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T&C Trade Challenges
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  • 1. T&C Trade Challenges for Latin America The ATC Ended Is T&C a Normal Sector? Presentation by Mr. Matthias KNAPPE ALADI Secretariat Montevideo, Uruguay, 25-26 May 2005
  • 2. T&C is not (yet) a Normal Sector for Business
    • Purely rules-related: T&C is a normal sector
    • But :
    • Non-optimal preparation for competition despite 10 years anticipation
    • Industry is swimming and a new competition wave is expected with DDA
    • Present concerns distract from DDA
    • No special treatment anymore (1 classroom)
  • 3. Structure
    • T&C Trad e
    • in Latin
    • America
    7 Challenges For LA Finding Responses
  • 4. Characteristics of T&C industry in South America
    • Poor market diversification: mainly to US
    • Poor product diversification: underwear, knit-shirts, trousers & nightwear
    • Mainly CMT/maquila: « full-package » to be developed; only few countries are vertically integrated
    • Poor linkage between foreign investors & local industry
    • Insufficient use of regional opportunities
  • 5. US Imports 1 st Quarter 2005
    • Jan & Feb strong, March lower growth
    • China: up 107%* for apparel but strong increase in key cotton products (338/9): 1257%; 347/8: 1521%; 352: 308%
    • But: strong growth from preferential suppliers (CAFTA:knit; Andean: knit & woven; focus is on duties; rather shifts within than between regions
    • But: how reliable is the data: e.g. EU confusion
    * For Jan/Feb 2005; Source OTEXA
  • 6. T&C Exports from ALADI Countries in 2003
  • 7. US Imports from ALADI 3 year comparison
  • 8. US Import changes from ALADI 2004- 2005
  • 9. US Imports from ALADI in 2004
  • 10. US Apparel Imports by Region Source: OTEXA and emergingtextiles.com
  • 11. US Apparel Imports by Region Source: OTEXA and emergingtextiles.com
  • 12. Structure
    • T&C Trad e
    • in Latin
    • America
    7 Challenges For LA Finding Responses
  • 13. World Garment Exports: Declining Growth Rates Source: WTO; idea: D. Birnbaum
  • 14. 1. Prices will fall further More supply and quota rents are gone Source: Robin Anson, Director Textiles Intelligence; ITMF, Dresden October 2003; www.textilesintelligence.com and Textile Outlook International No. 110 March-April 2004
  • 15. US Apparel Imports Unit Value Jan 05 to Jan 04 Source: OTEXA China prices down: 9% on average but up to 50% in key products in US (35% in EU)
  • 16. US Apparel Imports Unit Value Jan 05 to Jan 04 Source: OTEXA
  • 17. 2. C ountry & Enterprise Consolidation Source: US Department of Commerce: Report to the Congressional Textile Caucus on the administration’s efforts on textile issues; Washington, September 2002
  • 18. Changing Enterprise Requirements
    • Mega companies or smaller flexible firms >
    • Supplier has more responsibility
    • Speed to market counts (standard apparel: timely replenishment; fashion apparel: quick response)
    • Trade policy and foreign investor response were key for apparel export development in many LDCs
  • 19. Mega Companies: Global Process for a Dress Shirt Selected by fabric mill & quality is fine Good relationship & good in piece dye Vertical setup by fabric mill Major shirt factory in TAL Cotton Yarn Fabric Garment Retailer Pakistan HK – China OPA Malaysia US Button Label Thread China US China Cheaper & close to factory Supplier nominated by Customer Malaysia Inter- lining Malaysia Or Japan
  • 20. 3. China as a WTO Member & Major Player
    • US clothing imports from China: 2002: +60%; 2003: +46%; 2004: + 32%; Jan-Apr 2005: +67%
    • Japan: 85% of all clothing imports from China
    • Australia: 69% of clothing and 21% of all textile imports from China
    • January 2005 exports to EU: Knit apparel up 163%; woven apparel up 80%
    • January 2005 exports to US: Knit apparel up 111%; woven apparel 79%
  • 21. Source: China Customs, 02/05 China’s T-Shirt Exports to the EU in Jan 05
  • 22. US Imports of Cotton T-Shirts Jan 05 – Jan 04 Source: OTEXA
  • 23. 4. Use of Trade Remedies
    • Safeguards (fairly traded imports)
    • Antidumping duties (unfairly traded imports): mainly yarns, fabrics & made ups; trade chilling effect
    • Countervailing duties: Unfair trade practices
    • T&C products as targets for retaliation in dispute settlement cases.
    • Possibility of new quotas against China
    • 1) Special T&C Safeguards until 31/12/2008
    • 2) Product Specific Safeguards until 10/12/2013 (all products, not only T&C)
    • To be discussed in detail tomorrow
  • 24. Discriminatory Trade Policy Decision Influence Sourcing Decisions Source: USA-ITA
  • 25. 5. Doha Trade Negotiations and T&C
    • NAMA Negotiations: reduction of high tariffs, tariff peaks and escalations; specific formula; sector approach?; additional provisions for LDCs & newly acceded countries (less than full reciprocity)
    • Adjustment related issues impact NAMA
    • Rules negotiations (e.g. ITCB request on AD)
    • Identification, categorisation, examination & treatment of NTBs
    • South-South trade under NAMA or GSTP?
