Impact of regional trade deals on clothing and textile sector – a global assessment April 2008

2008 management briefing

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Impact of regional trade deals on clothing and textile sector – a global assessment

Management briefing
April 2008

By International News Services

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Single-user licence edition............................................................................................................. ii Copyright statement .................................................................................................................. ii Incredible ROI for your budget – single and multi-user licences............................................... ii membership .......................................................................................................iii Contents.......................................................................................................................................... iv Introduction ..................................................................................................................................... 1 The US .............................................................................................................................................. 2 Latin America .................................................................................................................................. 5 The European Union ....................................................................................................................... 8 Russia ............................................................................................................................................ 10 Japan, ASEAN and China............................................................................................................. 13 South Korea................................................................................................................................... 15 The Middle East............................................................................................................................. 17 South Africa ................................................................................................................................... 19

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With the World Trade Organization’s (WTO) Doha Development Round being slow to proceed since its 2001 launch – and only this year approaching something resembling an end-game – free traders wanting to encourage global commerce have looked to bilateral and regional trade deals.

There have been a lot of these, with the US being particularly keen to secure agreements with key trading partners. And why not? After all, most countries are keen to trade with the world’s biggest economy. And generally, even protectionists have to admit that, in an ideal world, a reduction of tariffs and subsidies does tend to increase trade and hence wealth.

However, for the clothing and textile sector, life is not quite that simple. For rich, high-wage economies, the reduction of tariff barriers has tended to reduce the amount of domestic textile and clothing production, by opening the doors to cheaper imports. Even low-wage producers, such as those in South Asia, have found free trade to be risky, where cheap and high-quality competition from producers such as China has eroded even local market share.

Furthermore, when looking at regional or bilateral trade deals rather than a global agreement brokered by the WTO, there are always going to be local effects that bear detailed examination. Just how have these deals impacted on the clothing and textile sector around the world?

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The US

The US
Last year, US textile producers suffered the largest drop in output since the government started publishing data on the topic in 1972, and free trade deals are getting the blame. According to the Federal Reserve, ‘US textile mill’ (companies transforming fibre, such as wool, cotton or polyester, into yarns and fabrics) production decreased by 12.1% in 2007.

Other sectors of the industry saw declines, too. The output of ‘US textile product mills’ (manufacturers of non-apparel products, such as curtains, sheets, towels, canvas products, carpets and rugs) fell by 4.9% and apparel by 2.5%. US apparel is down some 59.8% since 1994.

Ask just about any textile manufacturer the reason for such devastating figures and they will answer with one word – China. Many Chinese imports are now entering the US through the backdoor as a result of a plethora of bilateral and regional trade agreements signed under the Bush administration (with countries other than China). Loopholes allow components to be sourced from outside the free trade areas, and China – with a high capacity to produce and transport – is happy to supply.

“A flood of subsidised imports, especially those from China, is crippling the US textile industry,” said American Manufacturing Trade Action Coalition (AMTAC) executive director Auggie Tantillo. ”The decline in US output directly is tied to the loss of market share, and the loss of market share then directly is tied to the loss of hundreds of thousands of US textile and apparel manufacturing jobs,” he added for good measure.

Despite its unilateralist image, the promotion of free trade has been a consistent aspect of the Bush administration. In 2002, President George W Bush pressed Congress to enact the Trade Act, granting him fast-track negotiating authority, with the resulting deals getting a straight ratification vote in Congress without having to be mauled and amended by committees. The result was a profusion of trade pacts drawn up in record time.

Fast-track was used to negotiate the CAFTA-DR (Central America andDominican Republic free trade agreement), liberalising US and Central

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The US

American markets, which was implemented between 2006 and 2007. While the admittedly more important North American Free Trade Agreement (NAFTA) took seven years to negotiate, this deal took just one.

Meanwhile the Bush administration has also struck free trade agreements (FTAs) with Chile and Singapore (in 2003), and Australia, Bahrain and Morocco (in 2004), and there are others in the works. FTAs with Oman and Peru are waiting implementation. FTAs with Colombia, Panama and South Korea are pending congressional approval.

