feb 2005; Source OTEXA
T&C Exports from ALADI Countries in 2003: T&C Exports from ALADI Countries in 2003
US Imports from ALADI 3 year comparison: US Imports from ALADI 3 year comparison
US Import changes from ALADI 2004- 2005: US Import changes from ALADI 2004- 2005
US Imports from ALADI in 2004: US Imports from ALADI in 2004
US Apparel Imports by Region: US Apparel Imports by Region Source: OTEXA and emergingtextiles.com
US Apparel Imports by Region: US Apparel Imports by Region Source: OTEXA and emergingtextiles.com
Structure: Structure T&C Trade
in Latin
America
World Garment Exports: Declining Growth Rates : World Garment Exports: Declining Growth Rates Source: WTO; idea: D. Birnbaum
1. Prices will fall further More supply and quota rents are gone: 1. Prices will fall further More supply and quota rents are gone Source: Robin Anson, Director Textiles Intelligence; ITMF, Dresden October 2003; www.textilesintelligence.com and Textile Outlook International No. 110 March-April 2004
US Apparel Imports Unit Value Jan 05 to Jan 04: US Apparel Imports Unit Value Jan 05 to Jan 04 Source: OTEXA China prices down: 9% on average but up to 50% in key products in US (35% in EU)
US Apparel Imports Unit Value Jan 05 to Jan 04: US Apparel Imports Unit Value Jan 05 to Jan 04 Source: OTEXA
2. Country & Enterprise Consolidation: 2. Country & Enterprise Consolidation Source: US Department of Commerce: Report to the Congressional Textile Caucus on the administration’s efforts on textile issues; Washington, September 2002
Changing Enterprise Requirements: Changing Enterprise Requirements Mega companies or smaller flexible firms >
Supplier has more responsibility
Speed to market counts (standard apparel: timely replenishment; fashion apparel: quick response)
Trade policy and foreign investor response were key for apparel export development in many LDCs
Mega Companies: Global Process for a Dress Shirt: Mega Companies: Global Process for a Dress Shirt Selected by fabric mill & quality is fine Good relationship & good in piece dye Vertical setup by fabric mill Major shirt factory in TAL
3. China as a WTO Member & Major Player: 3. China as a WTO Member & Major Player US clothing imports from China: 2002: +60%; 2003: +46%; 2004: + 32%; Jan-Apr 2005: +67%
Japan: 85% of all clothing imports from China
Australia: 69% of clothing and 21% of all textile imports from China
January 2005 exports to EU: Knit apparel up 163%; woven apparel up 80%
January 2005 exports to US: Knit apparel up 111%; woven apparel 79%
Slide21: Source: China Customs, 02/05 China’s T-Shirt Exports to the EU in Jan 05
US Imports of Cotton T-Shirts Jan 05 – Jan 04: US Imports of Cotton T-Shirts Jan 05 – Jan 04 Source: OTEXA
4. Use of Trade Remedies : 4. Use of Trade Remedies Safeguards (fairly traded imports)
Antidumping duties (unfairly traded imports): mainly yarns, fabrics & made ups; trade chilling effect
Countervailing duties: Unfair trade practices
T&C products as targets for retaliation in dispute settlement cases.
Possibility of new quotas against China
1) Special T&C Safeguards until 31/12/2008
2) Product Specific Safeguards until 10/12/2013 (all products, not only T&C)
To be discussed in detail tomorrow
Discriminatory Trade Policy Decision Influence Sourcing Decisions: Discriminatory Trade Policy Decision Influence Sourcing Decisions Source: USA-ITA
5. Doha Trade Negotiations and T&C: 5. Doha Trade Negotiations and T&C NAMA Negotiations: reduction of high tariffs, tariff peaks and escalations; specific formula; sector approach?; additional provisions for LDCs & newly acceded countries (less than full reciprocity)
Adjustment related issues impact NAMA
Rules negotiations (e.g. ITCB request on AD)
Identification, categorisation, examination & treatment of NTBs
South-South trade under NAMA or GSTP?
