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REGIONAL WORKSHOP ON TRADE CAPACITY BUILDING & PRIVATE SECTOR DEVELOPMENT : 

REGIONAL WORKSHOP ON TRADE CAPACITY BUILDING & PRIVATE SECTOR DEVELOPMENT PHNOM PENH CAMBODIA 2nd. DECEMBER 2003

THE GARMENT INDUSTRY: 

THE GARMENT INDUSTRY THE CHALLENGES IN THE GARMENT INDUSTRY FOLLOWING THE PHASE OUT OF THE QUOTA SYSTEM PRIVATE – PUBLIC PARTNERSHIP TO OVERCOME THE CHALLENGES

Effects of the MFA: 

Effects of the MFA MFA INTRODUCED IN 1974 TO REGULATE THE TRADE IN TEXTILES & CLOTHING Asia became the world’s foremost exporter of apparel. Many developing countries embarked on the garment industry using quota as an instrument for market access. Buyers were compelled to move from country to country in search of quotas

SUCCESS OF ASIAN COUNTRIES: 

SUCCESS OF ASIAN COUNTRIES SRI LANKA – Garment exports account for over 52% of exports. Over 1 million employed out of 6.5 Million. Only 20% knit fabrics but fair quantity of Accessories made locally CAMBODIA – Garment exports account for 85% of exports. All fabrics & large quantity of accessories imported. BANGLADESH – Garment exports represent 75% of exports. 80% Knit & 20% woven fabrics now produced locally PAKISTAN- Garment exports represents over 67% of total exports but similar to INDIA – Have invested large sums in modern fabric mills – Have the capacity to specialize in cotton based fabrics & garments

New Rules of Trade: 

New Rules of Trade The Uruguay Round starting in 1986 finally came into effect in 1995 in Geneva. It was decided that Textile and Apparel have to be integrated into the mainstream by removal of all quotas over a 10 year phase out.

Agreement on Textiles and Clothing: 

Agreement on Textiles and Clothing ATC lays down the modality of phasing out the MFA over a period of 10 years. Total elimination of quotas would be done in four stages Three stages have been already completed. The fourth stage is due on Dec. 31, 2004 where all the popular or ‘hot’ categories will be phased out.

Slide7: 

4-Stage Phase out of MFA

Assumptions on ATC: 

Assumptions on ATC The movement of industry from the developed to the developing countries will continue The greatest relocation would be from one developing country to another The MFA guaranteed a market for a wide range of poorer countries even though they were not competitive

Assumptions on ATC (cont’d): 

Assumptions on ATC (cont’d) Without MFA there will be a concentration of the industry in countries with inherent advantages: Availability of fabric Infrastructure for Marketing and Transport Low Wages Favorable Trading Terms Proximity to the Market Marginal countries will be squeezed out

The Question is not….: 

The Question is not…. Whether there will be change, the Question is whether the change will be : A Sudden Collapse or Slow and Somewhat Predictable

THE US MARKET: 

THE US MARKET

REGIONAL TRADING BLOCKS (USA): 

REGIONAL TRADING BLOCKS (USA) NAFTA- The North American Free Trade Agreement - Result a growth in Textiles & Clothing in Mexico at the expense of Asia CBI - The Caribbean Basin Initiative - Result growth of Garment trade in the Caribbean at the expense of Asia AGOA - The African Growth and Opportunities Act - Result Movement & Relocation of Factories to Africa

1980: 

1980 Continuation of MFA Signing of NAFTA Signing of CBI 2000

1980 Apparel Imports into USA: 

1980 Apparel Imports into USA Far East 82% Mexico 3% 2000 Apparel Imports into USA

EUROPEAN UNION: 

EUROPEAN UNION Trade Agreements

TARIFFS: 

TARIFFS Most tariffs on Garments to the Developed Countries are high. EU has a tariff of 12.5% USA varies between 0 - 30% With increased competition a 1% tariff difference can loose a large order Tariff concessions can be obtained bilaterally or multilaterally Tariffs are on the basis of reciprocity

FREE TRADE AGREEMENTS: 

FREE TRADE AGREEMENTS Many countries are negotiating FTA’s with the USA. The Tariff advantage could be relatively short term as many others strive to obtain better market access. The USA has indicated total duty free by 2015 The EU pursue the implementation of the Doha Agenda but have many agreements providing duty free access New members States of the EU and their close proximity could also be a challenge

GLOBAL SOURCING PRINCIPLES : 

