1. The influences of CEPA
and Quota Phasing-out
on HK’s textiles and
clothing manufacturing
industry
Effectiveness of
Economic
Policy
EF3461 2013/14 Semester B
Sin Dick Wai, Andy
(53040515)
3. What is MFA?
Multi-fibre
Arrangement (MFA)
First adopted in
1974
• Protecting
industrial
countries’
textiles and
clothing
industry from
developing
countries
Officially come to
the end in 1993
• Abolish all
quota on
internationallytraded textiles
gradually (3
stages)
5. How CEPA works?
Goods
General
Picture:
Tariff abolition by Mainland Customs
1st Phase: CEPA I
• 1st January, 2004
• 273 Hong Kong-made goods
2nd Phase: CEPA II
• 1st January, 2005
• Additional 713 tariff codes
Other products NOT yet covered
→ On-going CEPA Applications (CO(CEPA))
6. How CEPA works?
Goods
Expected
results:
Local clothing manufacturers
→Benefitted from savings on import tariffs
→Being stimulated to expend output
capacity / strategically exploit China
market
Other
local / foreign companies
→Being attracted by CEPA‟s potential
benefits
→Set up new production facilities in HK
7. Services
How CEPA works?
Provide
Market Access to the Mainland
Convention & Exhibition
Advertising
Construction & Real estate
Securities
Logistics
Banking
Help
by
Accounting
Tourism
Etc…
18
Service
Industries
HK small & medium companies
thresholds of entry
Thresholds
of entry for service industry sector
are comparatively HIGH (WTO‟s protocol)
8. General Impression on CEPA I
Impact
Based
on the study by HKSAR
government, companies believed that
CEPA is beneficial to:
Company's mainland-related
business
53%
89%
HK's manufacturing industry
93%
HK economy
0%
20%
40%
60%
80% 100%
9. Authors‟ response to the survey
Suggested
that the statistics should be
interpreted with care due to
Small + probably biased sample (Only 1,311
out of 3,211 CO(CEPA) total applications are
textiles and clothing companies)
Only 30% of the sample of companies
surveyed are manufacturers/traders
10. Impact of CEPA I on Scale of
Operation
Based
on the same study, companies have
increased
7%
6%
The use of self-owned
machinery and equipment
2004
5%
4%
Area of premises used
Number of staff employed
9%
0%
Overall
2005
2%
4%
6%
11%
8% 10% 12%
impact → Slight on manufacturing
industry (Only at margin)
11. Impact on domestic Manufacture
& Trade of CEPA goods
Domestic exports of Hong Kong (2004 in HK$ Billion)
CEPA I
products
24.4
(~66%)
Mainland
37.9
(~30%)
Other regions
88.1
12. Impact on domestic Manufacture
& Trade of CEPA goods
Key
findings:
2/3 of exports are NOT subject with import
tariffs, which means large proportion of
exports to China are shipped to factories in
Mainland for partial assembly and then reshipped to HK for completion
Overall tariff savings is small in percentage
Low F.O.B. Value compared to other
industries
13. Industry Competitiveness in the
Post-MFA Regime
Within MFA:
Quota right → the „passport‟ to play in this
industry
HK was an active exporter of MFA garment
products just because it has accumulated a
huge quota, but NOT depends on its own
comparative advantage
The industry is protected, new entrants with
lower production costs(e.g. Mainland China)
were being restricted in production
14. Industry Competitiveness in the
Post-MFA Regime
Determents
of industry attractiveness
Potential of profitability
Market demand
For HK garment industry in
Post-MFA regime
Strategies
to have value-added
productivity
Produce high-tier/value-added items
Improve production efficiency
Textile and clothing industry will continue to
shrink in the future
Unable to
carry out
15. Implications
The
usefulness of CEPA in increasing
domestic exports to mainland is in doubt.
The
textiles and clothing industry will
continue to shrink in size (Without the
protection of quota rights) due to:
Erosion of value-added profitability
&
Market demand
16. Conclusion
HK
textiles and clothing industry will
continue to play an import role in the
Management and Control Hub (With
benefits of infrastructure & legal system in
HK)
They
should consider tapping the underdeveloped resources of Greater Pearl River
Delta region
→ reallocate their production facilities
18. My opinions
The
whole manufacturing industry is
declining at trend
Cost ↑due to increasing labor welfare and
high inflation in developing countries
Revenue↓, due to increasing competition
lead by quota and tariff abolition (Free-trade
market)
It‟s
hard for companies which focus on
manufacturing to earn high return
They have to transform in order to survive
How?
19. Smiling Curve Analysis
Suggested
by Stan Shih (施振榮), founder of
Acer, an IT company from Taiwan
Showing the value-added potentials of
different components within a supply chain
Manufacturing has
the LOWEST valueadded potential
20. What should HK textile /
clothing manufacturers do?
Moving
their strategy to R&D or Branding /
Marketing (Having HIGHER value-added
potentials)
Access Mainland market by setting up their
own brands in Mainland China (Through
CEPA)
Moving their production facilities from pearl
river delta region to lower-cost regions (e.g.
Inner-China, South Asia) (Not applicable for
long-term)
21. What the government can do
to assist them?
Provide
subsequent funds/measures that
encourage firms to carry long-term
investments
Examples:
Set-up foundations to assist local R&D activities
Tax exemption for R&D activities
Provide low-interest rate funds to small &
medium enterprises to carry out investment
activities
22. Limitations / Obstacles
Poor
systems in Mainland China
High Corruption rate
Poor law enforcement
Inadequate in property rights protection
Lack
of long-term view and strategic
thinking of the management
Risk-adverse
Mainly focus on short-term returns
24. Related Questions
Does
trade liberalization benefits the
world as a whole at the cost of industries
being protected before?
25. Sources
Articles:
“Trade
Liberalization in the Post-MFA
Regime: The Influences of CEPA and
Quota Phasing-out on Hong Kong‟s
Textiles and Clothing Manufacturing
Industry”, by Chester K.M., To, Z.M.
Zhang, Chun-sun Leung, Jimmy M.T.
Chang and K.L. Moon, published by
Institute of Textiles and Clothing, The Hong
Kong Polytechnic University, Hong Kong
(2005)
26. Sources
Web-pages:
The
Smiling Curve: Stan Shih | Chaitravi‟s
Blog
http://chaitravi.wordpress.com/2010/02/1
0/the-smiling-curve-stan-shih/
