Many poorer countries dependant on exports of textiles and clothing will see their economies destroyed with the disappearance of WTO quotas in 2005 argues Neil Kearney from International Textile, Garment and Leather Workers Federation.
At the World Trade Organisation Ministerial Meeting in Doha suggestions that ending trade regulation in textiles and clothing would harm developing economies were greeted with scorn. Nearly every developing country delegation in Doha decried the textiles and clothing quota system as symptomatic of the unfairness of world trade.
The Sri Lankans claimed that they would gain greater market share on dismantlement. Bangladesh even lobbied for quicker phase-out.
Two years on, panic is the order of the day in most textiles and clothing exporting nations as governments contemplate industrial meltdown.
Why the commotion?
Textiles and clothing trade is a vital part of the world economy with many nations heavily dependent on the sector for foreign exchange earnings and employment generation.
Today textiles and clothing trade accounts for nearly 6% of total world exports. It was valued at US$ 342 billion in 2001. Trade in clothing accounted for 60% of this total.
The textiles and clothing sector is central to the economies of many developing countries. In the late 1980’s these countries overtook the industrialised world in textiles and clothing exports. They now account for 50% of all textile exports and 70% of all clothing exports.
Many of the least developed and small developing countries have built a huge dependency on the sector which often accounts for more than 90% of industrial exports and more than 50% of total employment.
For example, textiles and clothing accounted for 84% of Bangladesh’s total exports in 2000. The figure for Pakistan was 72% and for Mauritius 69%.
Figures are even starker when confined to industrial goods. In 2000, textiles and clothing accounted for 95% of all Bangladesh’s industrial goods exports. The figures for Laos were 93%, for Cambodia 83%, for Pakistan 73%, for Sri Lanka 71%, for Nepal 61%, for Turkey 38% and for India 30%.
Many developing countries are totally dependent on one of the two giant markets – the USA and the European Union.
Tunisia’s textiles and clothing exports to the European Union are equivalent to 54% of all exports from the country. The figure is similar for Bangladesh. Turkey’s textiles and clothing exports to the European Union are equivalent to 47% or almost half of the country’s total exports. Talk about putting all eggs in one basket.
The textiles and clothing sector is a vital and often nearly sole source of industrial employment in many developing countries. The sector employs 1.8 million workers in Bangladesh, 1.4 million in Pakistan and 250,000 in Sri Lanka. In India alone there are 58,000 different garment factories.
Being so dominant in the trade and employment fields in developing countries the textiles and clothing sector should be propelling a surge in living standards. Unfortunately there is little evidence of this. Indeed, in many producing countries living standards have actually fallen.
Take Bangladesh. In less than 20 years, employment in the garment sector grew to nearly 2 million, mainly young women workers. Most work 7 days a week, often 12 to 14 hours per day. Existing labour legislation is largely ignored. Health and safety is of little consideration. Hundreds of workers have burned to death in factory fires in recent years.
The legal minimum wage in Bangladesh was last raised in 1994. It was then worth US$ 33. Today it is worth US$ 17. So, in nine years, real wages have halved. Yet many companies, perhaps the majority, do not even pay this amount for a standard working week.
Bangladesh is not, in any way, unique. Real wages have, and are falling in every continent. Gross abuse of workers’ rights is commonplace as companies and countries jostle for competitive advantage.
As a consequence most workers can not afford to buy the goods they themselves produce. Hence, no local markets have developed. Hence there is a total dependence on exporting.
So much for the oft-repeated mantra that free trade is the only real route out of poverty.
Listen to the politicians, the trade specialists and some academics and you could be forgiven for believing that the future is always bright, for all and everywhere. In the language of the street cardsharp, “Everyone a winner”.
Spend some time on the ground, however, and the doubts begin to creep in. Listen to manufacturers, to workers and it soon becomes clear that, in trade, for every winner there are numerous losers.
Today, in textiles and clothing, all indicators point to one major winner -China- hitting the jackpot at the expense of a host of losers, mainly small and poor developing countries.
