Post on 28-Oct-2014
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1Lyn Fernando
REGIONAL WORKSHOP ON TRADE CAPACITY BUILDING & PRIVATE
SECTOR DEVELOPMENT
PHNOM PENH CAMBODIA 2nd. DECEMBER 2003
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.
MFA Restricted textile
Trade due to quotas
Phase-out in 4 stages WTO
Free world trade
1 January 1995
2 January 1998
3 January 2002
4 January 2005
Integration’s of atLeast 16% of theimport volume of1990 for textilesand clothing
Integration of another 17% of the 1990 Import volume
Integration of another 18%
Total integration of all textile and clothing
4-Stage Phase out of MFA
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 TransportLow WagesFavorable Trading TermsProximity 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 Collapseor
Slow and Somewhat Predictable
11Lyn Fernando
THE US MARKET
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
Continuation of MFA
Signing of NAFTA
Signing of CBI
2000
1980 Apparel Imports into USA Far East
82%
CBI5%
Others5%
Indian Sub.5%
Mexico3%
Far East 82%
Mexico 3%
2000 Apparel Imports into USA
Far East35%
Mexico16%
CBI23%
Indian Sub14%
Other12%
EUROPEAN UNION• Trade Agreements
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
19Lyn Fernando
THE CHINA FACTOR
The Agreement of T&CThe 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 World Vs China/SL – Jan-Aug 01/ Jan-Aug 02
-100
0
100
200
300
400
500
600
700
% G
row
th
239 350/ 650 349/ 649 670 331/ 631
World Sri Lanka China
Exports to the USA by FOBWorld Vs China/SL – Jan-Aug 01/Jan-Aug 02
-70
-60
-50
-40
-30
-20
-10
0
10%
Cha
nge
239 350/ 650 349/ 649 670 331/ 631
World 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 ControlU.S. textile and apparel Import market
13% 20% 22%
44%
71%
0%
20%
40%
60%
80%
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 ChainBy Lyn Fernando
Product Development
Selling & Distribution (Agents)
Outbound logistics
Manufacturing (cut, sew & finishing)FOB 10-25% of
Retail
Buyer (Retailer)
Manufacturing Quality products
Good on time Delivery Records
Raw materials /Accessories –40-70% of FOB
Availability of basic fabrics &
accessories locally
Educated & Trainable Workforce
Design
Non availability of advanced product development facilities
Lack of Advanced Manufacturing
Technology
Lack of Specialty fabrics & Accessories
-Lack of Direct contacts/ Access to Retailer.
-Long lead time
- Cost of Agents
Proximity to market, regular sailings -sea &
Air. Electronic Data Interchange for documentation
• High Cost Structure ( Labour, Utility) Wastage use of CAD/CAM
• Labor Laws, Invest in Human Resources
• Lack of Skilled Management
•Low productivity,
• Proximity to Suppliers
•High energy cost
Need to develop strong networks & lobby groups. Free Trade Agreements,
concessionary tariffs
Dependency on imported raw material, long lead times,delays
at customs, documentation, EDI
Lack of design capabilities
Sourcing
100%
Social Compliance Buyers /ETI Codes Labor Standards. Modern factories
Lack of Facilities to design,make,stock,&
supply on credit Proximity to market
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
31Lyn Fernando
THANK YOU