GLOBAL SOURCING PRINCIPLES WORKER ISSUES – Linking Trade to Labour rights Child Labour, Forced Labour, Health & Safety, Freedom of Association, Disciplinary Procedures, Working hours, Wages FACTORY STANDARDS-Modern Factories, Latest Equipment & Technology, Proper Storage Facilities for Fabrics & Accessories FACTORY AUDITS NON TARIFF BARRIERS -ENVIRONMENTAL ISSUES, INTERLECTUAL PROPERTY & ANTI DUMPING

THE CHINA FACTOR: 

THE CHINA FACTOR

The Agreement of T&C: 

The Agreement of T&C The 3rd Phase of integration resulted in the following categories becoming ‘quota free’ for the whole world from 01 Jan 2002 : 239 – Infant and young children’s wear 350 – Cotton Robes/Man-made fibre Robes 349/649 – Cotton Bras/Man-made fiber Brassieres and other Foundation Garments 670 – Luggage 331/631 – Gloves & Mittens

Exports to the USA by UNITS World Vs China/SL – Jan-Aug 01/ Jan-Aug 02: 

Exports to the USA by UNITS World Vs China/SL – Jan-Aug 01/ Jan-Aug 02

Exports to the USA by FOBWorld Vs China/SL – Jan-Aug 01/Jan-Aug 02: 

Exports to the USA by FOB World Vs China/SL – Jan-Aug 01/Jan-Aug 02

LESSONS FROM SRI LANKA: 

LESSONS FROM SRI LANKA Category 670 bags were made by a few foreign firms in Sri Lanka because of quota. In 2002 with quota free they could not compete and closed down Categories 350/650 & 349/649 Intimate apparel – Robes & Bras. Sri Lanka supplies the high end of the market – branded goods and exports increased

REGIONAL CORPORATION & PROSPECTS: 

REGIONAL CORPORATION & PROSPECTS Can the Asian Countries that do not have a fabric base secure their requirements in future? Why should China supply fabrics when they can add value domestically? The SAARC countries – India & Pakistan have large cotton cultivation's & modern textile mills. ASEAN countries produce competitively priced textile. Can they be used regionally? Should countries specialize in products?

PRIVATE-PUBLIC PARTNERSHIP: 

PRIVATE-PUBLIC PARTNERSHIP Prepare a strategy- where you want to be in 5 yrs 80/20 rule. 20% account for 80% of exports. Large firms – 20% should take the lead as the critical mass is important Improve the Enabling Environment- Cost of Utilities, Transaction Costs, Regional Corporation, Market Access, Image Building, Labour Laws

PRIVATE – PUBLIC PARTNERSHIP: 

PRIVATE – PUBLIC PARTNERSHIP Supply Chain Management –Sourcing 60% or more consists of fabrics & another 10-15% on Accessories Benchmarking – at firm level. The FIT- an ITC tool to benchmark domestically, Internationally or with Buyers requirements Human Resource Development – Skills development at all levels Forward Integration & Marketing- A more focused approach to harness the resources of the public & private sectors in Marketing

Apparel Products Value ChainBy Lyn Fernando : 

Apparel Products Value Chain By Lyn Fernando Product Development Selling & Distribution (Agents) Outbound logistics Manufacturing (cut, sew & finishing)FOB 10-25% of Retail Buyer (Retailer) Manufacturing Quality products Good on time Delivery Records Raw materials /Accessories –40-70% of FOB Availability of basic fabrics & accessories locally Educated & Trainable Workforce Design Non availability of advanced product development facilities Lack of Advanced Manufacturing Technology Lack of Specialty fabrics & Accessories -Lack of Direct contacts/ Access to Retailer. -Long lead time - Cost of Agents Proximity to market, regular sailings -sea & Air. Electronic Data Interchange for documentation High Cost Structure ( Labour, Utility) Wastage use of CAD/CAM Labor Laws, Invest in Human Resources Lack of Skilled Management Low productivity, Proximity to Suppliers High energy cost Need to develop strong networks & lobby groups. Free Trade Agreements, concessionary tariffs Dependency on imported raw material, long lead times,delays at customs, documentation, EDI Lack of design capabilities Sourcing 100% Social Compliance Buyers /ETI Codes Labor Standards. Modern factories Lack of Facilities to design,make,stock,& supply on credit Proximity to market

FIRM LEVEL STRATEGIES: 

FIRM LEVEL STRATEGIES From Family Business to Professionally Managed Business Product Specialization and Finding niche markets Closer links with Buyers & Markets Continuous Improvement & Investment * At Factory Level * Staff Training * New Machinery & Technology

THE FUTURE: 

THE FUTURE Unpredictable- an uncertain world How will China perform as a member of the WTO ? What will happen to China’s domestic market ? Growth potential of India & China with huge internal markets Post 2005 could be an opportunity not a problem. A challenge requiring action

THANK YOU: 

THANK YOU