The Global Textile and Clothing Industry post the Agreement on Textiles ...

DISCUSSION PAPER NO 5

The Global Textile and Clothing Industry post the

Agreement on Textiles and Clothing

by

Hildegunn Kyvik Nord?s1

World Trade Organization

Geneva, Switzerland

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Discussion Papers are presented by the authors in their personal capacity and opinions expressed in these

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the WTO Secretariat or of its Members and are without prejudice to Members' rights and obligations

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Any citation of this paper should ascribe authorship to staff of the WTO Secretariat and not to the WTO.

1

Research assistance from Roberto Chavez and useful comments from Michael Finger and Robert Teh are gratefully acknowledged.

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TABLE OF CONTENTS

I.

INTRODUCTION .....................................................................................................................................1

II.

THE STRUCTURE OF THE TEXTILE AND CLOTHING SECTOR ....................................................3

III.

THE AGREEMENT ON TEXTILES AND CLOTHING .......................................................................13

IV.

TRADE PATTERNS IN TEXTILES AND CLOTHING .......................................................................16

V.

THE IMPACT OF PHASING OUT THE ATC.......................................................................................24

VI.

CONCLUSION........................................................................................................................................34

VII.

REFERENCES ........................................................................................................................................35

LIST OF TABLES AND CHARTS

FIGURE 1:

THE SUPPLY CHAIN IN THE TEXTILE AND CLOTHING SECTOR........................................4

FIGURE 2:

VERTICAL SPECIALIZATION SHARE IN EXPORTS, SELECTED COUNTRIES

AND TERRITORIES, 2001 ..............................................................................................................9

FIGURE 3:

SOURCE OF IMPORTS OF TEXTILES TO THE USA................................................................17

FIGURE 4:

SOURCE OF IMPORTS OF CLOTHING TO USA.......................................................................18

FIGURE 5:

SOURCES OF IMPORTS OF TEXTILES TO THE EU ................................................................20

FIGURE 6:

SOURCES OF IMPORTS OF CLOTHING TO EU .......................................................................21

FIGURE 7:

MARKET SHARES BEFORE AND AFTER QUOTA ELIMINATION, TEXTILES, EU...........27

FIGURE 8:

MARKET SHARES BEFORE AND AFTER QUOTA ELIMINATION, CLOTHING, EU ............28

FIGURE 9:

MARKET SHARES BEFORE AND AFTER QUOTA ELIMINATION, TEXTILES, USA...............29

FIGURE 10:

MARKET SHARES BEFORE AND AFTER QUOTA ELIMINATION, CLOTHING, USA ...............30

TABLE 1:

THE COST STRUCTURE OF THE CLOTHING INDUSTRY, SELECTED

COUNTRIES, 2001 (PER CENT OF GROSS OUTPUT) ...........................................................7

TABLE 2:

THE COST STRUCTURE OF THE TEXTILE INDUSTRY, SELECTED

COUNTRIES, 2001 (PER CENT OF GROSS OUTPUT) ...........................................................8

TABLE 3:

EMPLOYMENT IN TEXTILES AND CLOTHING, ATC COUNTRIES (THOUSANDS)............10

TABLE 4:

EMPLOYMENT IN TEXTILE AND CLOTHING (THOUSANDS) ............................................12

TABLE 5:

INTEGRATION OF TEXTILES AND CLOTHING INTO GATT................................................13

TABLE 6:

INTEGRATION DURING THE FIRST 3 STAGES ......................................................................14

TABLE 7:

THE US TRADING PARTNERS' TRADE WITH THE UNITED STATES, 2002.......................19

TABLE 8:

EU'S TRADING PARTNERS' TRADE WITH EU, 2002 ..............................................................22

TABLE 9:

CHINA'S SHARE OF TOTAL IMPORTS, SELECTED COUNTRIES ........................................23

TABLE 10: EXPORT TAX EQUIVALENT OF QUOTAS BASE YEAR ........................................................25

TABLE 11: IMPORTS AS SHARE OF DOMESTIC DEMAND WITH AND WITHOUT QUOTAS ............26

TABLE 12: REVEALED COMPARATIVE ADVANTAGE AND BINDING QUOTAS, 2000. .....................32

I.

INTRODUCTION

After more than forty years of import quotas, the

textile and clothing sector will become subject to

the general rules of the General Agreement on

Tariffs and Trade from 1 January, 2005.

Liberalization has been controversial because both

textiles and clothing contribute to employment in

developed countries, particularly in regions where

alternative jobs may be difficult to find. In the

European Union, for example, the sector is

dominated by small and medium-sized enterprises

concentrated in a number of regions that are highly

dependent on this sector (Commission of the

European Communities, 2003).

Textiles and

clothing are also among the sectors where

developing countries have the most to gain from

multilateral trade liberalization.

In fact, the

prospect of liberalization of the textiles and

clothing sectors was one of the reasons why

developing countries accepted to include services

and intellectual property rights ¨C areas to which

they were sceptical at the outset ¨C in the Uruguay

Round (Reinert, 2000).

The objective of this paper is to assess the likely

impact of liberalization, taking into account recent

technological and managerial developments in the

sector, and focusing on recent developments in

supply chain management in the clothing and

textiles sectors.

The clothing industry is labour-intensive and it

offers entry-level jobs for unskilled labour in

developed as well as developing countries. Job

creation in the sector has been particularly strong

for women in poor countries, who previously had

no income opportunities other than the household

or the informal sector.2 Moreover, it is a sector

where relatively modern technology can be adopted

even in poor countries at relatively low investment

costs. These technological features of the industry

have made it suitable as the first rung on the

industrialization ladder in poor countries, some of

which have experienced a very high output growth

rate in the sector (e.g. Bangladesh, Sri Lanka,

Viet Nam and Mauritius).3 These characteristics,

however, have also made it a footloose industry

2

3

See Nord?s (2003a) for a discussion.

The textile and clothing sector has also grown very fast in

more developed countries that have entered into preferential

agreements with the EU or the US or both (e.g. Bulgaria,

Lithuania, Macedonia and Jordan).

that is able to adjust to changing market conditions

quickly.

At the same time, the textile and clothing industry

has high-value added segments where design,

research and development (R&D) are important

competitive factors. The high end of the fashion

industry uses human capital intensively in design

and marketing. The same applies to market

segments such as sportswear where both design and

material technology are important. Finally, R&D is

important in industrial textiles where, again,

material technology is an important competitive

factor.

Textiles and clothing are closely related both

technologically and in terms of trade policy.

Textiles provide the major input to the clothing

industry, creating vertical linkages between the

two. International trade in the two sectors is

regulated by the Agreement on Textiles and

Clothing (ATC) at the multilateral level, while

bilateral and regional trade agreements typically

link the two sectors through rules of origin

accompanying preferential market access.

At the micro level, the two sectors are increasingly

integrated through vertical supply chains that also

involve the distribution and sales activities.

Indeed, the retailers in the clothing sector

increasingly manage the supply chain of the

clothing and textiles sectors. This development

probably started with the establishment of shopping

malls such as Wal-Mart in the United States in the

1970s.

Wal-Mart

insisted

that

suppliers

implemented

information

technologies

for

exchange of sales data, adopted standards for

product labelling and methods of material handling.

This ensured quick replenishment of apparel, which

in turn allowed the retailer to offer a broad variety

of fashion clothes without holding a large

inventory. This approach has spread throughout

the industry in the United States as well as

elsewhere (and to other industries), shifting the

competitive advantage of suppliers from being

mainly a question of production costs to becoming

a question of costs in combination with lead time

and flexibility. This development has in turn

favoured suppliers located close to the major

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