It is becoming increasingly clear that 2005 will bring disaster as the developing-world garment exporters lose market share and the least developed countries suffer catastrophic loss. Here David Birnbaum calls for an open and honest debate on garment export quotas which, he says, would lead to policies to overcome the serious consequences of the quota phase-out.

We are about to enter the homestretch of the ten-year end-of-quota steeplechase. But before the final race for wire, there is one last obstacle - the grand-finale international debate.

On 23 December 2003, the Congressional leaders of the Democratic Party wrote a letter to President Bush suggesting that he convene an international conference of all parties to consider the effects of the quota phase-out on international trade, with an implicit possibility of changing or delaying the quota phase-out.

I for one would favour an open and honest debate. After all we never had one of those.

The decade long Uruguay negotiations to phase-out quota was transmogrified into a moral crusade, where the good-but-poor garment exporters backed by the righteous non-government organisations battled against the rich-and-wicked protectionists from the industrialised garment importing West.

In the entire ten years, no honest effort was ever made to analyse how quotas distort trade or how any scheme to phase out quota would affect world garment imports and exports. The sole strategy of the exporting countries and the NGOs (Non-Governmental Organisations) was to castigate the wealthy nations whose quotas were cheating the poor exporters out of their rightful share of garment sales.

The entire debate took on an old-testament cadence and finally overcame the efforts of the rich garment-importing countries to protect their local industries. In 1994, the industrialised nations finally caved-in, leaving the victorious garment exporting countries with possession of the moral high ground.

Unexpected results in 2005
Like all 'moral' crusades, the quota phase-out negotiations were characterised by high levels of ignorance combined with equally low levels of integrity. Nine years later, the outlook does not look good. The results in 2005 will not be as originally expected.

The winners of the anti-quota crusade are beginning to understand that the victory in Montevideo was no victory at all. It is becoming increasingly clear even to their most ardent supporters, that 2005 will bring disaster as the developing-world garment exporters lose market share and the least developed countries suffer catastrophic loss.

In fact the big winner at Montevideo, perhaps the only winner, will be the one country that wasn't there: China.

The agreement to phase out quota involved almost every country in the world and took ten years to negotiate. It is now a part of the WTO. There is little chance that in this last year remaining before final implementation, a new consensus can be built. Not the least of these problems is the need to convince China to agree to quota re-imposition.

Certainly there is no possibility of any consensus unless all agree to follow two new rules:

  • All parties must deal honestly with the facts as they exist.
  • All parties must act with integrity.

In the end these two rules will ineluctably prove the undoing of any conference, because any attempt to understand what has happened, what will happen, and what must be done to avoid the coming crisis must begin with the 'W' word.

Somebody must stand up and say: We were WRONG.

International trade negotiation
Honesty, integrity, and the admission of past errors are not normally a necessary part of international trade negotiations. However, the crusade to phase-out quota was not a normal trade negotiation.

Here the US and the EU were attacked as not only immoral, but as the apotheosis of greed. In these circumstances, it is impossible for the US or the EU to take the lead to re-impose global garment quotas. Any such attempt would be viewed by many as further evidence of their monumental and implacable greed. In a sense the garment exporting countries and their NGO supporters, having won their crusade, now stand isolated on the moral high ground.

The lead to re-impose quotas must come from those who previously fought to have these same quotas removed. If the US and the EU governments could be seen as responding to the urgent pleas of the developing world, they could support a new quota regime.

Both the US and the EU have politically important domestic constituencies that favour a re-imposition of quota. These include domestic textile and garment industries, labour union movements and anti-globalisation groups.

Given the importance of garment exports to the economies of developing countries, coupled with the almost universal recognition that the garment quota phase-out will devastate those economies, you would think that their governments would make every effort to find a solution. This has not been the case.

You would also think that NGOs who truly and honestly care about the well-being of the people living in these countries would make every effort to find a solution. This too has not been the case.

