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Cbm37 234


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Fashion, apparel, textile, merchandising, garments

Fashion, apparel, textile, merchandising, garments

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  • 1. The Emergence of China: Opportunities and Challenges for Latin America and the Caribbean Coordinators: Robert Devlin, Deputy Manager (INT) Antoni Estevadeordal, Principal Economist (INT) Andrés Rodríguez (RES) Inter-American Development Bank Integration and Regional Programs Department (INT) Research Department (RES)
  • 2. An increasing importance in world trade… Growth of Trade: China vs. World (1970 = 1)
  • 3. Liberalization of China’s Trade Policy Regime MFN Tariff Liberalization (unweighted averages)
  • 4. China as a Market… Top LA Exports to China Thousands US Dollars 2002 Mkt. Share(%) Importer Rank
  • 5. Competing with China in Global Trade
  • 6. A highly diversified export basket Export Concentration Index
  • 7. Comparing Chinese and LAC Export Structure by Technological Content
  • 8. China as a whole is extremely labor abundant…it should compete with the world’s lowest wage countries CHINA LA US LABOR CAPITAL
  • 9. But China’s provinces exhibit substantial endowment heterogeneity…Shanghai may compete with some OECD countries! LA US LABOR CAPITAL Shanghai CHINA Guizhou
  • 10. Market Share in the US (Manufacturing)
  • 11. Product Penetration in the US Market (Manufacturing)… Number of Products in the Manufacturing Sector 1972 6,136 goods 2001 13,242 goods
  • 12. Product Penetration in the US Market (Manufacturing)… Number of Products in the Manufacturing Sector 1972 6,136 goods 2001 13,242 goods
  • 13. Product Penetration in the US Market (Manufacturing)… Number of Products in the Manufacturing Sector 1972 6,136 goods 2001 13,242 goods
  • 14. Head-to-Head Product Competition with China in the US Market… Export Similarity Index
  • 15. Head-to-Head Product Competition with China in the US Market… Export Similarity Index
  • 16. FDI Competition?
  • 17. The Surge of FDI to China
    • There is a surge of FDI to China
    • This due to China’s clear competitive advantages and recent reforms, most recently WTO accession
    • Should Latin America be concerned?
  • 18. Should Latin America be Concerned?
    • Conceptually, reforms that allow FDI in a country such as China could divert investment…
    • But magnitudes would be small… at most 4% reduction in FDI flows to the region
    • But it could be that some countries are affected more than others…
  • 19. Are Some Countries More Likely to be Affected?
    • FDI competition may be stronger across countries with same FDI sources
    • It may also be stronger across countries that get FDI in the same sectors…
    • … especially if these are traded sectors
  • 20. FDI sources differ greatly
    • A comparison of sources of FDI in Latin America and China reveals large differences:
      • FDI to China is predominantly from Asia
      • FDI to Latin America is predominantly from U.S. and Europe
    • The reduction in investment flows from general FDI competition is thus likely to be even lower than the 4% mentioned earlier…
    • … Asian countries (e.g., Korea, India) have much more to worry!
  • 21. FDI sector coincidence varies greatly across countries
  • 22. A Case Study
    • Are multinationals in L.A. moving to China?
    • A survey in Costa Rica: representative sample of 41 MNCs out of a total of 100 in the EPZ system
    • Two MNCs said they were moving to China
    • The threat is in sectors that rely on cheap labor and inputs coming from Asia
    • Countries whose main advantage in attracting FDI is low wages should be most concerned
  • 23. Summing Up
    • Overall FDI competition is modest
    • Main competition is for countries in Asia
    • L.A. countries that will be more affected are those specializing in exports dependent on cheap labor (e.g., Mexico, Central America)
  • 24. The Future of Textiles in Latin America
    • Several countries in L.A. have experienced high growth in exports of textiles and apparel to U.S.
    • This has been one of the main sources of new formal jobs in several countries in CA
    • Unfortunately, this growth was a result of preferential access to the U.S. market that is about to be considerably weakened
    • January 2005: elimination of remaining U.S. MFA quotas on textiles and apparel
    • What will happen? What should be done?