ITCB and its future role for South America
Market access & development aspects of cotton
6. Multilateral vs. Complex System of FTAs: 6. Multilateral vs. Complex System of FTAs CAFTA/Andean RTA negotiations distracts from NAMA (short vs. long term)
RTAs need to provide new benefits, incl. regional cumulation
But NAMA can erode these preferences
Other countries also receive preferences:
AGOA and Canada with easy RofO
QIZ in Jordan and Egypt
EU: New GSP scheme, incl. cumulation
But Preferential & Differential Treatment is Equally Important: But Preferential & Differential Treatment is Equally Important Source: USA-ITA
7. New Rules (e.g. FTAs, RTAs, Security): 7. New Rules (e.g. FTAs, RTAs, Security) Preferential treatment: continued USCBP intervention
Codes of Conduct - Ethical Sourcing
ECO Labelling: Remain voluntary but can reduce market access
Security: US Customs-Trade Partnership Against
Summary: / Challenges: Summary: / Challenges 1. Price reduction
2. Consolidation
3. China? Or rather Improving Competitiveness
4. Use of trade remedies
5. DDA and T&C Trade
6. Multilateral approach vs. FTAs/RTAs
7. Imposition of new (buyers’) rules
Structure: Structure T&C Trade
in Latin
America
Closer Regional Cooperation: Closer Regional Cooperation Small countries will not be able to develop a vertically integrated industry
A regional (or inter-regional) vertical approach is needed
RTAs need to integrate closer regional cooperation, incl. Regional sourcing, CAFTA example
RTAs could lead to product & market diversification
AFTEX: developing regional complementarities & exploiting synergies: and in Latin America
3 Areas of South-South Trade Development: 3 Areas of South-South Trade Development a) DCs as a market;
QUAD market: 80% of world imports; post-ATC growth rate expected to be 1-5%
Large DC will grow much faster
GSTP could be a door-opener
b) S-S Trade of intermediaries to export to traditional markets (value chain cooperation)
c) Improve relationship with foreign investors
TCDC is key for all three areas
Cotton development needs to be seen in light of
S-S trade
Hubs & Spokes Changes to Hub & Regional Hubs: Hubs & Spokes Changes to Hub & Regional Hubs USA CR DR ES G N K S N M L H CAFTA Sub Saharan Africa Mex & CAN What is in it for South America?
Diversifying into MMF Apparel Exports to US: Diversifying into MMF Apparel Exports to US The production skills set is not very different, but sourcing skills are needed
Improving buyer relationship as any diversification strategy needs cooperation with buyers (to expand & to support the product switch)
Partnership with national and/or regional suppliers
Joint marketing of regional apparel and textile companies
US Imports from SA: Fibre Composition: US Imports from SA: Fibre Composition
The Phenomenon: Most Duty-free Access Utilisation is for Cotton Apparel: The Phenomenon: Most Duty-free Access Utilisation is for Cotton Apparel Andean AGOA Jordan CBI World
Tariff Peaks for Cotton & MMF Apparel: Tariff Peaks for Cotton & MMF Apparel Source: USAID and USITC
Summary: Summary Closer Regional Cooperation (macro and meso level (AFTEX example)
South-South Trade at 3 levels
Diversification into MMF products coupled with south-south cooperation
Slide39: THANK YOU !
For more information
http://www.intracen.org/textilesandclothing Contact:
Matthias Knappe, Senior Market Development Officer
Knappe@intracen.org
Slide40: WTO Rules Governing
T&C Trade
From 2005
Presentation by
Mr. Matthias KNAPPE
ALADI Secretariat Montevideo, Uruguay, 25-26 May 2005
Rules prevailing from 1 January 2005: Rules prevailing from 1 January 2005 WTO principles of transparency & non-discrimination
Exceptions: regional trade agreements & special and prefential treatment
Antidumping rules prevent unfair trading practices
Safeguards prevent injury from trade flow
Dispute settlement mechanism to resolve disputes that might arise.
Trade Remedies : Trade Remedies Safeguards (fairly traded imports)
Antidumping duties (unfairly traded imports): mainly yarns, fabrics & made ups; trade chilling effect
Countervailing duties: Unfair trade practices
T&C products as targets for retaliation in dispute settlement cases.