    • ITCB and its future role for South America
    • Market access & development aspects of cotton
  • 26. 6. Multilateral vs. Complex System of FTAs
    • CAFTA/Andean RTA negotiations distracts from NAMA (short vs. long term)
    • RTAs need to provide new benefits, incl. regional cumulation
    • But NAMA can erode these preferences
    • Other countries also receive preferences:
    • AGOA and Canada with easy RofO
    • QIZ in Jordan and Egypt
    • EU: New GSP scheme, incl. cumulation
  • 27. But Preferential & Differential Treatment is Equally Important Source: USA-ITA
  • 28. 7. New Rules (e.g. FTAs, RTAs, Security)
    • Preferential treatment: continued USCBP intervention
    • Codes of Conduct - Ethical Sourcing
    • ECO Labelling: Remain voluntary but can reduce market access
    • Security: US Customs-Trade Partnership Against
  • 29. Summary: / Challenges
    • 1. Price reduction
    • 2. Consolidation
    • 3. China? Or rather Improving Competitiveness
    • 4. Use of trade remedies
    • 5. DDA and T&C Trade
    • 6. Multilateral approach vs. FTAs/RTAs
    • 7. Imposition of new (buyers’) rules
  • 30. Structure
    • T&C Trad e
    • in Latin
    • America
    7 Challenges For LA Finding Responses
  • 31. Closer Regional Cooperation
    • Small countries will not be able to develop a vertically integrated industry
    • A regional (or inter-regional) vertical approach is needed
    • RTAs need to integrate closer regional cooperation, incl. Regional sourcing, CAFTA example
    • RTAs could lead to product & market diversification
    • AFTEX: developing regional complementarities & exploiting synergies: and in Latin America
  • 32. 3 Areas of South-South Trade Development
    • a) DCs as a market;
    • QUAD market: 80% of world imports; post-ATC growth rate expected to be 1-5%
    • Large DC will grow much faster
    • GSTP could be a door-opener
    • b) S-S Trade of intermediaries to export to traditional markets (value chain cooperation)
    • c) Improve relationship with foreign investors
    • TCDC is key for all three areas
    • Cotton development needs to be seen in light of
    • S-S trade
  • 33. Hubs & Spokes Changes to Hub & Regional Hubs USA CR DR ES G N K S N M L H CAFTA Sub Saharan Africa Mex & CAN What is in it for South America?
  • 34. Diversifying into MMF Apparel Exports to US
    • The production skills set is not very different, but sourcing skills are needed
    • Improving buyer relationship as any diversification strategy needs cooperation with buyers (to expand & to support the product switch)
    • Partnership with national and/or regional suppliers
    • Joint marketing of regional apparel and textile companies
  • 35. US Imports from SA: Fibre Composition
  • 36. The Phenomenon: Most Duty-free Access Utilisation is for Cotton Apparel Andean AGOA Jordan CBI World
  • 37. Tariff Peaks for Cotton & MMF Apparel Source: USAID and USITC
  • 38. Summary
    • Closer Regional Cooperation (macro and meso level (AFTEX example)
    • South-South Trade at 3 levels
    • Diversification into MMF products coupled with south-south cooperation
  • 39. THANK YOU ! For more information http://www.intracen.org/textilesandclothing Contact: Matthias Knappe , Senior Market Development Officer [email_address]
  • 40. WTO Rules Governing T&C Trade From 2005 Presentation by Mr. Matthias KNAPPE ALADI Secretariat Montevideo, Uruguay, 25-26 May 2005
  • 41. Rules prevailing from 1 January 2005
    • WTO principles of transparency & non-discrimination
    • Exceptions: regional trade agreements & special and prefential treatment
    • Antidumping rules prevent unfair trading practices
    • Safeguards prevent injury from trade flow
    • Dispute settlement mechanism to resolve disputes that might arise.
  • 42. Trade Remedies
    • Safeguards (fairly traded imports)
    • Antidumping duties (unfairly traded imports): mainly yarns, fabrics & made ups; trade chilling effect
    • Countervailing duties: Unfair trade practices
    • T&C products as targets for retaliation in dispute settlement cases.