  • 25. A Snapshot of the Current Situation
    • “ The region” (Mexico, CA, DR) is heavily oriented towards the U.S., and is based on maquila (little vertical integration) and low wages
    • China is tremendously competitive: it has much lower wages and is vertically integrated (cluster)
    • When U.S. has removed quotas on some items recently, China’s share of the market has boomed
  • 26. Advantages and Opportunities
    • The region has two advantages: geography and market access
    • But NAFTA and CAFTA are not enough: tariff preference is small compared to cost gap with China
    • Differential transport costs represent a small advantage
    • The best opportunity is a large difference in the time it takes to ship the product to the U.S.
      • Specialize in product lines where “speed to market” is critical
  • 27. Policies
    • Avoid protective measures and allow market to come up with solutions that take advantage of region’s advantages (geography, market access)
    • Policies (may require sub-regional cooperation):
      • Customs facilitation with U.S. and within region
      • Infrastructure (roads, ports, electricity)
      • Long term capital
      • Specialized human resources (engineering, design, marketing, procurement, etc.)
    • In addition, promote export diversification
  • 28. Conclusions
  • 29. China The Market: Opportunities for Latin America
    • Systemic Factors
      • New Stimulus to Growth of World Economy in Face of Sluggish or Uncertain OECD Growth
      • Openness and X  M
      • Cost Effective Supply Finished Goods and Inputs
      • Savings Finance U.S. Treasury Bonds and Help Keep International Interest Rates in Check
  • 30. China The Market: Opportunities for Latin America
    • Latin America Specific
      • Bouyant World Commodity Prices
      • 1.3 Billion Consumers; Demand for
        • Agriculture and processed foods
        • Raw and processed materials
        • Services, especially tourism
      • FDI
        • Host (e.g. Embraer)
        • Source (e.g. Shanghai Bao Steel)
      • Cooperation
        • Support for multilateralism (e.g. G-20)
        • Policy best practices
        • Interchange (education, sciences and technology, etc.)
  • 31. China The Competitor
    • Endowments Give China Competitive Edge in Low, Medium and High-Tech Manufactures
    • Long-Term Policy Drivers of Competitiveness
      • Education
        • Small surplus in “predicted” secondary enrollment (L.A. has big deficit)
        • Like L.A., deficit in terciary but
          • Extremely high per student expenditure ratio for terciary education
          • Scale: 1.3 million graduates of higher education
          • 45% in science and engineering
          • World competitive test scores
      • Innovation
        • R & D researchers and patent applications in U.S. > L.A.
        • R & D expenditures % GDP > 1% (> L.A.)
        • Absolute R & D expenditures  South Korea
      • Investment (incl. Infraestructure)
  • 32. Coping with Chinese Competition
  • 33. Coping with Chinese Competition
    • China’s (and S.E. Asia) Success Raises Anxiety over Current and/or Future Competition
      • Intensify Criticisms of Washington Consensus?
      • Risk Protectionist Backlash?
    • A Better Response: Treat China as a “Wake-up Call” to Rethink Development Policy
    • L.A. Does Not Face Challenge Unarmed
      • During Reforms Acquired or Reinforced Assets to Compete
      • Must Strategically Combine Existing Assets and Create New Ones to Become More Offensive Player in Global Economy
  • 34. Towards a Policy Framework to Compete
    • A Public-Private Alliance
    • National Social Process
    • Horizontal and Vertical Policies
  • 35. A Public-Private Alliance
    • Goal: A Constructive Partnership Between Public Sector and Private Sector
    • A Requirement: A Government with a Capacity to Engage the Private Sector in Pursuit of Policies to Compete
      • Long-Term Strategic Focus (strengths and weaknesses)
      • Experimentation
      • Learning
      • Development of Capacities
    • Focus: Identifying and Overcoming Market Failures that are a Binding Constraint
  • 36. A Public-Private Alliance
    • Bottom Line
      • China and East Asia Successes not based on purely market forces
      • Few Economic Success Stories are Entirely a Market Phenomenon
      • No Formulas for Proactive Policy –local creativity and adaptations
      • But a Strong State with Focus on Support of Industrial Diversification and Upgrading has been Important in China and East Asia Generally
      • Don’t Forget Services
  • 37. Strategic National Social Process
  • 38. Strategic National Social Process
    • Start a National Social Process
      • Create Space for Active Collaboration Between Public and Private Sectors
      • Work Towards Forward Looking and Focused National Policy Framework to Compete Globally
      • Process Must Allow for Competition of Interests, Visions and Capacities in the Private Sector (broadly defined)
      • Government Must Ultimately Arbitrate with:
        • Predictability
        • Transparency
        • Accountability
        • Technical Criteria
        • Test of the International Market Place
  • 39. Strategic National Social Process
      • For Longer Term Focus Governments Need More Fiscal Space, Public Savings and Strengthening Public Sector Human Resources
      • Gradualism
        • All Governments Have Some Capacity to Engage in Intervention and Alliance Building
        • Try Pilot Programs First that Allow for Tests Against the Marketplace, Learning and Adaptation.
