Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 1.

INNOVATION TO IMPROVEINNOVATION TO IMPROVETRADE COMPETITIVENESSTRADE COMPETITIVENESS

Trade in Textiles and ClothingTrade in Textiles and Clothing (T&C)(T&C)

The Challenge of 2005The Challenge of 2005

Mr. Matthias KNAPPEMr. Matthias KNAPPESenior Market Development Officer Senior Market Development Officer

International TradeInternational Trade CentreCentre UNCTAD/WTOUNCTAD/WTO

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 2.

The importance of T&C for The importance of T&C for Developing Countries (DCs)Developing Countries (DCs)

• World trade in T&C is 353 billion US$ (clothing 201 billion US$)

• Share of clothing in total merchandise trade: LA 10%, Africa 21%; Asia 9%

• Many DCs (extremely) dependent on clothing exports

• Quota system shaped trade in T&C

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 3.

In 2005 Trade in T&C will never In 2005 Trade in T&C will never be the same againbe the same again

• Identifying market opportunities will not be sufficient anymore: value chain approach is needed

• ITC Action Plan: ! MDS to bundle inputs from other

sections! Mobilise partners

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 4.

StructureStructure

Trade after 2004 -T&C Market

Changes

Trade after 2004 -T&C Market

Changes

5 Needs of DCsand

5 TA responses

5 Needs of DCsand

5 TA responses

Cooperation with Development

Partners

Cooperation with Development

Partners

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 5.

1 January 2005: Integration of 1 January 2005: Integration of T&C into the normal WTO rulesT&C into the normal WTO rules

• 30 years of quota restrictions come to an end• Artificial advantages will disappear and

existing trade patterns will “blow up”• Companies will gain market share based on

competitiveness rather than quotas• But tariff differences remain: no free trade in

T&C

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 6.

• There will be two immediate effects

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 7.

1. Prices will Fall Further:More supply and quota rents disappear

1.65

2.22.31

2.4 2.412.35 2.33

2.23 2.18 2.14

1.5

1.7

1.9

2.1

2.3

2.5

2.7

US$/sme

1983 1989 1994 1995 1996 1997 1998 1999 2000 2001

Trends in US T&C import prices, 1983-2001

Source: Robin Anson, Director Textiles Intelligence; Hong Kong 3 October 2002; www.textilesintelligence.com

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 8.

2. Post2. Post--2004 Sourcing Pattern2004 Sourcing Pattern

Likely Post 2004 Sourcing Pattern

010203040506070

Under Quota Year 2005/6 Year 2010

Year

Num

ber o

f Cou

ntrie

s

Source: US Department of Commerce: Report to the Congressional Textile Caucus on the administration’s efforts on textile issues; Washington, September 2002

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 9.

Expected Winners & Losers:Expected Winners & Losers:CountriesCountries

• Countries limited by quotas will increase their exports.

• Countries not using their quotas are unlikely to benefit.

• DCs free from quotas will face intense competition.

• DCs without meaningful export quantities will have difficulties to enter world markets.

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 10.

Expected Winners & Losers:Expected Winners & Losers:CompaniesCompanies

• Large suppliers are favoured over SME suppliers.

• Mass products: high competition.• The more specialised/ wider range:

the lower the impact.

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 11.

And Risk of New HurdlesAnd Risk of New Hurdles

• ECO Labelling• Codes of Conduct - Ethical

Sourcing• Increased patchwork of Free Trade

Agreements with complex rules of origin requirements

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 12.

SummarySummary• From a sellers to a buyers market• Prices will fall• Buyers will reduce the number of

sources• SMEs have to fight against economies

of scale• Companies face new possible trade

hurdles

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 13.

StructureStructure

Trade after 2004 -T&C Market

Changes

Trade after 2004 -T&C Market

Changes

5 Needs of DCsand

5 TA responses

5 Needs of DCsand

5 TA responses

Cooperation with Development

Partners

Cooperation with Development

Partners

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 14.

