China to sew up Asian rivals when textile quota end

China to sew up Asian rivals when textile quota end

Karl Malakunas
Agence France-Presse
Singapore

Many of Asia's poorest nations are unprepared for the imminent
end of a quota system governing global textile and clothing
exports with widespread job losses inevitable as companies shift
operations to China, analysts and industry players say.

Less competitive nations such as Bangladesh, Nepal, the
Philippines, Cambodia and Indonesia are set to lose significant
proportions of their garment and textile manufacturing industries
-- vital cogs in their economies -- as the multi-fibre agreement
is phased out by January next year.

The multi fibre agreement, established in 1975, allocates
quotas of clothing and textiles that developing nations with
cheap labor can export to rich countries.

It has had the effect of giving a guaranteed market for not
only Asian nations, but also Eastern Europe and Mexico, to the
United States and Western Europe.

It has also harnessed China's expansion potential in the
textile and clothing industry but experts say that with the leash
taken off in 2005, the world's most populous nation will quickly
dominate the export market.

A study by McKinsey consultants for DHL released in India this
month showed China could account for half the world's clothing
and textile exports by 2008, up from 21.6 percent in 2000.

The rest of Asia would see their share of the world trade fall
to 20.1 percent in 2008 from 31.9 percent in 2000, according to
the report.

The rest of the world would suffer an even bigger decline,
from 45.7 percent of the market in 2000 to 29.4 percent in 2008.

"Many commentators have expressed concern that China will wipe
out less competitive exporting countries," the McKinsey report
said.

A report last year from the Institute of World Economics' Dean
Spinanger and Oxfam South Asia policy adviser Samar Verma gave
striking examples of what trends clothing-export nations can
expect from 2005.

The report highlighted China's emergence as the world's
biggest supplier of bras, which the United States had removed
from quota restrictions, within just 18 months after joining the
World Trade Organization in November 2001.

China's share of the bra export market jumped from about seven
percent in 2001 to over 20 percent by the end of 2002, according
to Spinanger and Verma.

However China's rapid domination of the bra export market led
to the United States famously re-introducing export quotas on
China for bras, knit fabrics and dressing gowns in November last
year, sparking a bilateral trade row.

McKinsey and other experts say the U.S. reaction to China's
export power in bras could set a precedent for how it will handle
the Asian giant's domination of other clothing sectors from 2005.

"(Some commentators) believe that the U.S. and Europe will not
allow an animal the size of China to run wild and will use
available mechanisms to at least slow sourcing to China," the
McKinsey report said.

Under World Trade Organization rules, the United States and
the European Union can restrict Chinese exports under two
separate types of "safeguard mechanisms" that can be used until
2008 and 2013 respectively.

Under these scenarios, McKinsey says China might be restricted
to just 30.9 percent of the global export market in 2008.

However McKinsey highlights that restricting China would have
a major impact on the size of the global textile and clothing
trade.

If China is allowed to trade freely in textiles and clothing,
global exports will be worth US$248 billion in 2008 from $166
billion in 2000. If not, global exports will be just $207 billion
in 2008.

Regardless of China's strength, nations that have been
protected by the quota system and have been able to operate
inefficiently will undoubtedly suffer.