REGIONAL WORKSHOP

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

2003

1
Lyn Fernando
 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
 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
• 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
 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
 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.
4-Stage Phase out of MFA
MFA Phase-out in 4 stages
WTO
Restricted textile
Trade due to
quotas Free world trade

1
January 1995

Integration’s of at
Least 16% of the 2
import volume of
1990 for textiles January 1998
and clothing

Integration of another
3
17% of the 1990 January 2002
Import volume
4
Integration of
another 18% January 2005

Total integration of all

textile and clothing
 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)

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….
Whether there will be change, the Question
is whether the change will be :

A Sudden Collapse
or

Slow and Somewhat Predictable

 THE US MARKET

11
Lyn Fernando
 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 2000
Continuation of MFA
Signing of NAFTA
Signing of CBI
1980 Apparel Imports
into USA Far East
82%

Far East 82%

Far East
35%
Mexico 3% Mexico
Others
5% 16%
Mexico
CBI 3%
I ndian Sub. 5% Other
5% 12%

I ndian CBI
Sub 23%
14%

2000 Apparel Imports into

USA
EUROPEAN UNION
 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
• 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
• 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

19
Lyn Fernando
 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
700
World Vs China/SL – Jan-Aug 01/ Jan-Aug 02
600

500

400
% Growth

300

200

100

-100
239 350/ 650 349/ 649 670 331/ 631

World Sri Lanka China

 10
Exports to the USA by FOB
World Vs China/SL – Jan-Aug 01/Jan-Aug 02
0

-10

-20
% Change

-30

-40

-50

-60

-70
239 350/ 650 349/ 649 670 331/ 631

W orld Sri Lanka China

 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
 Projected Chinese Control
U.S. textile and apparel Import market

80% 71%

60% 44%
40% 22%
20%
13%
20%
0%
2002 2003 2004 2005 2006

ATMI
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
• 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
• 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 Chain
By Lyn Fernando

-Lack of Direct Need to develop

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

Design Lack of design capabilities

 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
• 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

31
Lyn Fernando