A new report from the World Trade Organisation (WTO) has predicted that China and India will triple their individual shares of the US clothing market following the lifting of import quotas next year. However, the study also suggests that smaller players might not be as adversely affected as previously believed.

It comes as no surprise that a new study by the World Trade Organisation confirms China is poised to take over 50 per cent or more of worldwide textile and apparel production after quotas are lifted at the beginning of 2005.

The WTO discussion paper on 'The Global Textile and Clothing Industry post the Agreement on Textiles and Clothing' also names India as another major beneficiary of quota elimination. 

Perhaps more surprisingly, the WTO study seems to fly in the face of calculations that previously suggested China will control two-thirds of the world's garment and textile exports.

The report also claims Mexico, the Caribbean, Eastern Europe and North Africa are less likely to be affected by competition from China and India than had been predicted in the past.

These countries offer low labour costs but are near to the EU and United States and are likely to be helped by structural shifts in the fashion industry, the study said.

Fears of Chinese domination
The impact of the end of the 40-year-old quota regime has been heightened by fears that it will allow China to dominate the market even more, with millions of jobs around the world at stake.

The WTO study, however, has not only looked at changes in relative prices and cost competitiveness but has also focused on other factors such as vertical specialisation in the textiles and clothing sector. Here, inputs used in the final product cross borders several times so tariff levels are critical.

This, it says, means "the outcome of the phasing out of quotas will depend much more on the prevailing tariff rates and the preference margins of countries receiving such preferences than is captured by the conventional estimates."

Second, time to market is increasingly important, particularly in the fashion clothing sector, so countries close to the big consumer markets are likely to remain important exporters to the US and EU, and possibly maintain their market shares.

Western consumers now spend less but shop more frequently for ever-changing fashions, forcing the industry to adapt production regularly and bring new designs into stores more swiftly.

This gives an advantage to exporters that can offer the combination of short delivery times and low costs. Their position is boosted even further by preferential access to the markets through regional trade agreements.

The Geneva-based WTO said: "Having a common border with the importer and facing low or zero tariffs have a substantial impact on bilateral trade."

The most likely losers from the abolition of quotas are those located far from the major markets of North America and Western Europe and which have had either tariff and quota-free access to the United States and EU markets, or which have had non-binding quotas.

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Local producers in the EU, the United States and Canada are likely to lose out.

"These producers have enjoyed more than 40 years of "temporary" protection, but nevertheless face a long-term structural decline.

"Thus, adjustment costs due to changing comparative advantage in the textile and clothing sector are not new, and it is not confined to the ATC countries, as the experience of some of the major Asian exporter such as Hong Kong, China; Chinese Taipei and the Republic of Korea shows."

The report also points out that: "Other developing countries are catching up with China in terms of unit labour costs in the textile and clothing sector and China has of yet not shown competitive strength in the design and fashion segments of the markets."

Calculations
According to the WTO report's calculations, which are based on trade data for 2002 - the year before China became a WTO member - China's share of the US clothing market is set to triple from 16 per cent to 50 per cent when quotas are eliminated. India's share is likely to quadruple, from four per cent to 15 percent. Between them, India and China will have a 65 per cent share of the US clothing market.

In textiles the overall effect would be less extreme. China was set to increase its US market share by about 50 per cent, from 11 per cent to 18 per cent. Bangladesh and Sri Lanka would also increase their market shares by almost 50 per cent, but from a very low base.

A similar pattern is likely to be repeated in the European Union's clothing and textiles markets. China is expected to increase its share of the clothing market from 18 per cent to 29 per cent the report's projection indicated. India would grow from 6 per cent to 9 per cent. Bangladesh, Poland, Morocco and Turkey would all lose market share.

Growing opposition
Opposition to the ending of quotas has grown in recent months.

The Agreement on Textiles and Clothing phases out import quotas by 1 January 2005, and was originally meant to benefit poor countries. But as the date looms nearer some 47 countries, fearing an avalanche of Chinese imports, are calling on the WTO to delay liberalisation.

In early August the World Trade Organisation has rejected a call from Mauritius, backed by Bangladesh, for a special emergency session to discuss the end of textile quotas.

But it has agreed to look at ways to continue talks when the Council on Trade and Goods meets in October.

Any suspension of the agreement to end quotas would need the unanimous backing of the WTO's 147 member states.

To read the full report on 'The Global Textile and Clothing Industry post the Agreement on Textiles and Clothing' click here.

By Leonie Barrie.