Post-MFA Era. China, a threat to

Africa?An Analysis on the Effect of the Elimination of Quotas on Global Textile Trade

Synopsis of the African Textile Market

• Thanks to AGOA, African textile manufacturing countries have been able to increase productivity, significantly.

• Of these countries 5 (Lesotho 40th , Kenya 46th , Madagascar 47th, Swaziland 53rd, and South Africa 54th) are ranked amongst the top 55 leading foreign suppliers of textile, to the US markets.

• Total bilateral trade between US and Africa amounted to approximately $33billon in 2003( US exports 7billion, US imports 25.6billion) up from $28billion in 2001. Lesotho ($373million) being the largest beneficiary in terms of trade with the US.

•Lesotho, Mauritius, Madagascar, Swaziland, and Kenya derive 99% of benefits of their privileged access to the US from clothing

US-Africa Trade DataUS Imports of Textile and Clothing (Unit: Volume

quantity in m2)

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

1994 2001 2002 2003 2004

Year

Qu

an

tity

Lesotho

Kenya

Madagascar

Swaziland

South Africa

Mauritius

Namibia

Ghana

Malawi

Botswana

US-Africa Trade DataTextile and Apparel Value (1,000 dollars)

0

100000

200000

300000

400000

500000

2002 2003 2004

Year

US

Do

llars

Lesotho

Kenya

Madagascar

Swaziland

South Africa

Mauritius

Namibia

Ghana

Malawi

China’s textile industry is growing and getting ready to

compete• Main organizations are:

– China National Council of Textile Industry– Local textile industry co-operatives (state-run organizations)– 50%of its textile and 25% of its apparel sector are state-

owned. • More that 56.000 factories.

– 90% MSE (Medium Small Enterprises) from 100 to 2000 employees. Total number of employees around 13 million.

• China's textile industry is mainly based on both natural fibers, such as cotton, wool, jute, mulberry worm silk, hair, etc., and synthetic fibers. Some 80% of the fiber used is cotton.

• China is the world’s largest producer of cotton and the largest importer too.

• China heavily depends on the imports of man-made fibers

China’s textile industry is growing and getting ready to

compete.• The technology and techniques used in China's

textile industry are in most of the cases at the level of the Europe-American textile industries in the 1970s' and1980s'.

• Energy consumption per unit of production is 2 times of that of the developed countries.

• The average production efficiency varies from 1/3 to 1/8 of the level of developed countries.

• Most Chinese manufacturers upgrade textile equipment every 5 to 10 years.

China’s textile industry is growing and getting ready to

compete.• In order to survive in today's intensive market competition, the

textile enterprises are paying more attention to the technical training of their workers and are showing great interest in new technology research & development. – 35 billion invested in the last four years in technology.– Government subsidies to sector development.

• Four channels are now available in China for the enterprises to track technology developments:

– divisions of technology development within companies

– industry associations

– technical publications

– co-operation with foreign companies (preferred).

China’s advantages overcome threats and give them competitive advantage

• Advantages– low labor costs

• China 0,57 USD/hour, average.– available raw materials.

• Cotton producer and preferred market to exporters.– low cost of operations.

• Power is cheaper in China, average 6,04 cents per KwH.

– Large Internal Market.• 1.2 billion people.

– the pegging of the Renminbi, which is estimated to be 40% undervalued (artificial cost advantage)

– Growth in communications infrastructure.– Logistics efficiency have been increasing.

China’s advantages overcome threats and give them competitive advantage

• Disadvantages– Labor costs is cheaper in some other Asian countries:

• Pakistan 0,39 USD/hour• Sri Lanka 0,37 USD/hour• Bangladesh 0,23 USD/hour• Indonesia 0,34 USD/hour

– The financial situation of the textile industry is cause for concern. Its financial difficulties may be solved by external investment/co-operation and by adjusting the scale and structure of production.

−Few textile industry have biological treatment facilities, even though the problem of water pollution is well recognized. textile industry wastewater treated by single chemical method commonly used can not contribute very much to meeting water discharge standards.

China’s main challenges

• Flexibility in production (e.g., adaptation to market changes);

• Precision in execution (e.g., quality); • Reduction of costs, through

improved management and automation, rather than an increase in size.

• Environmental requirements (Kyoto treat)

Strengths and Weaknesses of African Textile Markets

• With the elimination of quotas, there are bound to be winners and losers.

