Transcript Post-MFA Era. China, a threat to Africa?

Post-MFA Era. China, a
threat to Africa?
An Analysis on the Effect of the
Elimination of Quotas on Global
Textile Trade
Synopsis of the African Textile Market
• Thanks to AGOA, African textile manufacturing countries have
been able to increase productivity, significantly.
• Of these countries 5 (Lesotho 40th , Kenya 46th , Madagascar
47th, Swaziland 53rd, and South Africa 54th) are ranked amongst
the top 55 leading foreign suppliers of textile, to the US markets.
• Total bilateral trade between US and Africa amounted to
approximately $33billon in 2003( US exports 7billion, US imports
25.6billion) up from $28billion in 2001. Lesotho ($373million)
being the largest beneficiary in terms of trade with the US.
• Lesotho, Mauritius, Madagascar, Swaziland, and Kenya
derive 99% of benefits of their privileged access to the
US from clothing
US-Africa Trade Data
Quantity
US Imports of Textile and Clothing (Unit: Volume
quantity in m2)
120,000,000
Lesotho
100,000,000
Kenya
Madagascar
80,000,000
Swaziland
60,000,000
South Africa
40,000,000
Mauritius
20,000,000
Namibia
Ghana
0
1994
2001
2002
Year
2003
2004
Malawi
Botswana
US-Africa Trade Data
Textile and Apparel Value (1,000 dollars)
500000
Lesotho
US Dollars
400000
Kenya
300000
Madagascar
Swaziland
200000
South Africa
100000
Mauritius
Namibia
0
2002
2003
Year
2004
Ghana
Malawi
China’s textile industry is growing and
getting ready to compete
• Main organizations are:
– China National Council of Textile Industry
– Local textile industry co-operatives (state-run organizations)
– 50%of its textile and 25% of its apparel sector are state-owned.
• More that 56.000 factories.
– 90% MSE (Medium Small Enterprises) from 100 to 2000 employees.
Total number of employees around 13 million.
• China's textile industry is mainly based on both natural fibers,
such as cotton, wool, jute, mulberry worm silk, hair, etc., and
synthetic fibers. Some 80% of the fiber used is cotton.
• China is the world’s largest producer of cotton and the largest
importer too.
• China heavily depends on the imports of man-made fibers
China’s textile industry is growing and
getting ready to compete.
• The technology and techniques used in China's textile industry
are in most of the cases at the level of the Europe-American
textile industries in the 1970s' and1980s'.
• Energy consumption per unit of production is 2 times of that of
the developed countries.
• The average production efficiency varies from 1/3 to 1/8 of the
level of developed countries.
• Most Chinese manufacturers upgrade textile equipment every 5
to 10 years.
China’s textile industry is growing and
getting ready to compete.
• In order to survive in today's intensive market competition, the
textile enterprises are paying more attention to the technical
training of their workers and are showing great interest in new
technology research & development.
– 35 billion invested in the last four years in technology.
– Government subsidies to sector development.
• Four channels are now available in China for the enterprises to
track technology developments:
– divisions of technology development within companies
– industry associations
– technical publications
– co-operation with foreign companies (preferred).
China’s advantages overcome threats and
give them competitive advantage
• Advantages
– low labor costs
• China 0,57 USD/hour, average.
– available raw materials.
• Cotton producer and preferred market to exporters.
– low cost of operations.
• Power is cheaper in China, average 6,04 cents per KwH.
– Large Internal Market.
• 1.2 billion people.
– the pegging of the Renminbi, which is estimated to be 40%
undervalued (artificial cost advantage)
– Growth in communications infrastructure.
– Logistics efficiency have been increasing.
China’s advantages overcome threats and
give them competitive advantage
• Disadvantages
– Labor costs is cheaper in some other Asian countries:
• Pakistan 0,39 USD/hour
• Sri Lanka 0,37 USD/hour
• Bangladesh 0,23 USD/hour
• Indonesia 0,34 USD/hour
– The financial situation of the textile industry is cause for concern. Its
financial difficulties may be solved by external investment/cooperation and by adjusting the scale and structure of production.
− Few textile industry have biological treatment facilities, even
though the problem of water pollution is well recognized.
textile industry wastewater treated by single chemical method
commonly used can not contribute very much to meeting
water discharge standards.
China’s main challenges
• Flexibility in production (e.g., adaptation to
market changes);
• Precision in execution (e.g., quality);
• Reduction of costs, through improved
management and automation, rather than an
increase in size.
• Environmental requirements (Kyoto treat)
Strengths and Weaknesses of African
Textile Markets
• With the elimination of quotas, there are bound to be winners and
losers.