Some of these agreements have had little effect on textile producers. The Australia deal has even delivered opportunities. However, CAFTA-DR has been a “dead loss”, according to the National Textile Association’s David Trumbull. “We have not seen it deliver for the US in the way it was promised… It was badly written, and is going to take years to sort out,” he said.

Loopholes allow Chinese fabric (for example that used in boxer shorts, bras and nightwear) to enter the US, via finished product imports assembled within CAFTA-DR member countries, he added. At the same time, US textile producers cannot import Chinese yarn, which would make their product cheaper. The pocketing fabric industry thought pocketing material would be required to originate in the CAFTA-DR zone but a change to the deal entailing that concession was only passed in December. In the meantime, the pocketing business had moved to China, resulting in redundancies in the US. North Carolina-based Copland Industries has laid off 40 people in its pocketing division since 2005, for instance.

Only high-end textiles producers who make quality and design paramount are thriving, says Karl Spilhaus, president of the Cashmere and Camel Hair Manufacturers Institute. “Bilateral agreements have opened the floodgates to lower-positioned goods…but for our one cashmere sweater maker in the US, people trust his product, and continue to buy it,” he said.

Rhode Island-based Cranston Print Works, which dates back to 1824 and is the US’ oldest textile printer, was battered in the 1990s, as a result of NAFTA. Having shifted to serve the home sewing market (making materials for quilts and other craft items), the company has been less affected by the latest agreements.

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The US

But Cranston’s president, George W. Shuster, describes the deals as “more platforms for imports”. He explained: “It’s not true two-way trade. Textile producers used to get accused of spending all their time at the country club and not reinvesting. I don’t hear that anymore. All industries are getting hollowed out by this trend to import.”

But there have been winners in the free trade rush. The National Retail Federation “broadly welcomes” the agreements, as members can import more cheaply and expand abroad. CAFTA-DR has allowed Wal-Mart to become one of Central America’s largest chains – the retailer is now a leading lobbyist for quick approval of Latin America FTAs.

But Laura Jones, executive director of the Association of Importers and Textiles and Apparel, is less enthusiastic about this pact, given that one aim was to help US clothing manufacturers secure cheap supplies of textiles from neighbouring countries. The problem: “CAFTA countries don’t have much of their own fabric supplies, so fabric still has to come from the US [which is expensive for Central American producers],” she said. “It hasn’t done what a lot of people hoped for.” She noted that a denim plant is to open in Nicaragua (in the Jorge Bolanos Abaunza Textile Park in Managua) some time in 2008, which will supply fabric throughout the region. She said that this was a start but more fabric production plants need to go online for the situation to improve significantly.

Former US trade representative Robert Zoellick (now president of the World Bank) has said trade agreements “foster powerful links among commerce, economic reform, development, investment, security and free societies”. On the ground, in the US textile and clothing sector, it would seem, not everybody agrees.

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Latin America

Latin America
Latin America has been buffeted by numerous regional and international trade deals in recent years, many of which have affected the textile and apparel industries. In September 2007, the Southern Cone Common Market Group (Mercosur), including Argentina, Brazil, Uruguay and Paraguay, issued draft regulations proposing the establishment of certain labelling requirements for textile and apparel products produced in, or imported for, consumption into a member country. Such requirements enable the group to protect and unite member nations while regulating outside investment. In September 2007, the trade bloc also adopted an increase of applied tariffs on selected textile fabrics, clothing products, and textile made-ups and carpets. The move, encouraged by the Brazilian government, is widely seen as an attempt to curb further imports from China. Analysts also suggest that a new ‘experimental’ safeguard regime introduced in 2006 will reduce unilateral restrictions within Mercosur and aid regional integration.

This aim of limiting competition from Asia was also seen as a key benefit for the Latin American members of 2006’s CAFTA-DR. However, the pending removal of US temporary restrictive import quotas on Chinese clothing and textiles, due to expire at the end of 2008, may have been responsible for a drop in imports to the US from CAFTA-DR countries during the third quarter of last year, according to a report by EmergingTextiles.com1. The fall was mainly attributed to a sharp decrease in apparel imports from the Dominican Republic, which lost 41% in volume terms and 35% in US dollar terms, according to the report. Meanwhile, imports from Honduras rose 2.18%, where the trade deal has helped the apparel generate international investment, said the report.