• Competing factors will be Labor cost, Price, Quality, Market Orientation ( Commodity-type production vs. high fashion content), Market proximity and responsiveness ( competitiveness through short lead times), Quick Response.

Quick Response

Strategic layout of Operations, Time sensitive production scheduling, Development of metrics to measure/guide various levels of operations, Integration of compatible Information technology, Use of time-definite and cost effective modes of transportation.

Key Impacts of Quota Elimination

– Competitiveness: Low labor cost, solid infrastructure, telecommunication, and product quality.

– Textile and clothing trade becoming increasingly based on principles of free trade rather than market restriction.

– Lead times and proximity to market will become increasingly important, and may become a differentiating factor that will mitigate negative impacts of quota removal.

– Linguistic and Cultural barriers, between key importing countries. −Safeguard mechanisms, available to all WTO

members as a trade remedy against severe market disruption

RECOMMENDATIONS

An Analysis on the Effect of the Elimination of

Quotas on Global Textile

Trade

RECOMMENDATIONS As WTO members, African countries have

recourse to instruments that provide the right of any WTO member to impose anti-dumping measures against products that exporters sell for significantly less abroad than domestically. Under China’s WTO accession agreement, importing countries may limit the growth in Chinese imports to 7.5% per annum until 2008. This allows WTO member states to impose temporary restrictions against Chinese textile exports they believe to be disrupting their markets.

RECOMMENDATIONS AGOA countries may benefit from tariff

preferences, which could make up for their poor competitiveness. In this context, AGOA beneficiaries may continue to enjoy more favorable access to the US market. It is imperative that “African countries develop their capabilities and implement appropriate policies to optimally exploit AGOA benefits” (Soko, saiia.org.za).

RECOMMENDATIONS African countries should see China more as an opportunity

rather than a threat. China's insatiable demand for commodities, for example, has played a key role in South Africa's recent economic boom, with the economy posting a 5% growth in the third quarter of 2004. Mineral products and base metals make up over 60% of South Africa's overall exports to China.

China become the world's second largest oil consumer, it has also become a huge importer of cotton (33% of world consumption), iron-ore and other commodities.

China has been in negotiations with some African states to provide zero-tariff access for some of their goods destined for Chinese markets in return for fewer obstacles to Chinese investment on the continent. Trade between China and Africa grew from $10.6 billion in 2000 to $12.39 billion in 2002, and rose further to $13.39 billion for the first nine months of 2003.

RECOMMENDATIONS African governments have an obligation to

help their private sectors adjust to new conditions to retain their competitiveness. In this respect, they could learn from countries such as Bangladesh, whose government joined forces with domestic entrepreneurs, labor unions and non-governmental organizations to implement projects designed to offset possible implications of the MFA phase-out. These en-compass skills upgrading and the retraining of displaced workers.

RECOMMENDATIONS Multilateral agencies such as the World

Bank, the International Monetary Fund and the WTO also have a critical role to play in providing aid and enhancing technical assistance to countries that are likely to feel the impact of the MFA phase-out most. Special and differential treatment should be extended to developing countries most at risk. These countries should be encouraged to reduce their dependency on clothing exports and to diversify their economies. (saiia.org.za)

REFERENCES • AGOA.info (2004). AGOA trade data. www.AGOA.info

http://www.agoa.info/index.php?view=trade_stats&story=apparel_trade• Kathurina, S., Martin, W. and Bhardwaj, A. 2001. Implications for South Asian

Countries for Abolishing the Multifibre Arrangement. Washington, DC.: World Bank. http://econ.worldbank.org/files/2729_wps2721.pdf

• Trade Pact Expiry Weaves Worry for Global Textile Industry http://www.saiia.org.za/

• WTO. 2004c. International Trade Statistics 2003. http://www.wto.org/english/res_e/statis_e/its2003_e/its03_bysector_e.htm

• WTO. 2004d. The Global Textile and Clothing Industry post the Agreement on Textiles and Clothing. Geneva: ERSD, WTO.

• Textiles and clothing: Reflections on the sector’s integration into the post-quota environment. Naumann, Tralac Publication. March 2005. www.tralac.org

• PricewaterhouseCoopers. 2004. Sourcing Overseas for the Retail Sector. United Kingdom.

• EU warns China on textile exports http://news.bbc.co.uk