More risks ahead for textile
industry By Bill Guerin
JAKARTA - On January 1, 2005, a quota system
designed to protect the industrial interests of the
United States and the European Union from a flood of
cheap imports will be abolished. Although meant to be in
the spirit of a new era of free trade and the drive for
liberalization, the move will put the jobs of more than
10 million workers across the developing world at risk,
including thousands in Indonesia's fading textile
industry.
Numerous labor disputes, a flood of
smuggled garments and cheap imports from China, and a
high tariff and duties regime have contributed to the
decline and fall of Indonesia's textile industry.
Moreover, China and India are soon expected to swamp the
global market.
When the World Trade Organization
(WTO) was formed in 1994, members of the organization
agreed to scrap the quota system, implemented under the
Multi-Fiber Arrangements (MFA) in 1980, by 2005.
Textile producers from developing countries have
been able to continue exporting, despite rising
competition, because of the quota system. When this
ends, those who remain inefficient will be sidelined.
Though the quotas have limited imports, this has
been mainly for the biggest producers - especially
China, India and other big Asian textile-producing
countries. When the quotas end, China and India will
benefit most from the massive US and European markets.
In 2001 when quotas were removed on baby clothes, China
tripled its sales as exporters in other regions were
left behind.
Indonesia, Malaysia, Thailand and
Vietnam, as well as Cambodia and Laos more recently, are
the region's major garment producers, exporting to
traditional markets such as the United States, Europe
and Australia, and newly emerging markets such as the
Middle East and Africa. Among their main competitors are
India, China, Bangladesh, Turkey and Mexico.
Indonesia is just one of 43 countries urging the
WTO to convene an emergency meeting to propose a
three-year postponement of the quota removal. If they
fail, as it looks almost certain they will, China will
emerge as the "supplier of choice" of clothes for the
United States; India will be the main alternative, with
other Asian countries such as Indonesia, Pakistan and
Vietnam bringing up the rear, according to a report by
the International Trade Commission (ITC) released this
year.
The removal of the quota barrier is
expected to make it increasingly difficult for the main
textile-exporting countries, such as Indonesia, to
succeed. Retailers will be able to buy as much as they
want from any country, and the US and EU are expected to
impose non-tariff constraints as new barriers.
The World Bank says China's share of the market
could jump from 17% to 45% in the next five years, while
others predict that it will control 70%, or more, of the
market.
When the quota phase-out was first
agreed to in 1995 during the Uruguay Round of trade
talks, China did not figure into the equation. China
only entered the WTO two years ago, though it now
accounts for 40% of the global market.
India
could be the second-largest supplier to the EU and US
markets in the post-quota era, US consultancy firm
McKinsey said in a report published in March.
In
2000, Indonesia achieved a record US$8.2 billion (Rp74.9
trillion) in exports and was ranked 10th among the
largest producing countries. By last year, it was down
to 17th, with exports valued at $6.9 billion, and
accounted for only 2.15% of the $500 billion global
garment trade.
Major brands such as Gap and Nike
are said to be searching China for new suppliers in
anticipation of the demise of the MFA. Their
shareholders and customers, however, are likely to balk
at the grim conditions in China's sweatshops, where
wages are little more than $1 a day, forced overtime is
widespread and workers are crammed into dormitories at
the factories. Nike has already faced allegations of
using child labor and operating sweatshops in Asia.
Leaders from the Chinese textile industry,
meanwhile, have urged the WTO to stick to its pledge to
abolish the quotas as opposition to the move gathers
pace.
"We all have agreed to the rules when
entering the world trade body. If any country asks to
revise the rule as soon as it finds difficulties in
implementation, the world trade order would be a mess,
which is not its aim," Cao Xinyu, deputy director of the
China Chamber of Commerce of Import and Export for
Textiles, the largest organization in the field, with
more than 4,000 members, said last week.