Meanwhile, the European Union (EU) has been involved in a lengthy negotiation process with Latin America trade blocs including Central America and Mercosur, although it has reached individual agreements with countries in the region. Since 2002, the EU has had a cooperation agreement with Brazil that includes a Memorandum of Understanding on Textiles. The EU agreed to lift all textile quotas on Brazil, while Brazil, in return, agreed to respect minimum tariff levels, refrain from applying non-tariff barriers to EU imports,

US Apparel Imports from CAFTA-DR Countries in 3rd Quarter 2007, published in January 2008

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Latin America

and remove an additional textile and clothing imports tax. The EU and Mexico have an FTA that has liberalised trade in a number of sectors, including textiles and clothing. In the six years following the entry into force of the FTA, bilateral trade between the EU and Mexico grew by nearly 90%, according to both parties’ imports data.

The US is also negotiating individual agreements with Latin American nations. Peru recently entered into a new FTA with the US that should come into force in mid-2008. Trade between the US and Peru amounted to US$8.8bn last year – of that, textiles and apparel constituted US$23.6m in US exports to Peru and US$864m in US imports from Peru. The FTA agreement will replace a temporary Andean Trade Preference Act giving Peruvian exporters some privileged trade access to US markets. The US is also in the process of negotiating FTAs with Panama and Colombia, but talks have been stalled for political reasons.

Chile, which prides itself on being the nation with the most free trade agreements, has FTAs with many foreign nations, including both the US and the EU. In the textile industry, this has brought in foreign investment. “There is a list of some 25 businesses that have been installed in the last two or three years,” Mario Rosales, head of the Chilean negotiating team, told the Spanishlanguage magazine Textiles Panamericanos in the spring of 2006. “I am convinced that with the agreement with the US, as with the agreement with Europe, there will be new incentives for other businesses to invest in Chile.” Local manufacturers are also exploring opportunities abroad. Monarch, a Chilean manufacturer of socks and stockings with annual sales of more than US$15m, has embarked on an ambitious investment plan to offer products that will appeal to outside consumers.

The Andean Community of Nations (CAN), which includes Colombia, Ecuador, Bolivia and Peru, has opened trade talks with the EU. However these have been complicated by these governments’ need to involve labour

representatives in the approximately three-year-long negotiation process. Latin American workers have traditionally suffered under the FTAs, which – while providing employment – offer low wages and, workers’ organisations argue, have increased illegal immigration northward to the US. While textiles and apparel are generally duty free in major trade agreements worldwide, they are often the last to be subjected to duty-free trade in Latin America. “These are the most sensitive, [but the] least internationally – let alone regionally –

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Latin America

competitive sectors [within Latin America],” says Tom O’Keefe, president of the Washington-based Mercosur Consulting Group, “that usually employ unionised and therefore highly vocal workers.”

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The European Union

The European Union
There is only one bilateral trade agreement devoted exclusively to textiles involving the EU in existence at present – the successor agreement to the Memorandum of Understanding with China negotiated late last year, noted Peter Power, the European Commission (EC) trade spokesman. This comprises a system of joint import surveillance that will operate for one year, in 2008, and will help in avoiding massive swings in trade flows. “It allows for increased trade flows and there are no limits but at least we will know what’s happening in a much more secure sort of way,” Power said.

However several bilateral general trade agreements with important textile components have been negotiated by the EC in recent years, mostly but not always in the form of free trade areas providing for full liberalisation of trade over a long period. These take a reciprocal form in which access rights to the EU market are traded for the abolition of tariff or non-tariff barriers in the participating country or region. It follows that the push for such deals in the EU usually comes from retailers and clothing and fashion good exporters with European textile manufacturers taking a much more suspicious approach in general.

The latter viewpoint was expressed by Francesco Marchi, director of economic affairs at EURATEX, the voice of the European textile and clothing industry, which says its main objective is “to create an environment in the European Union conducive to the manufacture of textile and clothing products”. His view is that: “Our exports in most of the non-OECD [Organisation for Economic Cooperation and Development] rich developed countries are hampered by heavy, mostly non-tariff, trade barriers; therefore what we’re looking at through the bilaterals is to increase access to the final market, that is consumption by the consumer.”