Possibility of new quotas against China
1) Special T&C Safeguards until 31/12/2008
2) Product Specific Safeguards until 10/12/2013 (all products, not only T&C)
Possibility for China special T&C Safeguards: Possibility for China special T&C Safeguards Until 31/12/2008 for ATC products only
Invoked by any member by asking for bilateral consultations if market disruption (threaten to impede the orderly development of T&C trade)
Request for consultations implies immediate limitation of exports at a pre-determined level: (7.5% (6%) above the amount imported during the last 12 months)
Does not necessarily require China's agreement
No WTO notification; no multilateral surveillance
Duration: max. 12 months
Not to remain in effect beyond one year, without reapplication, unless otherwise agreed
China Textile Safeguard implementation: China Textile Safeguard implementation Has been invoked by the US
on knitted fabrics, cotton and mmf dressing gowns & bathrobes, cotton and mmf brassieres & ended 23-12-04;
Presently on socks exports (332, 632) (threat-based)
US Court of Int. Trade enjoined CITA from considering threat-based petitions (hearing is scheduled for May)
CITA to invoke safeguards on 338/339; 347/348; 352/652
CITA to invoke thread-based safeguards on 638/639; 647/648, 340/640
Quotas will be low: based on year ending Feb or Mar 2005 data plus 7.5% (for 338/9 almost filled)
EU: Will invoke against T-shirts & flax yarns by end May unless China restrains its exports
Can « China safeguards » protect US – South America trade?: Can « China safeguards » protect US – South America trade? CBI apparel companies are top customers of US yarn and fabrics; CITA considers OPT as an extension of US production; but South America?
CITA self-initiated investigations on 347/8, 338/9, 352/652; US textile industry filed 7/14 new petitions
New quotas could be in place by May/June; these will be low!
AAFA: « US import & production follow a consistent pattern regardless of whether China is restrained »
Safeguards on brassieres slowed imports from China & helped reverse a decline of imports from CBI
China’s Response: T&C Export Taxes: China’s Response: T&C Export Taxes 148 products of HS chapters 61 & 62 in 6 categories: outerwear, dresses, knit and non-knit blouses, sleepwear and underwear.
Tax either 0.2 yuan/piece or 0.3 yuan/piece i.e. $0.024 and $ 0.06
From 1. June: tax will rise to 1-4 Y/p for 74 classes of T&C products; some will be lowered*
Major objective: to encourage manufacturers to switch to higher value-added products;
50 major exporters agreed on 6 price coordinating panels to oversee export (price) developments and suggest floor prices * Announced by MOFCOM n 20 May 2005
WTO: Post ATC Adjustment-related Issues: WTO: Post ATC Adjustment-related Issues Proposal by Mauritius: i) WTO study to identify winners & losers and recommend measures and solutions; ii) CTG to establish a work programme on dealing with the findings and to help DCs
Broad support and understanding of painful adjustement process, but no consensus
Similar 20-10-04 request from Tanzania on behalf of LDCs.
19-01-05: it was agreed that WTO Secretariat will prepare a paper to look into options for LDCs to improve their competitiveness, incl. TA & CB
20 May: Tunisia (Turkey & Jordan) called CTG to discuss remedies to problems faced: agenda rejected
Doha Trade Negotiations and T&C: Doha Trade Negotiations and T&C NAMA Negotiations: reduction of high tariffs, tariff peaks and escalations; specific formula; sector approach?; additional provisions for LDCs & newly acceded countries (less than full reciprocity)
Adjustment related issues impact NAMA
Rules negotiations (e.g. ITCB request on AD)
Identification, categorisation, examination & treatment of NTBs
South-South trade under NAMA or GSTP?
ITCB and its future role for South America
Market access & development aspects of cotton
The Cotton Issue in WTO: Market Access: The Cotton Issue in WTO: Market Access Market Distortion by Subsidies
Appellate Body confirmed WTO interim ruling that US subsidies caused « serious prejudice » to Brazilian cotton producers
US direct payments to farmers are trade distorting
Payments to US mills and exporters to cover the difference of US and world prices to ensure US exports are not permissible
West Africa Initiative: Distinction between Market Access & Development Issues
Cotton Implications for T&C Trade: Cotton Implications for T&C Trade Long-term reduction of subsidies tends to increase price
End of ATC increases demand for cotton & shifts it to Asia: price increase
Supply response in Asia, Australia & West Africa; but in US and EU?
Will possible end of US support for cotton have a negative impact on cotton fibre consumption?
Impact of cotton negotiations on T&C trade?
Development assistance for cotton in West Africa
Slide51:
4.- Understanding
changing markets
1.- Sector Strategy
Development
2.- Understanding its’
own and competitors’
performance
3.- Developing fabric
sourcing skills to
become
“full-package”suppliers
5.- Applying
e-applications in the
T&C sector
Implementing tailor-
made market penetration
approaches in line with
buyer requirements
New ITC T&C website
Workshops
Tailored Product &
Market Development
“The SHAPE”
“The FiT”
Sourcing Guide
and
database
Business Guide
in e-commerce for T&C
ITC
Tailored Consultation
What can we do together ?
Slide52: THANK YOU !
For more information
http://www.intracen.org/textilesandclothing Contact:
Matthias Knappe, Senior Market Development Officer
Knappe@intracen.org