China is set to dominate
the world textile and apparel industry, grabbing a significant share of
the market from many developing countries once quotas are lifted at
year-end, according to a widely awaited report released Tuesday.
The report by the U.S.
International Trade Commission details the dramatic changes expected after
Dec. 31, when worldwide apparel and textile quotas will be completely
phased out.
As predicted by many, the elimination of quotas –
which guarantee market share to certain countries in products ranging
from baby garments to luggage – is expected to accelerate the shift
of apparel manufacturing to low-cost and efficient producers in China
and India. That could be devastating to less competitive countries
in Southeast Asia, Latin America and Africa that employ millions of
workers in the industry, according to the report.
Economists say it also probably will accelerate the
loss of jobs from higher-cost U.S. clothing
manufacturers, including some in Southern California. But it will lower
prices for retailers and other importers, which can pass along those
savings to consumers.
The ITC report probably will
fuel an election-year push by U.S. manufacturers
for increased protection from China. Last year, the Bush administration
agreed to impose restrictions on the import of Chinese-made bras, dressing
gowns and knit fabric. Domestic manufacturers are hoping the government
will pressure China to limit its textile and apparel exports after the
quotas end.
“It’s very sobering,” said
Cass Johnson, senior vice president of the American Textile Manufacturers
Institute in Washington. “This is more evidence that we need the
government to address the disaster that’s going to happen.”
U.S. manufacturers are waging
a fierce campaign in election-year battlegrounds in the South that have
been hit hard by cutbacks in textile and apparel manufacturing. They say
tens of thousands of more jobs will be lost if China’s low-cost firms are
set loose on the global market without restraints.
The effect already is being felt around the globe,
as foreign governments and companies scramble to reinvent themselves. U.S.
companies are restructuring their supply chains. Poor countries such as
Mauritius, which employs 80,000 people in textiles, are struggling to
develop new industries. Hong Kong quota traders are trying to figure out
their next line of work.
The repercussions will be felt in Los Angeles
County, where apparel manufacturing employment has fallen from a peak of
103,900 in 1996 to 67,800 in 2002, according to the Los Angeles
County Economic Development Corp. On the flip side, China’s booming
textile producers have become top customers for California cotton growers.
The quota system stems from the history of textile
and apparel production as one of the world’s most heavily
protected industries. To protect their domestic manufacturers, the
U.S. and many other governments issued quotas
that set annual allotments for imports from apparel and textile producing
countries. Under pressure to eliminate those barriers, the World Trade
Organization negotiated the Agreement on Textiles and Clothing in 1994.
That pact was designed to gradually phase out quotas over a
10-year period.
With their market share guaranteed under quotas,
certain countries developed textile and apparel industries. Those
countries now are threatened by the quota phase out.
The report, requested by the U.S.
trade representative’s office, doesn’t analyze the effect of the quota
phaseout on the U.S. manufacturing sector or on
consumer prices. But it does conclude that China is expected to become the
“supplier of choice” for most U.S. importers
because of its “ability to make almost any type of textile and apparel
product at any quality level at a competitive price.”
China’s capabilities can be seen in areas where quotas
don’t exist or have been lifted. In Japan, which doesn’t have quotas,
China had 77% of the apparel import market in 2001, the report
says. China’s share of the U.S. baby garment
market rose from 3% in 2001 to 27% in 2002 after quotas were lifted in
that segment.
China’s low labor costs and high productivity are
the biggest factors behind its likely dominance of this industry,
the report says. Although other countries have lower wages, China’s
base of modern factories, a growing number of suppliers and increasingly
efficient shipping networks have made it difficult for other countries
to compete.
China will not be the only player left standing,
however. The report notes that U.S. importers
are leery of becoming too dependent on one country, and also are fearful
of getting caught in a trade battle between the U.S.
and China.
That means retailers will be placing orders in
other countries, with India and Pakistan probable beneficiaries.
U.S. importers argue China is
being used as a scapegoat by U.S. manufacturers
that are uncompetitive because of their high costs and rising wages. They
disagree with the charge that a recent surge of Chinese imports has
devastated the U.S. manufacturing base,
given the decades-long movement of labor-intensive manufacturing offshore.
Though they agree that China will become a more
significant force in the global apparel and textile industry next year,
they say other countries will remain competitive because of long-standing
relationships with U.S. buyers and the
importance placed on diversification.
“Companies don’t want to be
diversified in 35 countries and they don’t want to be limited to one,”
said Brenda Jacobs, counsel for the U.S. Assn.
of Importers of Textiles and Apparel, a Washington trade group. “That
gives you too little leverage. It exposes you to too many factors outside
of your control.”
Importers agree, however, that the biggest losers in
a quota-free world are countries with higher labor rates or inefficient
manufacturing operations and transportation networks. Delivery time is
critical, which gives regions closer to the U.S.
an advantage.
But even Mexico, which has been one of the
U.S.’ leading suppliers of jeans and T-shirts,
is expected to lose ground because of lagging competitiveness.
