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T&C Trade ChallengesT&C Trade Challenges
for Latin Americafor Latin America
The ATC EndedThe ATC Ended
Is T&C a Is T&C a NNormal Sector?ormal Sector?
Presentation by Presentation by
Mr. Matthias KNAPPEMr. Matthias KNAPPE
ALADI Secretariat Montevideo, Uruguay, 25-26 May 2005ALADI Secretariat Montevideo, Uruguay, 25-26 May 2005
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
T&C Tradein LatinAmerica
T&C Tradein LatinAmerica
7 ChallengesFor LA
7 ChallengesFor LA
FindingResponses
FindingResponses
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
• 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
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Paraguay Peru Uruguay Venzuela
T&C Exports of ALADI Countries in 2003
% textile % clothing
US Imports from ALADI 3 year comparison
US - ALADI Apparel Imports 2003/2004
0
1
10
100
1'000
10'000
100'000
Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela China
US
$ m
illio
ns
2003 2004 year-end March 2005
US Import changes from ALADI 2004- 2005US - ALADI Apparel Imports: 2004 / 2005 data change in %
24%
504%
1% 10%11%
-5%
25%
-23%-4%
-84%
-17%
15%
-4%
28%
-57%
2%
-9%
273%
-14%
-48%-34%
-3%
9%
131%
-16% -8%
30%
-13%-4%-10%
-200%
-100%
0%
100%
200%
300%
400%
500%
600%
Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela
January February March
41%
88%79%
0%10%20%30%40%50%60%70%80%90%
100%
China
US Imports from ALADI in 2004
339 W/G knit blouses
10%
659 Other MMF apparel
5%
638 M/B knit shirts
4%
647 Trousers
4%
639 W/G knitblouses
2%
Rest25%
338 M/B knit shirts
11%
348 W/G slacks etc.
18%
347 M/B trousers
20%
Structure
T&C Tradein LatinAmerica
T&C Tradein LatinAmerica
7 ChallengesFor LA
7 ChallengesFor LA
FindingResponses
FindingResponses
World Garment Exports: Declining Growth Rates
Global Garment Trade
100
120
140
160
180
200
220
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Year
Val
ue in
$ B
illio
ns
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Yea
r on
Yea
r C
hang
e
Value Change Poly. (Change)
Source: WTO; idea: D. Birnbaum
1. Prices will fall furtherMore supply and quota rents are gone
1.65
2.22.31
2.4 2.412.35 2.33
2.23 2.18 2.14
1.89 1.83
1.5
1.7
1.9
2.1
2.3
2.5
2.7
US$/sme
1983 1989 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Trends in US T&C import prices, 1983-2003
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 per Category in January 2005
-2.09
-5.3 -4.78-2.22 -2.5
-9.27
-50.96
-37.35
-53.86
-46.56
-54.9
-48.43
-60
-50
-40
-30
-20
-10
0
Ch
an
ge
in %
World unit value change China unit value change
Source: OTEXA
China prices down: 9% on average but up to 50% in key products in US (35% in EU)
2. Country & Enterprise Consolidation
Likely Post 2004 Sourcing Pattern
0
10
20
3040
50
60
70
Under Quota Year 2005/6 Year 2010
Year
Nu
mb
er o
f C
ou
ntr
ies
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
• 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
Selected by fabric mill & quality is fine
Good relationship & good in piece dye
Vertical setup by fabric mill
Major shirt factory in TAL
Cotton
Yarn
Fabric
Garment
Retailer
Pakistan
HK – China OPA
Malaysia
US
ButtonLabelThread
China USChina
Cheaper & close to factory
Supplier nominated by Customer
Malaysia
Inter-lining
Malaysia
Or Japan
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%
China's T-Shirt Exports in January 2005
883.05 881.41
679.96
502.58
328.85 324.79299.35
206.86
-39.15 -30.41 -14.77 1.17
162.25
571.98
-35.24
27.93
-51.83 -46.26 -57.67 -49.75 -45.99-100
100
300
500
700
900
Germany Spain US Italy France Ukraine CzechRepublic
Denmark England Canada Hungary Poland
Cha
nge
in %
Volume change Unit value change
5'864.20
18'566.12
1'000
5'000
9'000
13'000
17'000
21'000
Hungary Poland
Cha
nge
in %
Source: China Customs, 02/05
China’s T-Shirt Exports to the EU in Jan 05
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
After 2005, who do you think will have the most impact on international sourcing decisions?
15%
29%
50%
2%
4%
U.S. and European government officials
Sourcing executives from retailers andimporters
International World Trade Organization
Buying agents
International manufacturers
Source: USA-ITA
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
• 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
Beginning in 2005, how important will free trade / preferential trade agreements be?
59%
21%
17%
3%Impossible to source competitive products
without them
Important as one element in a sourcing strategy
Not important unless they are renegotiated andsimplified.
They will be useless against competition fromChina
Source: USA-ITA
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
1. Price reduction2. Consolidation3. China? Or rather Improving
Competitiveness4. Use of trade remedies 5. DDA and T&C Trade6. Multilateral approach vs. FTAs/RTAs7. Imposition of new (buyers’) rules
Structure
T&C Tradein LatinAmerica
T&C Tradein LatinAmerica
7 ChallengesFor LA
7 ChallengesFor LA
FindingResponses
FindingResponses
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
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-openerb) 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 areasCotton development needs to be seen in light of S-S trade
Hubs & Spokes Changes to Hub & Regional Hubs
USA
CRDR
ES
G
N
K SNM
L
HCAFTA
Sub Saharan Africa
Mex & CAN
What is in it for South America?