Trade in textiles and clothing has been managed for some 40 years. The first textile trade agreement was adopted in the early 1960s and then in 1974 the Multi-Fibre Arrangement was introduced to govern trade in textiles and clothing. Initial restraints on dominant exporters such as Hong Kong, Korea and Taiwan resulted in quota hopping, sub-contracting or relocating to countries without quota or with unfulfilled quota.
Without the MFA it is doubtful if countries such as Sri Lanka, Bangladesh or Indonesia would have seen the development of a significant textiles and clothing export industry. Thus the MFA, initially a temporary protection mechanism for the industrialised world’s textiles and clothing industry, became the catalyst for the industry’s surge across the developing world.
MFA I in 1974 evolved into MFA II and MFA III and finally the Textiles and Clothing Agreement in 1995 – an extended phase-out with certain categories being freed from restraint until the final cut-off date of 31 December 2004.
As the phase-out proceeded it became increasingly clear that trade in textiles and clothing was moving in directions that now threaten to destroy the industry in some of the poorest developing countries.
This is most clearly evidenced in those categories of textiles and clothing removed from quota control as part of the phase-out process.
In all such cases, China’s share of world markets has increased dramatically while exports from other countries, particularly some of the poorest countries, have plummeted.
For example, in the 29 categories of garments removed from quota in 2002, China’s share of the US market rose from 31% at the beginning of the year to 59% at the end. At the current rate of increase it will hit 77% at the end of 2003.
In these 29 categories China’s exports to the United States increased by 290% while exports from the rest of the world in the same categories fell by 14%. Imports from China have gone up an average of 600% in sensitive categories in 2002.
The figures are even more dramatic if we look at individual categories.
Take, for example, luggage made from fibres or textile materials. In the 15 months to March 2003 China increased its exports to the United States by 664%. At the same time exports from Mexico fell by 58%, the Philippines fell by 54%, the Dominican Republic fell by 50% and Thailand fell by 48%. China during the course of the year increased its market share from 5% to 32%.
The situation is similar for dressing gowns. In the 15 months to March 2003, China increased its exports to the United States by 698% while exports from the Philippines fell by 37% and Mexico by 29%. During that period China’s market share rose from 5 to 32%.
In gloves China increased its exports to the United States by 291% in the 15 months to March 2003. Guatemala’s exports fell by 65% for the same period, Bangladesh by 48% and Sri Lanka by 47%. China increased its market share from 10 to 42%.
Overall, in 2002, China increased exports of textiles and clothing to the United States more than every other country in the world combined. 96% of China’s increases was in quota de-controlled categories. This provides a snapshot of what is likely to happen when all categories are removed from quota.
The picture is similar for the European Union. In 2002, in those product categories, for which quotas were eliminated, EU imports from China increased by 164% in volume. EU total imports from all countries in these products do not see any similar change – only an increase of 10%, – implying a substitution of imports from other countries. With only one significant exception, there were drops in the imports from almost every other country. China’s market share of EU imports in these products increased in one year from 12% to 30%.
In almost every category freed from quota in 2002, China experienced an explosion in its market share in the European Union. For example, in the first ten months of 2002, China’s market share in knitted underwear increased by 114%, from 15.1% to 32.3% of the European market. The increase in anoraks and parkas was even more dramatic rising from 14.6% to 53.2%, an increase of 264%. In knitted tracksuits, China also secured more than 50% of the market rising from 18.5% in 2001, an increase of 176%.
Equally alarming is the deflationary effect of China’s dominance. For example, prices of US imports of quota de-controlled garments from China fell by 44% in 2002. Those from the rest of world fell by 2%. Average unit prices of EU imports of quota decontrolled items from China fell by 42% in the same period.
Today, China is leading a race to the bottom, which will quickly drive other developing nations out of the market. Often, prices are cut in such a proportion that competitors cannot possibly cope with the pressure. In some categories of imports into the European Union, China’s prices are 30-35% lower than world-wide prices. As a consequence, China has gained extremely large market shares against which no one can compete.