At present the EU has free trade agreements (FTA) with South Africa, Mexico and Chile which Marchi complains have “been imposed on us by the EU Commission”. Similar FTAs are being negotiated with South Korea, India, and the Association of Southeast Asian Nations (ASEAN). The EU is expected to press for reforms in investment, services and intellectual property in the

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The European Union

ASEAN countries, which in turn will be looking for improved market access in the EU.

Discussions are still underway, nominally at least, between the European Commission and Central American and Latin American non-Mercosur countries but Marchi said: “Brazil is blocking all the negotiation until there is a DDA [Doha Development Round, of the World Trade Organization] agreement which they expect will give them more market access, which clearly the EU can’t afford.” However an FTA is on the verge of completion between the EU and the Gulf Co-operation Council, representing most oil-rich Gulf states, and may well be signed this year, after a speeding up of negotiations last year.

Elsewhere, moves to improve trade relations between the EU and the Mediterranean countries continue, building upon a number of existing bilateral deals providing for duty-free imports with countries in North Africa and the Levant.

Also, a European Partnership Agreement has been reached with the African, Caribbean and Pacific (ACP) which will allow increased EU market access in those countries, though Marchi said: “We won’t gain a lot of tariff cuts, even in 15 years.” Discussions leading towards a “deep and comprehensive free trade area” have begun with the Ukraine.

EU retailers have a different take on matters at present. Alessandro Bedeschi, secretary general of the European Association of Fashion Retailers, which represents over 400,000 fashion retailers in EU countries, said the present focus was on oncoming proposals to change the rules associated with trade defence instruments (TDIs) such as antidumping duties and countervailing duties. These had been drafted by the EC after consultation and are expected to be proposed shortly. “We hope the outcome will be better protection for professional retailers and a balanced approach to suppliers and traders’ interests and needs,” he said. Bedeschi said the association was satisfied with present EU trade arrangements, adding that the double licensing system agreed with China “is not posing any special problems for our members and is working fine”.

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The bilateral basis for EU relations with Russia is the Partnership and Cooperation Agreement (PCA) which came into force on 1 December 1997 initially for ten years, and is now extended beyond 2007 on an annual basis. Textiles and clothing, however, are excluded from the most favoured nation (MFN) regime established by the PCA, which effectively ensures EU duties on Russian exports are kept as low as those of countries with which the EU has the closest trade relations. Instead, a separate Textiles Agreement was concluded in 1998, providing for the lifting of all quantitative restrictions applied to trade in textile products, a liberal situation that now applies to all WTO members – which as yet does not include Russia.

According to a spokesman for the European Commission’s directorate-general (DG) for trade, this agreement is still formally in place: “There are no quantitative restriction or surveillance measures in place,” he said. “Textiles are now treated as any other industrial sector.” Matters may alter in the near future, as DG Trade is waiting for a mandate from the EU Council of Ministers to negotiate a new broader Framework Agreement with Russia covering all trade matters, but it is hard to imagine quotas being re-introduced.

However, importers and exporters trading clothing and textile goods between the EU and Russia do still pay duties. According to DG Trade, the average Generalised System of Preferences (GSP) duty for fabrics on imports into the EU from Russia is currently 6.4%. For imports of fabrics from the EU into Russia a 10% duty is applied on average. So there is room for improvement.

Complete data for 2007 is not yet available but according to the EC, imports into the EU of textiles and clothing from Russia shrunk by 6% between 2005 and 2006, when they were worth EUR181.2m. They were expected to fall sharply again in 2007. EU exports to Russia of textiles and clothing rose by 29% between 2005 and 2006 to EUR3.1bn, however. The export figure for the first ten months of 2007 had already succeeded the 2006 figure at EUR3.6bn making clothing and textiles a useful counterweight to the huge EU balance of payments deficit with Russia, mainly because of energy exports.

