1

Current Challenges for theS.A. Textile Industry

Presented to:Portfolio Committee on Trade & Industry

19 Oct 2005By The Textile Federation

2

Outline of Presentation

Macroeconomic Environment Chronology of Countering Import Surge State of the Textile industry Changed global environment Challenges Plan of action Conclusions

3

Macroeconomic Environment(1)

“Fiscal & Monetary Policy out of step with Industrial Policy” (Prof Ha-Joon Chang)

High interest rates & low inflation do not: Encourage investment & growth Do not create jobs

East Asian Experience Active industrial policy key to economic

development Growth not deregulation attracts foreign

investment

4

Macroeconomic Environment(2)

WTO still permits “activist trade policy” Tariff reduction does not equal abolition Infant industry protection is still permitted Emergency import sucharges permitted for

• Sectoral import surges• BoP problems

Not all subsidies are illegal• LDC’s can use export subsidies• Agricultural subsidies allowed• Regional Development, R&D & environmental subsidies

allowed

5

Countering the Import Surge(1)

Late 2003 – Submission to Govt Volatility & strengthening of the Rand Disruption of textile & clothing market by China Action required

Feb 2004 Safeguard option probed Mar 2004 Min Erwin forms Tech Task Team Istanbul Declaration seeks Govt support May 2004 Task Team meets

Official notification to the PRC Schedule for VRA on China by Aug 2004

6

Countering the Import Surge(2)

Jun 2004 Task Team Meeting VRA option discarded Sector strategies were requested

Aug 2004 Safeguard Regulations introduced Oct 2004 DG advises Industry

“Pursue Safeguards under Accession Protocol” Feb 2005 Task Team Reconvenes

China no longer on Agenda Apr 2005 Task Team

Restructuring strategies presented

7

Countering the Import Surge(3)

May 2005 Final Task Team Meeting DCC compromise proposals agreed Advised to apply for safeguards Sectors to be excluded from China & India FTA’s

Period of 18 months lost Safeguard Application by SACTWU 5 JUL

Clothing Items (25 categories) Fabric & Household Items (10 categories) Footwear Items (2 categories)

Safeguard Applications by Texfed Bed linen 21 Sep 2005 Curtains 5 Oct 2005

8

State of the Textile Industry

Current State Employment history Imports/Exports Sales/Production Import Penetration

9

Current State of Industry 2004

TurnoverFibre

ConsumptionFabric ProductionSpindlesLoomsKnitting MachinesEmploymentImportsExports

R 11.0 billion*

251 000 tons

508 million m2

420 0003 0002 000

51 400R6.5 billionR3.2 billion

* Estimate excluding CFL

10

Textile Industry Employment

40

50

60

70

80

90

100

110

120

Th

ou

san

ds

1980 1984 1988 1992 1996 2000 2004

11

Turnover per Employee

Textile Industry - Turnover per Employee

0

50000

100000

150000

200000

250000

300000

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Tu

rno

ver

/ Em

plo

yee

0

20

40

60

80

100

120

140

Nu

mb

er o

f Em

plo

yees

(000

's)

Turnover per Employee Employees

12

Total Textile Imports

0

1000

2000

3000

4000

5000

6000

7000

R'm

illio

n

1980 1983 1986 1989 1992 1995 1998 2001 2004

13

Fabric Imports

0

20

40

60

80

100

120

millio

n k

g

14

Clothing Imports

0

50

100

150

200

250

300

millio

ns

KnittedWoven

15

Made up Textile Imports

0

5

10

15

20

25

millio

n k

g

16

Total Textile Exports

0500

100015002000250030003500400045005000

R'm

illion

1980 1984 1988 1992 1996 2000 2004

17

Textile Sales

0

2

4

6

8

10

12

14

R'b

illio

n

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

•Only combined TCFL stats produced in 2004

18

Yarn Production

40000

60000

80000

100000

120000

140000

160000

tons

1980 1984 1988 1992 1996 2000 2004*

•Only combined TCFL stats produced in 2004

19

Woven Fabric Production

150

200

250

300

350

400

450

500

millio

n m

2

1980 1985 1990 1995 2000

•Only combined TCFL stats produced in 2004

20

Knitted Fabric Production

0

5

10

15

20

25

30

35

millio

n k

g

1980 1985 1990 1995 2000

•Only combined TCFL stats produced in 2004

21

Import penetration

1999 2000 2001 2002 2003 2004

Yarns 11% 12% 16% 18% 23% 25%

Fabrics 39% 46% 48% 49% 55% 58%

Blankets 17% 22% 26% 24% 34% 34%

Imports I/(I+(T-E))=P

22

Changed Global Environment

Currency (R,$,Yuan) Accession of China to WTO Termination of the ATC & MFA Quotas Trade agreements (Agoa/FTA’s/PTA’s,

Mercosur, USA, India, China, Other??) Massive growth in undervalued/”illegal”

imports of clothing & textiles

23

Currency Exchange Rate

0

2

4

6

8

10

12

14

16

18

1998 1999 2000 2001 2002 2003 2004

Ran

d/

Fo

reig

n C

urr

en

cy

DollarPoundEuro

24

Accession of China to WTO

China acceded to the WTO in Mar 2003 MFN status Accession Protocol Growth strategy Phenomenal growth domestically & in

exports

25

Termination of ATC & MFA Quotas

ATC provided for phase out of quotas MFA finally eliminated 31 Dec 2004

26

Trade Agreements(1)

SA/EU TDCA Tariff preferences finally reached

SADC FTA Preferences not yet reciprocal

EFTA FTA Preferences to be phased in

SACU/Mercosur PTA As yet no prefernces for SA textile exports Textile preferences were given to Mercosur

27

Trade Agreements(2)

AGOA Textiles excluded AGOA IV amendment

SACU/USA FTA Delays in initiating negotiations

SACU/China FTA SA persists in exporting unbeneficiated

product And sacrificing its manufacturing sector

SACU/India PTA

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Undervaluation of Imports

R/kg

Cotton fibre 7.10

Synthetic fibre 11.70

Yarns 13.55

Fabrics 34.31

Blankets 15.40

Bed linen 16.04

Curtains 10.28

Import prices Jul 2005

29

Undervaluation of Imports

R/kg

Curtains knitted 2.30

Curtains woven 6.11

Bed linen knitted 5.41

Bed linen woven 14.94

Table linen knitted 1.58

Table linen woven 5.71

Socks & pantyhose 9.36

Import Prices from China Jul 2005

30

Undervaluation of Imports

0

5

10

15

20

25

30

35

40

'98 '99 '00 '01 '02 '03 '04 '05

TotalChinaTurkey

Imported Fabric Prices (R/kg)

31

Undervaluation of Imports

Imported Made up Textile Prices (R/kg)

0

5

10

15

20

25

30

'01 '02 '03 '04 '05

TotalChina

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Plan of Action

Short term (immediate) SARS engagement

• WTO Valuation Code• Illegal imports

ITAC• Safeguards• Anti-dumping• Cotton fibre duty free

DTI• Interim Clothing & Textile Dev Program (DCC’s)• Country of Origin Labelling • Sector Strategy(CSP) Finalisation/Implementation

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Plan of Action

Medium term (6 months) Upgrading investment support Labour Market flexibility Innovation

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Plan of Action

Longer term (6-12 months) World class manufacturing standards Access to Technology Higher skills development Workforce empowerment BBBEE Charter

35

Conclusion

Critical Stage for textiles No simple solution Immediate Actions:

Undervaluation of imports Safeguards/Antidumping