And China’s deflationary pressures will further drive down wages and worsen working conditions in the sector. Not surprisingly consultants in the sector are urging wage cuts and, in the case of Bangladesh, blaming labour protection for lack of competitivity. Imagine, wage cuts on salaries that provide a daily income which the United Nations deem to be absolute poverty. Imagine blaming labour protection for lack of competitivity in a country which fails to enforce any of its labour legislation.
At the moment, China’s strength as a global garment exporter is not seriously rivalled by any other single country. Rather it competes with entire trading blocs of nations.
In reality it looks as if we are moving to a unipolar world where China is the pole.
Continue like this and many poorer countries dependant on exports of textiles and clothing will see their economies destroyed up to and after the disappearance of quotas in 2005.
Already factories are closing across the world as orders are re-directed to China.
In Bangladesh hundreds of factories have already closed and thousands of jobs have been lost. Factories are closing in Mexico, Indonesia, even in Turkey. Closures of factories in Indonesia jumped by 22% in 2002 as 835 factories disappeared. Another 767 downsized their operations. In Central America, Guatemala has seen 50 of its 350 factories disappear in the last year. In Mexico, 200 factories have left over the past year or so. Of 150 that had announced plans to set up shop in Mexico none showed up. Most of the departees are going to China whose representatives are busy recruiting in Mexico’s maquila belt.
Everywhere workers are being told “compete with China or die”.
The ITGLWF estimates that millions of jobs will be lost in developing countries. In Doha the ITGLWF suggested that Bangladesh would lose 1 million jobs. This figure has since been confirmed by the United Nations Development Programme. The ITGLWF also estimated that Indonesia would lose a million jobs, Sri Lanka 200,000 of the 250,000 jobs in the sector and that tens of thousands of jobs would disappear in other countries in Asia, Central America and Africa.
So what future for the sector in Cambodia, Laos, Thailand and numerous other countries? What future for the 1 million workers in Bangladesh – mainly young women – who will be left without jobs and without hope?
The WTO Ministerial Meeting in Doha was trumpeted as the Doha Development Round. Without action on the textiles and clothing front it threatens to become the Doha Destruction Round.
Trade must be made to lead to sustainable development.
A detailed strategy for the future of the textiles and clothing industries must be urgently discussed and agreed – the trade element at the WTO Ministerial Meeting in Cancún in September.
Such a strategy must include action on both the trade and industrial policy fronts.
On the trade front this should include:
Agreement in 2005 and its extension to footwear;
in developing countries, adjust to meet the threat posed by dominant producers
such as China, and including clear restraints on such dominant producers;
through rewards and sanctions-based mechanisms;
multi-lateral trade agreements.
These measures should be accompanied by an urgent review of trade liberalisation particularly its impact on employment and working conditions in labour intensive industries such as textiles, clothing and footwear.
On the industrial policy front all countries with a significant textiles and clothing sector should adopt and implement a detailed development strategy for the industries.
Such a strategy should provide for intervention in areas such as:
In short, production of and trade in textiles and clothing cannot continue only to serve the interests of multi-national merchandisers and retailers in a handful of consuming nations. Instead, any strategy for the future must ensure that the benefits of production are fairly shared, where the workers involved can afford to become consumers, thus oiling the mechanisms for sustainable development.
The threat to the livelihoods of millions of workers and their families in poor and small developing countries demands urgent action.
Properly addressed, the upheaval arising from ending trade regulation in textiles and clothing could provide an opportunity for radical change leading to real sustainable development in every continent.
Ignored, this upheaval will place the textiles and clothing industries in the hands of China with millions of workers elsewhere facing a dire future.
The choice is clear. Unregulated export concentration giving the jackpot to China with nothing for the rest or sustainable development with the creation of local markets where all can share the winnings.
The real question now facing the sector is whether politicians and trade specialists have the courage to challenge the status quo and insist that all producing countries have the chance to win through equitable sharing of world markets.