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 - ALADI Apparel Imports 2004
0%
20%
40%
60%
80%
100%
Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela
Cotton Apparel MMF Apparel Wool Apparel
The Phenomenon: Most Duty-free Access Utilisation is for Cotton Apparel
US Apparel Imports Cotton Apparel/MMF Apparel
1.80
2.39 2.56
3.29
1.881.79
2.69
5.29
6.88
6.34
5.346.39
5.68
2.802.90
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
2002 2003 2004
Rat
io C
otto
n/M
MF
App
arel
Andean
AGOA
Jordan
CBI
World
Tariff Peaks for Cotton & MMF Apparel
Cotton MMFProduct MFN Rate MFN RateAverage 13.2 23.4
Knit 15.5 28.2Woven 16.6 28.3
Knit 20 32Woven 17.6 26.4
Trousers, Breeches, Shorts
Shirts & Blouses
Source: USAID and USITC
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
THANK YOU !THANK YOU !For more information
http://www.intracen.org/textilesandclothinghttp://www.intracen.org/textilesandclothing
Contact:
Matthias KnappeMatthias Knappe, Senior Market Development Officer
WTO Rules Governing WTO Rules Governing
T&C TradeT&C Trade
From 2005From 2005
Presentation by Presentation by
Mr. Matthias KNAPPEMr. Matthias KNAPPE
ALADI Secretariat Montevideo, Uruguay, 25-26 May 2005ALADI Secretariat Montevideo, Uruguay, 25-26 May 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 • 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)
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
• 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
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
• 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
• 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
4.- Understanding 4.- Understanding changing marketschanging markets
1.- Sector Strategy 1.- Sector Strategy DevelopmentDevelopment
Sourcing
Manufacturing
Sales (+Marketing, and Services)
Inbound LogisticsCustoms,
Import Clearance
Outbound LogisticsCustoms-GSP/Quota
Export Clearance
Sourcing
Manufacturing
Sales (+Marketing, and Services)
Inbound LogisticsCustoms,
Import Clearance
Outbound LogisticsCustoms-GSP/Quota
Export Clearance
2.- Understanding its’ 2.- Understanding its’ own and competitors’ own and competitors’
performanceperformance
3.- Developing fabric3.- Developing fabricsourcing skills to sourcing skills to
becomebecome““full-package”suppliersfull-package”suppliers
5.- Applying5.- Applying
e-applications in the e-applications in the
T&C sectorT&C sector
Implementing tailor-Implementing tailor- made market penetrationmade market penetrationapproaches in line with approaches in line with
buyer requirementsbuyer requirements
New ITC T&C websiteNew ITC T&C websiteWorkshopsWorkshops
Tailored Product & Tailored Product & Market DevelopmentMarket Development
““The SHAPE”The SHAPE”
““The FiT”The FiT”
Sourcing GuideSourcing Guideandand
databasedatabase
Business GuideBusiness Guide
in e-commerce for T&Cin e-commerce for T&C
ITCITCTailored ConsultationTailored Consultation
What can we do together ?
THANK YOU !THANK YOU !For more information
http://www.intracen.org/textilesandclothinghttp://www.intracen.org/textilesandclothing
Contact:
Matthias KnappeMatthias Knappe, Senior Market Development Officer
Bolivia Apparel Export 2004
M/B knit shirts56%
W/G knit blouses18%
Nightwear/Pyjama6%
W/G slacks etc. 3%
W/G wool sweater2%
Knit shirts, blouses0%
Rest15%
Brazil Apparel Export 2004
W/G knit blouses11%
M/B knit shirts11%
Cotton underwear7%
M/B trousers6%
Dresses, gowns etc3%
W/G slacks etc. 37%
Rest25%
Chile Apparel Export 2004
M/B suit-typ CT16%
Wool trousers16%
M/B wool suits17%
M/B trousers17%
Rest34%
Colombia Apparel Export 2004
M/B knit shirts7%
M/B suit-typ CT6%
Cotton underwear6%
Other MMF apparel4%
Rest 41%
W/G slacks etc. 15%
M/B trousers21%
Ecuador Apparel Export 2004
M/B wool sweater2%
Nightwear/Pyjama2%
M/B trousers7%
Rest69%
M/B knit shirts17%
W/G wool sweater3%
Mexico Apparel Export 2004M/B trousers
22%
W/G slacks etc. 20%
M/B knit shirts8%
Rest32%
M/B knit shirts5%
Other MMF apparel5%
W/G knit blouses8%
Peru Apparel Export 2004
W/G slacks etc. 2%
Cotton sweater1%
M/B trousers2%
W/G knit blouses2%
M/B knit shirts37%
Rest13%
W/G knit blouses43%
Uruguay Apparel Export 2004
W/G coats18%
W/G wool sweater16%
M/B wool sweater16%
Knit shirts, blouses5%
Rest14%
M/B suit-typ CT31%