    • Possibility of new quotas against China
    • 1) Special T&C Safeguards until 31/12/2008
    • 2) Product Specific Safeguards until 10/12/2013 (all products, not only T&C)
  • 43. Possibility for China special T&C Safeguards
    • Until 31/12/2008 for ATC products only
    • Invoked by any member by asking for bilateral consultations if market disruption (threaten to impede the orderly development of T&C trade)
    • Request for consultations implies immediate limitation of exports at a pre-determined level: (7.5% (6%) above the amount imported during the last 12 months)
    • Does not necessarily require China's agreement
    • No WTO notification; no multilateral surveillance
    • Duration: max. 12 months
    • Not to remain in effect beyond one year , without reapplication , unless otherwise agreed
  • 44. China Textile Safeguard implementation
    • Has been invoked by the US
      • on knitted fabrics, cotton and mmf dressing gowns & bathrobes, cotton and mmf brassieres & ended 23-12-04;
      • Presently on socks exports (332, 632) (threat-based)
    • US Court of Int. Trade enjoined CITA from considering threat-based petitions (hearing is scheduled for May)
    • CITA to invoke safeguards on 338/339; 347/348; 352/652
    • CITA to invoke thread-based safeguards on 638/639; 647/648, 340/640
    • Quotas will be low: based on year ending Feb or Mar 2005 data plus 7.5% (for 338/9 almost filled)
    • EU: Will invoke against T-shirts & flax yarns by end May unless China restrains its exports
  • 45. Can « China safeguards » protect US – South America trade?
    • CBI apparel companies are top customers of US yarn and fabrics; CITA considers OPT as an extension of US production; but South America?
    • CITA self-initiated investigations on 347/8, 338/9, 352/652; US textile industry filed 7/14 new petitions
    • New quotas could be in place by May/June; these will be low!
    • AAFA: « US import & production follow a consistent pattern regardless of whether China is restrained »
    • Safeguards on brassieres slowed imports from China & helped reverse a decline of imports from CBI
  • 46. China’s Response: T&C Export Taxes
    • 148 products of HS chapters 61 & 62 in 6 categories: outerwear, dresses, knit and non-knit blouses, sleepwear and underwear.
    • Tax either 0.2 yuan/piece or 0.3 yuan/piece i.e. $0.024 and $ 0.06
    • From 1. June: tax will rise to 1-4 Y/p for 74 classes of T&C products; some will be lowered*
    • Major objective: to encourage manufacturers to switch to higher value-added products;
    • 50 major exporters agreed on 6 price coordinating panels to oversee export (price) developments and suggest floor prices
    * Announced by MOFCOM n 20 May 2005
  • 47. WTO: Post ATC Adjustment-related Issues
    • Proposal by Mauritius: i) WTO study to identify winners & losers and recommend measures and solutions; ii) CTG to establish a work programme on dealing with the findings and to help DCs
    • Broad support and understanding of painful adjustement process, but no consensus
    • Similar 20-10-04 request from Tanzania on behalf of LDCs.
    • 19-01-05: it was agreed that WTO Secretariat will prepare a paper to look into options for LDCs to improve their competitiveness, incl . TA & CB
    • 20 May: Tunisia (Turkey & Jordan) called CTG to discuss remedies to problems faced: agenda rejected
  • 48. Doha Trade Negotiations and T&C
    • NAMA Negotiations: reduction of high tariffs, tariff peaks and escalations; specific formula; sector approach?; additional provisions for LDCs & newly acceded countries (less than full reciprocity)
    • Adjustment related issues impact NAMA
    • Rules negotiations (e.g. ITCB request on AD)
    • Identification, categorisation, examination & treatment of NTBs
    • South-South trade under NAMA or GSTP?
    • ITCB and its future role for South America
    • Market access & development aspects of cotton
  • 49. The Cotton Issue in WTO: Market Access
    • Market Distortion by Subsidies
    • Appellate Body confirmed WTO interim ruling that US subsidies caused « serious prejudice » to Brazilian cotton producers
    • US direct payments to farmers are trade distorting
    • Payments to US mills and exporters to cover the difference of US and world prices to ensure US exports are not permissible
    • West Africa Initiative: Distinction between Market Access & Development Issues
  • 50. Cotton Implications for T&C Trade
    • Long-term reduction of subsidies tends to increase price
    • End of ATC increases demand for cotton & shifts it to Asia: price increase
    • Supply response in Asia, Australia & West Africa; but in US and EU?
    • Will possible end of US support for cotton have a negative impact on cotton fibre consumption?
    • Impact of cotton negotiations on T&C trade?
    • Development assistance for cotton in West Africa
  • 51. 4.- Understanding changing markets 1.- Sector Strategy Development 2.- Understanding its’ own and competitors’ performance 3.- Developing fabric sourcing skills to become “ full-package”suppliers 5.- Applying e-applications in the T&C sector Implementing tailor- made market penetration approaches in line with buyer requirements New ITC T&C website Workshops Tailored Product & Market Development “ The SHAPE” “ The FiT” Sourcing Guide and database Business Guide in e-commerce for T&C ITC Tailored Consultation What can we do together ? Sourcing Manufacturing Sales (+Marketing, and Services) Inbound Logistics Customs, Import Clearance Outbound Logistics Customs-GSP/Quota Export Clearance Sourcing Manufacturing Sales (+Marketing, and Services) Inbound Logistics Customs, Import Clearance Outbound Logistics Customs-GSP/Quota Export Clearance
  • 52. THANK YOU ! For more information http://www.intracen.org/textilesandclothing Contact: Matthias Knappe , Senior Market Development Officer [email_address]
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