Textile industry struggles ahead of quota termination<\/p>\n
Zakki P. Hakim
\nThe Jakarta Post\/Jakarta<\/p>\n
The popular issue blanketing the textile and clothing industry,
\nboth at home and overseas, throughout the year 2004 was the
\ntermination of the global textile quota system.<\/p>\n
Producer countries, including Indonesia, are worried that they
\nwill lose significant market share, especially to China's cheaper
\nproducts, when the Multi Fiber Agreement (MFA) is terminated on
\nJan. 1 next year.<\/p>\n
In a world without MFA all exporters are supposed to enjoy
\nfreer market access to the major textile and clothing markets:
\nthe United States and European Union (EU).<\/p>\n
However, many nations are worried that their economically
\nimportant textile and clothing manufacturing sectors will become
\nsunset industries, believing the sun will rise in China.<\/p>\n
Studies have shown that China will benefit most from the quota
\nsystem elimination, thanks to cheaper labor, more efficient
\nproduction and better integrated infrastructure.<\/p>\n
A World Trade Organization (WTO) paper shows that after the
\nremoval of the quota system, China could gradually expand its
\nshare in the U.S. garment market to 50 percent from the current
\n16 percent.<\/p>\n
Meanwhile, Indonesia would have its market share cut to 2
\npercent from 4 percent. Thus Indonesia could lose 50 percent of
\nits market share in the U.S..<\/p>\n
These numbers illustrate the \"catastrophe\" that Indonesia's
\ntextile industry may face once the quota system is removed,
\nprompting some to suggest that Indonesia should join other
\ncountries in lobbying the WTO for an extension of the MFA.<\/p>\n
Observers have criticized both the government and industry
\nplayers for not being better prepared to cope with the imminent
\nMFA termination, as the matter had actually been decided a decade
\nago.<\/p>\n
The WTO paper shows that China would also dominate EU's fabric
\nand yarn market, and also its apparel market.<\/p>\n
The WTO forecasts that Indonesia could still enjoy a higher
\nshare of the EU's fabric and yarn market, from 4 percent to 5
\npercent in the post quota system.<\/p>\n
Others think that 2005 may turn out to be not all that
\ncatastrophic.<\/p>\n
An industry player said mid-year that the quota system had
\nonly hampered his company's plans to expand its exports. The MFA
\nremoval would only \"kill\" unhealthy firms that had become overly
\ndependent upon the quota system, he said.<\/p>\n
His company is the publicly listed PT Great River
\nInternational -- a garment manufacturer, retailer and exporter --
\nthat recently projected a 43 percent increase in output to 20
\nmillion units next year, as it received new orders from France,
\nGerman, Japan and the U.S.<\/p>\n
Great River president director Sunjoto Tanudjaja, said that
\nthe company planned to recruit an additional 3,000 workers next
\nyear to strengthen its current workforce of 11,000 employees.<\/p>\n
Nevertheless, he said that to facilitate the company's
\nexpansion plans, the government needs to continue improve the
\ndomestic investment climate by, among others things, providing
\npolitical stability, conducive regulations and a business
\nfriendly environment.<\/p>\n
Industry players have recommended that the government
\nimplement a short term plan to overcome various problems such as
\nthe volatile currency, high labor costs due to sharp increases in
\nminimum wages and the controversial severance pay ruling, poor
\ntax administration, and poor implementation of regional autonomy.<\/p>\n
A government survey, though, showed that what the industry
\nneeds is not only a better business climate but also capital to
\npurchase new machinery.<\/p>\n
The survey revealed that nearly 20 percent of 4,109 companies
\nsurveyed between 2001 and July 2004 needed to replace their old
\nand inefficient machinery, which would cost at least US$505
\nmillion.<\/p>\n
The need for such restructuring is urgent, as production
\ncapacity has declined from 84 percent in 1999 to only 65 percent
\nin 2003.<\/p>\n
The government has lobbied bankers to channel more of their
\nfunds into the troubled textile sector.<\/p>\n
The effort seemed to have borne fruit when a dozen private
\nbanks eventually approached the textile manufacturers in October
\nto find out how they could assist with financing.<\/p>\n
Moreover, the government has also sought the help from
\noverseas financing sources, particularly in China, to help
\nfinance the restructuring of the local textile industry.<\/p>\n
The industry, which absorbs 1.2 million workers, was the
\nsecond-largest contributor to foreign exchange earnings among
\nnon-oil and gas industries last year, after the electronics
\nindustry, with an export value of $7.03 billion, or 16.22 percent
\nof total non-oil and gas exports last year.<\/p>\n
Textile and apparel exports to the U.S., meanwhile, reached
\n$2.5 billion or 33 percent of Indonesian total exports to the
\nU.S. in 2002.<\/p>\n
Surely Indonesia does not want to lose share in this lucrative
\nmarket. So why is Indonesia about to lose 50 percent of its
\nmarket share in U.S. apparel market in post quota system?<\/p>\n
The U.S. Agency for International Development (USAID) has the
\nanswer. According to their study, Indonesia pays higher duties
\nthan any other supplier, thus faces the risk of losing out to
\ncompetition in the U.S. market.<\/p>\n
This is because most of the country's apparel products
\nexported to the U.S. coincidentally fall into categories with
\nhigh import duties.<\/p>\n
The Ministry of Industry acknowledged that Indonesia exported
\nmuch synthetic fiber-based apparel products that has to pay
\nhigher import duties as compared to garments made from natural
\nmaterials.<\/p>\n
The USAID said Indonesia should have pursued a preferential
\nreduction for those groups of goods long before the elimination
\nof quota system.<\/p>\n
Meanwhile, officials at the Ministry of Industry said they
\nwould encourage manufacturers to use more natural materials such
\nas cotton and flax fiber (serat rami).<\/p>\n
The question may well be whether or not it is already too
\nlate, and whether the country's textile industry will be
\n\"naturally selected\" for extinction.<\/p>",
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"sponsor": "Okusi Associates",
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