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Francesco Marchi, director of economic affairs at EURATEX, said that the swathe of previous bilateral agreements that were made obsolete by the accession of ten Eastern European states in 2004 (plus Bulgaria and Romania last year) had provided huge benefits through the resulting complete freeing of trade between them and resulted in a shift in textile production patterns. “The larger EU family of 27 countries has changed the nature of textile production,” he said. “The accession countries of 2004 are slowly changing their pattern of trade. You see links between Poland and Lithuania who export to Russia, and the Baltic countries exporting semi-finished products to Belarus and Ukraine.” Lithuania and Poland also export fabrics for completion to EU candidate countries, such as Serbia, Montenegro, Croatia and Kosovo.

Uncertainty still remains: while textile trade between the EU and Croatia remains duty free, the level of, or absence of duty with – for instance – Serbia – is subject to what Marchi described as “political will”.

For the past five to eight years textile goods and exports from Western Europe to Russia have witnessed double-digit growth. “Russia is a peculiar case,” said Marchi. “Despite the big difficulties that exporters to Russia face in terms of bureaucracy this is a very profitable market. It is booming in both sales of finished products and raw materials – Russia is the most important market for EU textile manufacturers right now.”

Russia, meanwhile, as in other sectors of industry, is looking to play its own game. Last year Rostextile – the Russian Union of Textile and Light Industry Entrepreneurs, which represents more than 400 textile production and commercial companies – negotiated a bilateral agreement with Turkey that incorporated a common strategy and intention to act together in the textile, ready-to-wear, carpet and leather sectors in securing new export markets. Domestically, the Russian industry takes a decidedly ambivalent view of trade with the European Union. While the increase in semi-finished products and fabric imported into Russia to be converted into end-products has created work for the hard-pressed local manufacturing industry, the increasing presence of high-quality western textiles has attracted more affluent consumers. “Around two-thirds of Russians continue to buy their clothes and shoes in discount stores or in open markets,” said a spokeswoman for Rostextile. “But these goods tend to be manufactured in Asia, so do not represent a market for local producers. There is a sentiment to buy Russian goods which means some

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upmarket companies flourish, but the reality is that most of the benefits are seen by EU producers.”

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Japan, ASEAN and China

Japan, ASEAN and China
Chinese-made goods dominate the Japanese market and this neighbouring nation and historic competitor is now Japan’s second-largest trading partner, following the US.

China’s low labour prices have kept companies manufacturing clothes based in the country, with many exports destined for Japan. But as the Chinese industry moves upmarket, and demand for quality increases, this trading relationship could change, with other Asian countries also supplying Japan with clothes and textiles – and an impending free trade deal could make this happen faster.

In May 2008, the Association of South East Asian Nations (ASEAN) and Japan are expected to sign a trade agreement which will result in the immediate repeal of tariffs on 90% of imports from ASEAN. In return, ASEAN members will eliminate their tariffs on 90% of imports from Japan, but these reductions will be phased in – possibly over 18 years for some ASEAN members.

“China used to sell in bulk but Japanese companies don’t want to buy in large quantities,” said Loic Bizel, a Tokyo based fashion consultant. “Trends are constantly changing here and companies are doing six to seven collections a year. Because of this they need to import smaller quantities.” The reduction in import duties, from proposed trade agreements, will help Japan source goods from other nations.

At the higher end of the Japanese market, top European brands look set to reap the benefits of a proposed European Union (EU)-Japan deal. “The strength of the euro has raised the prices of designer brands here,” explained Bizel. “They have been forced to raise their prices as the [strong] euro is killing their margin. If an FTA is reached the retailers will benefit.”

Within the clothing and textile sector the gift towel market and leather market are the most protected within Japan. The reason behind the high level of protection of the domestic leather trade is not typically disclosed formally, as it is more of a social reason than an economic one. High tariffs protect the Burakumin, descendants of Japanese outcast communities, who work in the

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Japan, ASEAN and China

leather business. To help them, the country has put in place an import quota system for leather goods, which makes it difficult for foreign countries exporting leather to compete here.

Meanwhile, a Japan-Mexico FTA, which came into force in 2005, gives preference to Mexican leather goods being imported into Japan over other nations without an FTA in place.

As for the towel market Bizel commented: “The gift towel market is a big industry here and Japan wants to protect it by manufacturing here and selling towels here. But companies are going to China as it is cheaper.”

