Comment: Changing patterns in global garment imports
Is the era of ever-decreasing FOB prices coming to an end?
Rising GDP and falling FOB prices have contributed to a shift in global garment imports over the past 15 years. But will these trends continue in the future? asks David Birnbaum.
When we consider global garment imports, we tend to think of the US and the EU as the dominant players, with everyone else in secondary positions. This is undeniably true. However, for the past 15 years that dominance has been eroding.
In 2000, the US and EU accounted for 54% of global garment imports. If we include intra-EU trade — such as German imports from Italy — that figure rises to 76%. In the same year, imports to the top four countries — EU, US, Japan and Canada — accounted for 66% of total imports.
Skip ahead to 2013, the latest year for which WTO data is available. The US/EU position moves down from 54% to 40%, and the top four from 66% to 50%. What happened?
Clearly, much of the change is due to rising GDP in other countries. For example, from 2000-2013 imports into Russia rose from almost nothing to $9bn per year, an increase of almost 2000%. During the same period Korean garment imports increased by 148%, United Arab Emirates by 102% and China by 92%.
|Global Garment Imports: 2000-2013|
Rising GDP tells only for the first half the story.
During the same period, US market share declined by 42% — from 34% to 20%. This cannot be due to any increase in domestic garment production. In fact for the past two decades, US domestic production has been in a state of free-fall to the point when imports now account for 98% of all garment retail sales.
The answer is declining FOB prices. From 2000 to 2013, average FOB prices measured in square metre equivalents (SME) fell from $3.57 to $3.21. This trend has continued until the year to date (YTD) March 2015, with current FOB prices averaging $3.12 — a decline of 12.5% when compared with 2000.
This leaves us with the all-important question: Will these trends continue in the future?
The era of ever-decreasing FOB prices may well be at an end because the causes of that decline might no longer exist:
- Recession: The 2008 recession acted to force down FOB prices. While recovery may be long in coming, at some point increased demand will allow FOB prices to rise.
- China: Higher productivity coupled with its dominant global market share not only reduced FOB prices for made-in-China garments but forced factories everywhere to reduce their prices in order to compete with China. However, there is a limit beyond which rising costs can no longer be compensated by increased productivity.
- The move towards lower value garments — less expensive materials requiring fewer standard minutes sewing — has automatically resulted in lower FOB prices. Here too we have reached a limit. Consumers seem less willing to accept lower value garments, even when coupled with reduced retail prices.
All things being equal, rising GDP brings increased imports. However, once again the garment industry is different.
- Garment exporting is not only ubiquitous; it is also the first stage of economic development. Garments are produced almost everywhere in the developing world, and almost everywhere in the developing world governments want to ensure that their industry is protected from imports. As a result, garments is probably the most highly protected product group in the world. Unless this policy changes, rising GDP will have little effect on garment imports.
- Both garment exporting countries and garment importing countries have vested interests in maintaining the present system of free trade for the few and high tariff barriers for the many.
- Garment exporters in developing countries see duty-free agreements with industrialised countries as an entitlement. "We are poor struggling countries, you must assist us by providing duty-free access for our garments."
- Garment importing countries see duty-free agreements as rewards for the deserving and advantages for friends and strategic partners:
- The EU offers benefits to countries with democratic governments and/or good human rights records;
- The US offers benefits to Middle-Eastern strategic partners, or Western Hemisphere neighbours.
No one favours a global free trade garment agreement because such an agreement would undermine the social and political advantages to the present system.
There are exceptions
Clearly the EU is far more liberal than the US in allowing duty-free imports, which paradoxically accounts for the fact that over 50% of all garments sold in the EU are of EU origin, compared with the 2% market share for made-in US garments sold in the US.
China is indeed reducing garment import restrictions as a means of encouraging greater consumer spending, which will have a positive effect on the global garment trade.
The TPP (Trans-Pacific Partnership) will increase garment trade to almost all TPP members. The sole exception being the US which physically cannot increase import market share any further.
The most recent data from the US would indicate that as of 2011, FOB prices particularly to the US have finally begun to stabilise — mostly the result of changes in China.
At the same — with the notable exception of China — we cannot expect garment imports to developing countries to increase.
All things considered, the question of changing trends remains unanswered. The best guess is that we can expect little change in either direction.
One point is clear: Yet again, when it comes to the global garment industry, everything depends on China.
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