Coping with Industrial Restructuringand MFA Phase out

Experience of UI ZENSEN

Toru NakajimaCentral Executive Standing Committee MemberUI ZESNEN

Economic Recovery after WW II

In spite of the import regulation in the markets of the developed countries, the Japanese textile industry kept growing up to 1955 as a leading industry in Japanese economy.

Improvement of Industrial Structure

Japanese textile industry faced structural excess of equipments because there remained import regulation against Japan in the western countries after Japan’s affiliation to WTO.

Measures for improvement of industrial structure to strengthen international competitiveness of the Japanese textile industry;

3 major pillars: modernizations of equipments, adjustment of the size of companies, disposal of excessive equipments

In 1970s, Japan lost international competitiveness and faced excessive import of textile products

China’s comeback to international community, development of textile industry in other Asian countries, Strengthening voluntary regulation of textile export to U. S., establishment of MFA

Trade balance of textile turned excess of imports over exports in 1987 and Japanese textile industry faced the crisis of hollowing out by shrinking production equipments and shifting of operation overseas, which required further reform of industrial structure.

Japan’s response

1. Abolishment of excessive equipments

To prevent textile companies cutting each other’s throatInitiative by the government and industryCost of abolishment was compensated by government subsidy and assistance of beneficial companies

Japan’s response

2. Support for companies which change business or sell out companies

Guidance committee was set up in the industryGuidance and assistance for change of business Special long-term and low interest loan for start up a new business by government-affiliated banksTax cut for liquidation income and profit by selling a company

Japan’s response

3. Support for unemployed workers

Job placement within textile industryJob placement and skill training for other industriesVarious subsidy schemes (for companies and for workers)

Japan’s response

Joint demand of labour and management against the government

Precondition of the joint demand￬

Prior consultation of labour and management

Japan’s response

No impact to Japan by Phase out of MFA⇒Import penetration rate: over 80%⇒Production of high-grade goods through

industrial structure reform

Japan aim to expand its export to China⇒More Chinese people are quality goods

oriented

Will Textile Export of Asian Countries Increase?

Impact of Termination of MFA

1. More opportunity of export2. Cost down: No cost needed to

purchase quota3. Specialization of industry with high

export competitiveness4. Loss of export opportunity for

items with no export competitiveness

(Vested interest protected by quota)

Share of imported clothes from China in the US

0

20

40

60

80

2001 2002 2003 2004*

Non-liberalized itemNon-liberalized itemLiberalized itemLiberalized item

* Estimated based on the figures * Estimated based on the figures from Apr. to Oct.from Apr. to Oct.

(%)(%)

Share of woven goods import from China in the US

0

10

20

30

40

50

2001 2002 2003 2004*

Liberalized itemLiberalized item

*Estimated based on the figures *Estimated based on the figures from Apr. to Oct.from Apr. to Oct.

(%)(%)

Non-liberalized itemNon-liberalized item

Prices of textile goods imported from China in the UScomparison 2001→2004

-70

-60

-50

-40

-30

-20

-10

0

10

Garment Woven Total textile

Non-liberalized itemNon-liberalized itemLiberalize itemLiberalize item

*Estimated based on the figures from Apr. to Oct.*Estimated based on the figures from Apr. to Oct.

(%)(%)

Quota premium in the major countries and regions (2002-2003)

Textile Apparel

U.S.A. EU U.S.A. EUChina 20.0 1.0 36.0 54.0India 3.0 1.0 20.0 20.0Pakistan

9.8 9.4 10.3 9.2

ASEAN* 0.0 1.0 7.0 3.0Korea, Taiwan

0.0 1.0 2.5 0.3

（（ Ratio in FOB priceRatio in FOB price ：： %%））

*ASEAN: calculated based on the figures for Indonesia, Philippine and Thailand*ASEAN: calculated based on the figures for Indonesia, Philippine and Thailand

Result of Phase out of MFA;

Export of textile exporting Asian countries to U.S. and Europe should increase .

However,China will substantially grow, India will also.On the other hand, some countries will lose.

Why?Consumers see Quality and Price when they buy

Advantage of China

Quality Most advanced machines Improvement of skill

CostHigher productivity by most advance machinesDomestic sourcing of textile materials (cotton, chemical fiber, etc.)Huge domestic marketPrompt response to business talk: Network of oversea ChineseHuman resource

Equipment shipment of major textile machines companies and share of shipment to China（ 2003)

0

200

400

600

800

1000

0

2

4

6

7

Discontinuous yarn machineShuttleless weaving machine

Shuttle weaving machine

(10 thousand ） （ 10 thousand ） (10 thousand)

61%61%

71%71%

0

5.0

1.0

1.5

2.0

2.5

96%96%

ChinaChinaChinaChina ChinaChina

Response of Losing Countries

Tripartite cooperation among government， employers and trade unionsImprovement of quality, cost down, transference to high value-added products, etc.

Most advanced facilities --- Low-interest loan

Change of business, company closure --- Support for workers who lost

jobs