India and Japan hope to sign an FTA by mid-2008, while South Korea and Japan also expect to resume talks (which have been at a standstill since 2004) this year.

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South Korea

South Korea
South Korea continues to whittle away at international trade barriers impeding its textile and clothing importers and exporters, with a number of trade agreements in the works. Negotiations are underway for bilateral free trade agreements with the EU, Canada, Mexico, India, Japan and South Africa. A deal with the US was signed in June 2007. However, the agreement needs to be ratified by Congress and so has not yet been put into force.

Bilateral South Korean-EU trade reached US$89.8bn in 2007, making it South Korea’s second-largest trading partner. This is only likely to increase if a free trade deal is sealed with Brussels. On 1 February 2008, the country’s Yonhap News reported: “An unofficial study suggests a free trade agreement would boost that figure [US$89.8bn] by up to 40% in the long run.” Seung Woo Lee, from the Korea Federation of Textile Industries, believes the proposed deal will boost South Korean market access to EU countries as well as increasing market diversification. However, he noted: “On the downside in Korea, there may be possible market domination of European clothes, especially luxury brands.” There is a lot of protection to cut, however. The South Korean textile and fashion market is protected by high tariffs compared to other sectors under negotiation, he noted.

As for the US market, South Korea is currently vying for space between high quality Japanese and cheap Chinese products, reported financial paper Donga on 12 February 2008.

In 2006, South Korea’s exports to the US were down by 7.8% compared to 2004, while neighbouring Japan and China had increased their level of exports, according to the Korea Institute for Industrial Economics & Trade.

Assuming it is finally ratified by a Congress that has tepid enthusiasm for free trade deals, the Korea-US FTA should increase Korea’s textile and apparel exports to the US by US$180m in the short run, says the Korea Trade Investment Promotion Agency (KOTRA). It has also stated that if the FTA comes into effect, current US tariffs on textiles will be stopped, contributing to an anticipated 8% growth in South Korean exports.

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South Korea

South Korea currently has trade agreements with Singapore, Chile, the European Free Trade Association (EFTA, comprising Norway, Switzerland Liechtenstein and Iceland) and ASEAN. All the existing pacts have largely boosted the level of exports of Korean textile and apparel, although the record is not 100% every year. The Korea-Chile pact came into affect in 2004 for instance, and South Korean exports have been unsteady, having decreased by 10.4% in 2006 before increasing by 27% in 2007 (according to Korean International Trade Association [KITA] statistics). Exports to Singapore, EFTA, and ASEAN have increased since signing, while imports from EFTA and Singapore have decreased.

The ASEAN agreement has been beneficial to both parties with South Korea’s textile and apparel exports increasing by 10.1% in 2007, and ASEAN by 12.3% in the same year.

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The Middle East

The Middle East
Bilateral and regional FTA agreements have been a mixed bag for the Middle East clothing and textile sector. Turkey has benefited greatly from its formal membership applicant status with the EU (a customs union has been in place since 1995), as well as bilateral trade agreements with Syria and Egypt, where the Turkish sector is sinking money into both countries to establish factories. For Turkey this cuts overheads and allows manufacturers to export products from Syria to Europe with ‘Made in Turkey’ labels. In Egypt, where there are some 200 Turkish-owned factories, this allows manufacturers to utilise Egypt’s FTA with the US, which allows goods from Egyptian economic zones to enter the US duty-free.

Lebanon is still negotiating its membership of the World Trade Organization (WTO), but has signed a raft of free trade agreements, namely the Greater Arab Free Trade Agreement (GAFTA), which came into existence in early 2005, and covers the 17 Arab League members: Lebanon, Saudi Arabia, Tunisia, UAE, Jordan, Bahrain, Syria, Iraq, Oman, Qatar, Kuwait, Libya, Egypt, Morocco, Sudan, Yemen and the Palestinian territories. And there is also the European Union-Lebanon Association Agreement, (informally known as the Euro-Med agreement) which came into force in 2003. This swept away import duties on both sides, but Lebanese clothing manufacturers have felt the sharp end of EU high quality competition.