        • The Weaker Government Capacity, the Fewer and Simpler the Interventions Should be Until Capacity Develops
      • Beware of Unproductive Rent Seeking and Corruption
      • But Risks of Rent Seeking Lower than Past When
        • Protectionism much higher
        • Competition minimal
        • Little or no democracy
        • Little government accountability
  • 40. Horizontal and Vertical Policies
  • 41. Horizontal and Vertical Policies
    • Horizontal Enabling Policies not Controversial
    • Vertical Policies are More Controversial Because of the need for Selectivity
      • Governments cannot intervene in all sectors
      • Fiscal resources are scarce
      • Public sector human resources limited
  • 42. Horizontal and Vertical Policies
    • Choosing Sectors for Support – Some Considerations
      • Support investment in activities that are socially very beneficial but unlikely to happen without public action
      • Selection of sectors not “picked” by government – must emerge from national social process
  • 43. Horizontal and Vertical Policies
      • Requirement: Cooperation from private sector Associations which have market based knowledge and experience
      • Sunset and performance clauses for support programs
  • 44. Some Policy Areas to Support Industrial and Services Upgrading and Competitiveness
  • 45. Dealing with the Dutch Disease
    • What is it?
      • A market failure
      • Happens when high commodity prices push economy away from more knowledge-based non-traditional agriculture and manufacturing
    • What to do?
      • When systemic could tax commodity to finance support for diversification
        • Chile proposal: tax copper and use for an “Innovation Fund for Competitiveness”
  • 46. Provision Public Goods
    • Intervene to Overcome Classic Coordination Problems in Supply of Public Goods and Services Critical for Growth of Sectors
      • Overcoming free riding problems
      • Infrastructure
      • Identifying and supporting strong complementarities (e.g. hotel-airports)
  • 47. Education
    • Recent Emphasis: Primary Education
    • More Emphasis: Secondary and Higher Education
      • China’s advantage in low wage labor raises skill premium in Latin America
      • More focus on secondary and higher education deficits for supply of skilled professionals and development of R & D capacities
      • Upgrade curriculums (math, science and engineering)
      • Collaboration between universities and private sector for curriculums and research
      • More Equality of access
  • 48. Export Development and Investment
    • Need more than macro stability, financial deepening, property rights, etc.
      • Specific support for discovery/investment/activities where social benefits of spillovers > benefits to single entrepreneur
      • Mechanisms = market credit, grants, specialized promotion agencies and programs for discovery of export markets, investment, and attraction FDI
      • Competitive real exchange rate
      • Predictable rules of the game for investors – role of investment contracts
      • Transport systems and infrastructure (scale, hub & spokes, etc)
  • 49. Innovation
    • Innovation activities generate substantial externalities and are under-produced by market
    • Horizontal policies like IPR and across the board corporate tax breaks not enough
      • Shift attention from traditional improvement of supply capacities to promoting demand driven innovation
      • Make supply relevant to demand
      • Focus support in universities and research centers on existing industry groups with comparative advantage
      • Support public-private collaborative innovation in potential cluster areas
  • 50. Role of Economic Integration
    • Regional Integration: Subregional; Latin America; Interregional FTAs (FTAA, EU, U.S., Japan).
    • Regional Markets facilitate
      • Scale
      • Agglomeration
      • FDI Attraction
      • Reduce distance (tariffs and preferences, transport and search costs)
      • Cooperation (education, R & D, X promotion, clusters, joint negotiation, etc.)
      • But be careful of overly restrictive rules of origin
    • Role of WTO: Leveling Playing Field with China
      • Market Opening
      • Rules
      • Dispute Settlement