Post-MFA Scenario :  Opportunities and Challenges

World trade in textiles and clothing amounted to US $ 385 billion in 2003, of which textiles accounted for 43% (US $ 169 bn) and the remaining 57% (US $ 226 bn) for clothing. The United States and European Union alone accounted for more than half of the almost $400 billion in world imports of textiles and clothing in 2003, and developing countries for almost two-thirds of world exports.  

Import Trends in USA

In 1990, restrained or MFA countries contributed as much as 87% (US $ 29.3 bn) of total US textile and clothing imports, whereas Caribbean Basin Initiative (CBI), North American Free Trade Area (NAFTA), Africa Growth and Opportunity Act (AGOA) and ANDEAN countries together contributed 13% (US $ 4.4 bn). Thereafter, there has been a decline in exports by restrained countries; the share of preferential regions more than doubled to reach 30%  (US $ 26.9 bn) of total imports by USA.

The composition of imports of clothing and textiles by USA in 2003 was 80% (US $ 71 bn) and 20% (US $ 18 bn), respectively. Asia was the principal sourcing region for imports of both textiles and clothing by USA. Latin American region stood at second position with a share of 12% (US $ 2.2 bn) and 26% (US $ 18.5 bn), respectively, for textiles and clothing imports, by USA.  

Import Trends in EU

EU overtook USA as the world’s largest market for textiles and clothing. Intra-EU trade accounted for about 40% (US $ 40 bn) of total clothing imports and 62% (US $ 32.5 bn) of total textile imports by EU. Asia dominates EU market in both clothing and textiles, with 30% (US $ 30 bn) and 17% (US $ 8 bn) share, respectively. Central and East European countries hold a market share of 11% (US $ 11.3 bn) in clothing and 7.5% (US $ 4 bn) in textiles imports of EU.

As regards preferential suppliers, the growth of trade between EU and Mediterranean countries, especially Egypt and Turkey, was highest in 2003. As regards individual countries, China accounted for little over 5% (US $ 2.8 bn) of EU’s imports of textiles and over 12% (US $ 12.4 bn) of clothing imports.    

Import Trends in Canada

Amongst the leading suppliers of textiles and clothing to Canada, USA had the highest share of over 31% (US $ 8.4 bn), followed by China (21% - US $ 1.8 bn) and EU (8% - US $ 0.6 bn). India was ranked at fourth position and was ahead of other exporters like Mexico, Bangladesh and Turkey, with a market share of 5.2% (US $ 0.45 bn).

Potential Gains

It may be noted that clothing sector would offer higher gains than the textile sector, in the post MFA regime. Countries like Mexico, CBI countries, many of the African countries emerged as exporters of readymade garments without having much of textile base,

utilizing the preferential tariff arrangement under the quota regime. Besides, countries like Bangladesh, Sri Lanka, and Cambodia emerged as garment exporters due to cost factors, in addition to the quota benefits. Thus, it may be concluded that these countries are likely to lose their market share in the future scenario.

Resource Based Advantages      

It may be said that countries like China, USA, India, Pakistan, Uzbekistan and Turkey have resource based advantages in cotton; China, India, Vietnam and Brazil have resource based advantages in silk; Australia, China, New Zealand and India have resource based advantages in wool; China, India, Indonesia, Taiwan, Turkey, USA, Korea and few CIS (Commonwealth of Independent States) countries have resource based advantages in manmade fibers.

In addition, China, India, Pakistan, USA, Indonesia have capacity based advantages in the textile spinning and weaving. China is cost competitive with regard to manufacture of textured yarn, knitted yarn fabric and woven textured fabric. Brazil is cost competitive with regard to manufacture of woven ring yarn. India is cost competitive with regard to manufacture of ring-yarn, O-E yarn, woven O-E yarn fabric, knitted ring yarn fabric and knitted O-E yarn fabric.

According to Werner Management Consultants, USA, the hourly wage costs in textile industry is very high for many of the developed countries. Even in developing economies like Argentina, Brazil, Mexico, Turkey and Mauritius, the hourly wage is higher as compared to India, China, Pakistan and Indonesia.

Winners & Losers  

From the above analysis, it may be concluded that China, India, Pakistan, Taiwan, Hong Kong, Brazil, Indonesia, Turkey and Egypt would emerge as winners in the post quota regime. The market losers in the short term (1-2 years) would include CBI countries, many of  the sub-Saharan African countries, Asian countries like Bangladesh and Sri Lanka.

The market losers in the long term (by 2014) would include high cost producers, like EU, USA, Canada, Mexico, Japan and many east Asian countries. The determinants of increase / decrease in market share in the medium term would however depend upon the cost, quality and timely.

India and China

It is estimated that in the short term, both China and India would gain additional market share proportionate to their current market share. In the medium term, however, India and China would have a cumulative   market share of 50%, in both  textiles and garment imports by USA. It is estimated that India would have a market share of 13.5% in textiles and 8% in garments in the USA market. With regard to EU, it is estimated that the benefits are mainly in the garments sector, with China taking a major share of 30% and India gaining a market share of 8%. The potential gain in the textile sector is limited in the EU market considering the proposed further enlargement of EU. It is estimated that India would have a market share of 8% in EU textiles market as against the China’s market share of 12%.

Critical Factors that Need Attention    

Apart from low cost labour, other factors that are having impact on final consumer cost are relative interest cost, power tariff, structural anomalies and productivity level. It is also noted that countries that would emerge as globally competitive would have significantly consolidated supply chain.       

Manufacturers need to sharpen their competitive edge by lowering the cost of operations through efficient use of production inputs and scale operations. Besides, there are needs for rationalization of charges, levies related to usage of export logistics to remain cost competitive. Logistics and supply chain would also play a crucial role as timely delivery would be an important requirement for success in international trade.

Technology would play a lead role to improve quality and productivity levels.  Internationally, trading in textile and garment sector is concentrated in the hands of large retail firms. Majority of them are looking for few vendors with bulk orders and hence opting for vertically integrated companies. This would also bring down the turn around time and improve quality. Industry players should also improve upon their soft skills, viz., design capabilities, textile technology, management and negotiating skills.

In addition, the industry needs to invest for creating brand equity, supply chain management and apparel industry education. The need of the hour therefore is to evolve a well chalked out strategy, aimed at improvement in the levels of productivity and efficiency, quality control, faster product innovation, quick response to changes in consumer preferences and the ability to move up in the value chain by building brand names and acquiring channels of distribution.    

Conclusion

It is believed the quota regime has frozen the market share, providing export opportunities even for high cost producers. Thus, in the free trade regime, the pattern of imports in the quota countries would undergo changes. The issues that would govern the market share in the post quota regime would eventually be productivity, raw material base, quality, cost of inputs, including labour, design skills and operation of economies of scale.

It is believed that quotas, by limiting the supply of goods have kept export prices artificially high. Thus, it is estimated that there would be price war in the post quota regime, with competitive price cuts.

It is assumed that quota restrictions would continue beyond 2005 in various forms. There would be non-tariff barriers as well. Standards related to health, safety, environment, quality of work life and child labour would gain further momentum in international trade in textiles and clothing.

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