“For the EU there is an advantage to export finished goods, but for me, I don’t feel the usefulness of this Euro-Med agreement,” said Charles Arbid, vice president of the Association of Lebanese Industrialists.

Naji Mezannar, a board member of the Beirut Chamber of Commerce, Industry and Agriculture, said that although in his view such agreements have not negatively impacted on the textile sector, the Lebanese government’s decision to adopt free market policies has: “The Government decided to reduce customs protection for textiles and left 5% protection on cloth, which means more or less nothing.” This has signalled the end of Lebanon’s clothing sector, bar high-end products and haute couture, he complained.

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The Middle East

He claimed free trade has also not benefited much of the clothing sector in the Arab Middle East, with the exception of retailers. “China has benefited, but not the Arabs,” said Mezannar, citing the problem of dumped goods from the Far East.

However, trade statistics are not so gloomy. The end of the WTO’s Agreement on Textiles and Clothing and the subsequent disappearance of import quotas among member states from 2005 has been a boon for Arab nations, particularly for Tunisia, Turkey, Egypt, Morocco and Jordan, which saw exports to the EU in 2007 increase around 20% on 2006 figures.

The recently created Gulf Cooperation Council Common Market could also boost Arab clothing manufacturers and retailers, with barriers to be removed as the GCC moves towards an EU-style policy of freedom of movement of goods.

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South Africa

South Africa
The introduction of four bilateral and regional trade agreements since the turn of the century have had a mixed effect on South Africa’s clothing and textile exports over the past seven years, according to industry experts.

Statistics for the period show that despite the abolition of a wide range of textiles and clothing tariffs for lines traded between South Africa and its neighbouring countries, as well as the EU and the US, exports in the former category have risen moderately while the latter have fallen dramatically.

The South African government had hoped that signing the March 2001 Africa Growth and Opportunity Act (AGOA) with the US, the January 2000 FTA with the EU, and the September 2000 Southern African Development Community trade protocol would actually increase exports.

However, according to the country’s Textile Federation, while last year’s South African textiles exports amounted to US$562.6m compared to US$392m in 2001, exports of clothing fell, being recorded at US$95.6m in 2007 compared to US$222.4m in 2001.

The problem, said Textiles Federation spokesman Brian Brink, was that while his industry had indeed benefited from South Africa’s trade agreements, the fluctuating nature of the South African rand compared to the US dollar had weakened the competitiveness of exports, even as their prices were reduced through the removal of duties.

“There have been some advances in terms of greater exports under these agreements, especially under AGOA, but when the rand strengthened between 2003 and 2007 our competitive edge was taken away,” he said.

Meanwhile, a spokesman for the Textile Federation’s clothing section, Jack Kipling, said that for his sector there was an additional problem, namely that clothing exporters had failed to benefit from the agreements because their newly favourable access to foreign markets had been negated by excessively restrictive rules of origin for such market access. For instance with AGOA, the rule of origin for apparel is a three-stage conversion rule, meaning that to

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South Africa

qualify a garment needs to be produced from fabric woven or knitted in South Africa, or another AGOA-eligible country which in turn had been produced using yarns of regional or US origin. In the case of the EU/SA FTA, the rule of origin for apparel is a two-stage conversion rule, requiring garments manufactured in South Africa to use only South African or EU-produced fabric.

“Although exports of apparel from South Africa to the US did grow 38% in the first year after the introduction of AGOA in 2001, export growth was limited by the restrictive rules of origin. Once buyers realised the limitations, their interest declined,” he explained, before adding that currency volatility was also an added factor.

But Dr Ron Sundry, a senior research fellow at the Trade Law Centre for South Africa said there were also other reasons for the industries ongoing problems. “Our regional agreements are a joke really. South Africa signed up – to drop its tariffs – early as a sign of good faith. But many of the other countries, like Angola, DRC [the Democratic Republic of the Congo] and Zimbabwe, are so messed up they have been unable or unwilling to follow suit.

“But the real problem is why can Asian producers expand and South African ones cannot? The answer is productivity. We are not as productive as other countries and until we get that right we will remain behind,” he concluded.

© 2008 All content copyright Aroq Ltd. All rights reserved.

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