What Buyers WantWhat Buyers Want

• Vertical capabilities• Supply Chain

Management• Full service from

product designthrough logistics

• Low Landed costs

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 15.

Manufacturing

Manufacturing & Sourcing

Manufacturing & Sourcing & Product Development

Full ServiceValue-Added

Buyers requirements

Time20051970

Changing Trade Competitiveness

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 16.

Changing Trade CompetitivenessChanging Trade Competitiveness

• 5 Needs

• 5 ITC Responses

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 17.

1st Need1st Need : A Sector Strategy : A Sector Strategy (Action Plan)(Action Plan)

• Develop overall country response• Build critical country mass• Build PPP based on strong sector

associations• Do a sector value chain analysis

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 18.

1st Response:The Value Chain Analysis1st Response:The Value Chain Analysis

Product Develop./Design

Selling & Distribution (Agents)

Outbound logistics –Customs – GSP/Quota –

Export Clearance

Manufacturing (cut, sew & finishing)

Sourcing of

Raw materials /Accessories

Obstacles –Improvements needed

Exploitable Advantages

Inbound logistics -Customs –

Import Clearance

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 19.

22ndnd Need: Know your competitorsNeed: Know your competitors

• Quotas stifle competition

• Now competitors are everywhere

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 20.

22ndnd Response: The «Response: The « FiTFiT »»

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 21.

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 22.

33rdrd Need: a) Information on Sourcing Need: a) Information on Sourcing b) Supply Chain Management Skillsb) Supply Chain Management Skills

59%16%

7%

8%

10%

Fabric Trimmings Cut& make Labour Other overhead Profit

75% of cost = sourcing

CostCost--structure of a woven shirt up to the FOB pointstructure of a woven shirt up to the FOB point

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 23.

33rdrd Response: Provide sourcing Response: Provide sourcing information and develop SCM skillsinformation and develop SCM skills

• Supply information: ITC Trade Information Services applied to Sourcing Requirements

• Skills development: Existing training material specifically adapted to the needs of garment manufacturers

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 24.

44thth Need: Understand changing Need: Understand changing markets & adapt products accordinglymarkets & adapt products accordingly

• Numerous competitors and complex trade structure;

• Opportunities in higher-end and niche markets with value-added products;

• Exploit market potential in other developing countries, especially in aregional context.

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 25.

44thth Response: ITC PResponse: ITC P--Maps: Enhanced Maps: Enhanced Garment MapGarment Map

• Create monitoring system on business opportunities and new possible NTBs

• Identify niche markets

• Exploit growing markets

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 26.

55thth Need: Need: EE-- trade to attract larger buyerstrade to attract larger buyers

• Major buyers are e-connecting the VC to reduce lead time and improve control

• Customer satisfaction becomes the target

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 27.

55thth Response: Business GuideResponse: Business Guide

• Introduce IT into garment management:

! A Business Guide on E- Applications in the T&C Sector:

! To be published in 2004

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 28.

Summary• Need 1: Sector Strategy Development

Value Chain Analysis• Need 2: Know your competitors

The « FiT »• Need 3: Sourcing Information and SCM skills

Supply information and skills building• Need 4: Understanding changing markets

Enhanced Garment-Maps• Need 5: E-Applications in T&C

A Business Guide

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 29.

StructureStructure

Trade after 2004 -T&C Market

Changes

Trade after 2004 -T&C Market

Changes

5 Needs of DCsand

5 TA responses

5 Needs of DCsand

5 TA responses

Cooperation with Development

Partners

Cooperation with Development

Partners

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 30.

ITC Partnership with Beneficiary and Development Partners

• For many DCs garment exports are critical for employment generation and export earnings

• DCs need to be well prepared for the business and market changes

• Development partners have a responsibility to ensure that any negative impact does not undermine commitment to the DDA

Geneva, 27 November 2003 Informal Session of the Joint Advisory Group 31.

After 2004: Trade in T&C will never be the same again

Many countries can retain T&C as an important export sector, but need assistance:

• Provide TA along the value chain• Partner with ITC to provide assistance