Thus far, no garment exporting government and no NGO has been able to say they were wrong. Why? Enter the ego. None of us like to admit we are wrong.

Politicians, whose mandates to govern are based on having the right policies, definitely hate being wrong.

For NGOs who see themselves as torchbearers of moral behaviour, being wrong undermines their entire purpose of being. For these organisations to turn around and say that garment quotas are good, is the equivalent of Greenpeace advocating atomic energy or the World Wildlife Fund going into the African safari business. Regardless of cost, this simply cannot be done.

Yet only the politicians from the garment exporting countries who fought to phase out quota have the power to re-impose the quotas. Only the NGOs who branded quotas as morally reprehensible in the first place have the moral suasion to convince others to bring the quotas back.

Ethical dilemma
This is the ethical dilemma facing the governments and the NGOs who brought down the quota system.

Without their support, there will never be a chance to re-impose the global quotas necessary to allow these developing countries to maintain their garment export industries. However, that support depends first on the admission that both governments and NGOs were wrong to force the quota phase-out in the first place.

An open and honest debate may not restore garment export quotas. However, it will do away with the myths that have led us to the present crisis and in doing so allow us to create policies to overcome the serious consequences of the quota phase-out.

There are two myths:

  1. Countries with cheap labour enjoy an absolute competitive advantage.

    This is the myth that brought about the quota phase-out and the resulting crisis. Developing countries and their NGO supporters assumed that the poorest countries, the countries with the lowest labour rates, would benefit in a free market. Too late did they recognise that low labour rates do not equal low labour costs and low labour costs do not equal low garment prices. In fact the countries with the lowest labour rates are the least competitive.
  2. Low FOB prices are the most important factor determining competitive advantage.

This is a more insidious myth because even today, with the crisis less than 12 months away, very few recognise it as untrue and therefore fail to understand the problem. Importers do not go to China for low FOB prices. Chinese garments are not cheap. In fact when US retailers and importers buy made-in-China garments they pay an FOB price premium.

The cheap garment myth has been so easy to believe that few bother to check the detailed statistics which would disprove this myth - statistics which are readily available from the US and EU governments.

The real problem is that in a quota-free world, Chinese manufacturers for the first time will be able to reduce their prices to world average. If US retailers and importers are currently waiting in line to buy more expensive made-in-China garments, what will happen in 11 months when importers can buy all they want from China at reduced prices?

The real debate
Once we discard these myths, we can begin the real debate.

The honest free-trade arguments - the arguments against quota - are well known and soundly based:

  • Quotas distort the market. They allow inefficient producers to prosper at the expense of the efficient producers;
  • Quotas are a form of corruption. The quota premiums seldom to go to those directly involved in the production process but rather to parasites such as those who are politically connected;
  • Quotas add an enormous cost to the garment which is ultimately borne by the consumer in the form of higher retail prices. The quota phase-out will lead to retail garment price reductions for imported garments of over 30 per cent.

The honest fair-trade arguments - the arguments for a re-imposition of quota - are unfortunately not as well known but are still soundly based:

  • Export garment manufacturing (together with agriculture) is one of the very few industries open to developing countries. It is not only a first stage in industrial evelopment but also the first step into the international trade arena;
  • The least developed countries, the ones which have greatest need to develop garment export industries, are the least able to compete. These countries cannot survive in a free and open market;
  • If we want these countries to move up the development ladder we must institute some form of affirmative action;
  • Duty-free access will not suffice. Survival requires quantitative restrictions.

These are the arguments and the parameters for debate. What remains outside are only the half-truths, quarter-truths and the total lies that characterised the ten-year moral crusade in Montevideo.

Those involved, the garment exporting countries and particularly their NGO supporters, are desperately looking for a way out of the coming crisis. Only the US and the other industrialised countries can create a solution.

However, the first step must be taken by those who fought so hard to win the Montevideo battle. They must have the courage to stand up and say: "We were WRONG and that wrong must somehow be undone."

By David Birnbaum.