The recent reintroduction of trade restrictions by the US and EU has been nothing short of hypocritical argues Niki Tait - although perhaps not surprising given events in the run-up to the abolition of quotas on 1 January 2005. In the first part of a two-part article, she asks whether free trade is losing steam.

Global trade in apparel and textiles has increased 60-fold during the past 40 years. Labour-intensive apparel exports have grown more rapidly than textile exports, and today apparel accounts for more than half (57 per cent) of the total trade.

In 2003, apparel and textile exports totalled about US$421 billion. The US is the world's largest importer, accounting for 22 per cent of world imports (2003), followed by the EU, which imported 20 per cent.

Forty years ago, the industrialised countries dominated global exports in this area. Today, more than 140 economies produce apparel and textiles for export, and many are highly dependent on these exports for employment and foreign exchange. In fact, developing countries now produce half of the world's textile exports and nearly three-quarters of world apparel exports.

For nearly half a century industrialised countries managed to protect their markets against developing-country exports. A series of short-term protectionist agreements culminated in the 1974-1994 Multi-Fibre Arrangement (MFA), which allowed industrialised countries to apply quotas unilaterally on textiles and clothing goods from exporting countries. This was complemented by high tariffs and other trade barriers.

The Agreement on Textiles and Clothing (ATC) came into force on 1 January 1995. It laid down procedures for the gradual phasing-out of quotas on textile and clothing exports over a ten-year period. Western markets would therefore have time to adapt to quota-free trade by 1 January 2005, the date when all quotas would be removed.

Despite pressures from importing countries to delay the implementation of ATC promises, their governments went ahead and notified the World Trade Organisation (WTO) of their intention to lift all remaining quotas by the end of 2004.

It was fair to assume, therefore, that from the beginning of 2005 there would be free trade throughout the world market for textiles and apparel products.

Protectionist tools
For western nations who supposedly advocate freedom, free trade and help for developing nations, the recent reintroduction by the EU and US of quotas on textiles and clothing imports from China has been nothing short of hypocritical.

However it is perhaps not surprising. The Agreement on Textiles and Clothing included a special 'Transitional Safeguard' mechanism which WTO members could use to restrict imports from individual countries during the phase-out period.

However, according to a survey by Oxfam this was heavily abused, particularly by the USA, which used it to block imports no fewer than 27 times. Moreover, the USA refused to lift safeguard defences, even when specifically instructed to do so by the Textiles Monitoring Body, the body responsible for ATC.

It is also alleged that the EU, although it did not use the ATC safeguard clause, exploited conventional WTO mechanisms. From 1994 to 2001, the European Commission was the biggest user of anti-dumping and anti-subsidy actions, accounting for 64 initiations in the textile sector alone. Of these, 57 were targeted against developing countries.

In 1997, for example, the EU began imposing extra duties on Indian bed linen, claiming that it was being 'dumped' in the European market. The dispute at the WTO was finally decided in India's favour in 2001, but by that time exports of bed linen had fallen considerably - from $127 million in 1998 to $91 million in 2001.

During this period one company alone saw its revenue fall by more than 60 per cent and was forced to cut more than 1,000 jobs. However, although the WTO ruled in favour of India the EU merely altered the terms of the complaint slightly and reapplied the duties.

Anti-dumping measures as protectionist tools are highly effective: they take a long time to resolve, impose heavy costs of arbitration, and can be prolonged by small changes to the case.

Facial notion
The idea that limiting imports from China is going to save western jobs is another facial notion. The rich nations have out-priced themselves and have no chance of sustaining a clothing industry in the cost sensitive, highly competitive, labour intensive global market.

All that will happen is that if companies in the US and EU cannot buy from China they will go instead to China's competitors - other developing countries with well developed clothing industries.

The renegotiation of the EU-China quotas came on the eve of billions of Euros worth of sales from the EU to China, including ten new super-jumbo aeroplanes, and while the giant EU retailers were fighting for their goods to be released from customs ready for Christmas business. No protectionism of EU textile or clothing production jobs there!

If western consumers did not want products at the price and quality produced by China they would not buy them, the buyers would not order them, and the Chinese would not make them: the basic rules of supply and demand.

The end of quotas was hardly a surprise given that the whole world has had ten years to prepare.

Chinese export companies, which were heavily restricted by lack of quota availability, have spent millions of dollars upgrading and expanding their businesses to take advantage of increased trade. They have employed millions of new people, bringing them from their homes thousands of miles away.

Suddenly western governments apply new quotas and the Chinese companies get no work, the employees are laid off, the orders go to Sri Lanka, India and Thailand. No-one in the West benefits.

Meanwhile, the other developing countries expand their industries to take account of new trade. Eventually the so-called quota protection comes off, orders revert back to China and the newly employed factory workers in the other developing countries then lose their jobs.

A recent IMF/World Bank study estimates that for every job protected in rich countries, around 35 have been lost in poor countries.

But even if China and India are the main beneficiaries of quota phase-out, the potential impact on poverty reduction from these countries' gains is still considerable given that their joint populations constitute more than 2.3 billion people, of whom 563 million live in abject poverty.

Shouldering responsibility
Developed countries must share some responsibility for the developing nations they have been using for years to gain access to cheap labour markets. Many developing countries have boosted their own infrastructures with these foreign earnings and have also built labour intensive industries capable of providing much employment - which in turn helps to reduce poverty.

The apparel and textile industries have played an especially important role in the export-oriented development of East Asia, initially in Hong Kong, Singapore, Taiwan, South Korea and Malaysia, and more recently in China, Indonesia, Thailand and Vietnam.

For example, one quarter of a million Cambodians are employed in the garment industry, and a multiple of that number is employed in supporting sectors. Workers are mainly women from rural villages; the wages they send home sustain an estimated 20 per cent of the country's 13 million people.

Cambodian garment exports have grown over the past decade, from $26 million in 1995 to $1.6 billion in 2004 and now account for nearly 80 per cent of the country's merchandise exports. Most factories belong to foreign owners, mainly from China, Hong Kong, Taiwan, and Korea.

All garment production is sold for export, most to the United States which buys roughly two-thirds of Cambodia's exports, and the European Union which buys much of the rest. As much as one-third of Cambodia's garments are manufactured for one brand label client, The Gap, while other brand labels figure prominently in Cambodia's production for export.

All of which makes Cambodia extremely vulnerable to any changes in global buying policies.

In 2003, apparel and textile exports combined accounted for more than 80 per cent of total merchandise exports in Cambodia, Haiti, Bangladesh and Macao (China); 70 per cent in Pakistan and Lesotho; and 50 per cent to 60 per cent in Mauritius, Sri Lanka, Tokelau and Nepal.

In another five countries, such exports accounted for more than a third of total merchandise exports.

click table to enlarge

To read part 2 of this article, click here

Niki Tait, C.Text FTI, FCFI heads Apparel Solutions, which provides independent assistance to the apparel industry in the areas of manufacturing methods, industrial engineering, information technology and quick response.