Firms face problems in availing of textile quotas

Zakki P. Hakim, Jakarta

The Indonesian Garment Producers Association (APGI) urged textile and garment makers who have not utilized their export quotas for the U.S. market to let other firms utilize them in a bid to push exports.

APGI chairman Natsir Mansyur said that the companies should return the unutilized quotas to the Ministry of Industry and Trade, which would distribute them to other firms.

"That way we would have a better chance of meeting the quota limit and increasing our total exports," he told The Jakarta Post and Investor Daily on Wednesday.

Natsir said that the utilization rate of the export quota had been very low.

He pointed out as an example that out of the 876,476 dozens of sweaters ordered by the U.S. from Indonesia this year, local manufacturers had so far only been able to export 105,554 dozen, or around 12 percent of the designated quota.

The utilization rate of the export quotas for nightwear and blazers were also relatively low at 16.6 percent and 29.8 percent, respectively, according to data from the U.S. customs office. But the utilization of the quotas for coats and dresses were higher at 58.6 percent and 42.7 percent.

The U.S. is set to terminate the quota system on Jan. 1, 2005. The quota system has benefited Indonesian textile and apparel makers for years as less efficient producers like Indonesia could still export their products to the U.S. without fear of being sidelined by more efficient competitors as long as they had a quota.

There are now fears that the termination of the quota system will spell trouble for inefficient local exporters. The U.S. is one of the country's major export markets.

There are various reasons for the low utilization of the export quota. One reason is that over the past couple of years the country's textile industry has been plagued by a host of problems, including labor conflicts, rising labor costs and aging machinery. Many companies have either gone bankrupt or are producing at below capacity.

The director of the textile industry at the Ministry of Industry and Trade, Luky Hartini, said that dated machinery had reduced the quality of some local products, which in turn discouraged U.S. buyers from buying the products despite the concerned company having a quota.

Some analysts say that corruption and collusion between government officials and crooked businessmen have contributed to the problem of low utilization as some of the quota holders have no textile or garment factory at all. The well-connected people act as rent-seekers trading their export quota to authentic textile companies.

According to data from the Ministry of Industry and Trade, 18.41 percent of the listed textile and garment exporters in 2001 had no factories at all.

Luky said that many companies could not replace their aging machinery as they had been saddled with huge debts and poor cash flows.

Textiles and garments was one of the country's main non-oil and gas export products prior to the financial crisis. The government estimates that textile and apparel exports to increase to US$7.5 billion this year from $7.03 billion last year.