Regional Workshop On Trade Capacity Building & Private Sector DevelopmentPresentation Transcript
REGIONAL WORKSHOP ON TRADE CAPACITY BUILDING & PRIVATE SECTOR DEVELOPMENT PHNOM PENH CAMBODIA 2 nd . 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.
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 Transport
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
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
Continuation of MFA
Signing of NAFTA
Signing of CBI
1980 Apparel Imports into USA Far East 82% Mexico 3% 2000 Apparel Imports into USA
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
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 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
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
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