• Competing factors will be Labor cost, Price, Quality, Market
Orientation ( Commodity-type production vs. high fashion content),
Market proximity and responsiveness ( competitiveness through short
lead times), Quick Response.
Quick Response
Strategic layout of Operations, Time sensitive production
scheduling, Development of metrics to measure/guide
various levels of operations, Integration of compatible
Information technology, Use of time-definite and cost
effective modes of transportation.
Key Impacts of Quota Elimination
– Competitiveness: Low labor cost, solid infrastructure,
telecommunication, and product quality.
– Textile and clothing trade becoming increasingly based on
principles of free trade rather than market restriction.
– Lead times and proximity to market will become
increasingly important, and may become a differentiating
factor that will mitigate negative impacts of quota
removal.
– Linguistic and Cultural barriers, between key importing
countries.
−Safeguard mechanisms, available to all WTO members
as a trade remedy against severe market disruption
RECOMMENDATIONS
An Analysis on the
Effect of the
Elimination of
Quotas on Global
Textile Trade
RECOMMENDATIONS
 As WTO members, African countries have recourse to
instruments that provide the right of any WTO member
to impose anti-dumping measures against products that
exporters sell for significantly less abroad than
domestically. Under China’s WTO accession
agreement, importing countries may limit the
growth in Chinese imports to 7.5% per annum until
2008. This allows WTO member states to impose
temporary restrictions against Chinese textile exports
they believe to be disrupting their markets.
RECOMMENDATIONS
 AGOA countries may benefit from tariff preferences,
which could make up for their poor competitiveness. In
this context, AGOA beneficiaries may continue to enjoy
more favorable access to the US market. It is imperative
that “African countries develop their capabilities and
implement appropriate policies to optimally exploit
AGOA benefits” (Soko, saiia.org.za).
RECOMMENDATIONS
 African countries should see China more as an opportunity rather than a
threat. China's insatiable demand for commodities, for example, has
played a key role in South Africa's recent economic boom, with the
economy posting a 5% growth in the third quarter of 2004. Mineral
products and base metals make up over 60% of South Africa's overall
exports to China.
 China become the world's second largest oil consumer, it has also
become a huge importer of cotton (33% of world consumption), ironore and other commodities.
 China has been in negotiations with some African states to
provide zero-tariff access for some of their goods destined for
Chinese markets in return for fewer obstacles to Chinese
investment on the continent. Trade between China and Africa
grew from $10.6 billion in 2000 to $12.39 billion in 2002, and
rose further to $13.39 billion for the first nine months of 2003.
RECOMMENDATIONS
 African governments have an obligation to help their
private sectors adjust to new conditions to retain their
competitiveness. In this respect, they could learn from
countries such as Bangladesh, whose government joined
forces with domestic entrepreneurs, labor unions and
non-governmental organizations to implement projects
designed to offset possible implications of the MFA
phase-out. These en-compass skills upgrading and the
retraining of displaced workers.
RECOMMENDATIONS
 Multilateral agencies such as the World Bank, the
International Monetary Fund and the WTO also have a
critical role to play in providing aid and enhancing
technical assistance to countries that are likely to feel the
impact of the MFA phase-out most. Special and
differential treatment should be extended to developing
countries most at risk. These countries should be
encouraged to reduce their dependency on clothing
exports and to diversify their economies. (saiia.org.za)
REFERENCES
•
•
•
•
•
•
•
•
AGOA.info (2004). AGOA trade data. www.AGOA.info
http://www.agoa.info/index.php?view=trade_stats&story=apparel_trade
Kathurina, S., Martin, W. and Bhardwaj, A. 2001. Implications for South Asian Countries for Abolishing
the Multifibre Arrangement. Washington, DC.: World Bank.
http://econ.worldbank.org/files/2729_wps2721.pdf
Trade Pact Expiry Weaves Worry for Global Textile Industry http://www.saiia.org.za/
WTO. 2004c. International Trade Statistics 2003.
http://www.wto.org/english/res_e/statis_e/its2003_e/its03_bysector_e.htm
WTO. 2004d. The Global Textile and Clothing Industry post the Agreement on Textiles and
Clothing. Geneva: ERSD, WTO.
Textiles and clothing: Reflections on the sector’s integration into the post-quota environment. Naumann,
Tralac Publication. March 2005. www.tralac.org
PricewaterhouseCoopers. 2004. Sourcing Overseas for the Retail Sector. United Kingdom.
EU warns China on textile exports http://news.bbc.co.uk