The
Group of 18 - a coalition of US, Canadian and European
retailing, importing and consumer associations - is also
campaigning against any delay and even against a special
global trading session.
Not only developing
countries will feel the pain once quotas are lifted.
Officials of the US textile and apparel manufacturing
industry say ending the quotas could also spell disaster
for textile and apparel industries in the United States.
More than 130 Republican and Democratic members of
Congress asked President George W Bush in June to delay
the phase-out. "The US textile sector, still the largest
manufacturing employer in the United States, stands to
lose almost 650,000 jobs," they claimed.
The
administration rejected the request amid warnings from
industry officials that China and India could swamp the
global market, destroying as many as 30 million jobs
around the world and putting some of the world's poorest
nations at risk. In a letter to Bush, they warned of the
threat from China, accusing it of unfair trade practices
by heavily subsidizing its exports.
The US
government has given notice that all shipments of
textiles and apparel exported in 2004 but arriving there
next year will still be required to satisfy the current
administrative requirements, the Indonesian Ministry of
Industry and Trade said last week.
Sofyan
Wanandi, chairman of the Indonesian Employers
Association, says the end of the quota system could thus
mean a further 150,000 job losses in Indonesia's textile
industry, which now employs about 1.5 million people,
this year alone. The sector employs about 3.5 million
people directly and indirectly.
Numerous labor
disputes over wages, the flood of smuggled garments and
cheap imports from China, and a high tariff and duties
regime not conducive to the development of the sector,
have contributed to the decline and fall of Indonesia's
textile industry. For example, the industry imports
about 90% of its cotton needs, but has to pay a 10%
import duty.
Though unions are now legal in
Indonesia, off-duty police or soldiers meet most strikes
and demonstrations with the tactics of the past - force
and suppression. A "mafia", allegedly aided and abetted
by insiders in the Department of Trade and Industry,
controls the wide-scale illegal trading of quotas
allocated by the government.
Industry players
also blame the decline on the banks' unwillingness to
provide loans for them to replace old machinery.
Despite the doom and gloom, however, the textile
export industry in Indonesia is likely to survive.
Though export levels are well down from the record $8.26
billion at the end of the 1990s, the industry is still
the largest contributor of foreign exchange among the
country's non-oil-and-gas sectors.
Total textile
production in Indonesia is valued at more than $15
billion, and only about a third of textile exports will
be affected by the quota elimination, according to Benny
Soetrisno, head of the Indonesia Textile Association
(API). Non-quota countries still account for 68% of the
country's exports.
Soetrisno said last week that
the prospects for the industry were still good, though
producers of textiles and garments would have to cut
their selling prices by 10-15% to remain competitive in
the international market. He said that the association
for years had been seeking greater market access for the
country's textile products, so the quota elimination was
a step in the right direction.
As the global
market becomes more challenging, Indonesia should also
benefit from the integration of the regional market
starting with the launch of the ASEAN (Association of
Southeast Asian Nations) Free Trade Agreement (AFTA)
last year. This free-market area will further expand in
2010 with the inclusion of South Korea, China and Japan.
Also in 2010, the Asia-Pacific Economic Cooperation
group will lower tariffs on goods exported by low-income
APEC members.
API has pressed the government
commitment to finalize its plan to develop Batam into a
free-trade zone so that all textiles for export could be
shipped from there, and not Singapore as is often the
case. The move would make it considerably cheaper for
producers, and the Riau provincial administration would
enjoy the tax and ensuing economic development, API
argues.
"I've been asked several times, 'Will
our textile industry face a slump?'" Minister of
Industry and Trade Rini Soewandi said in one meeting
with the government WTO negotiation team. "I have always
replied that there will never be a 'sunset' in our
textile industry as we are a country of 220 million
people - how could the industry die?"
Clearly
the minister draws comfort from the size of the domestic
market, but there is no room for complacency over the
fate of the industry as a whole.
"China has the
capacity to clothe virtually the whole world at the
present time. Its textile industry is like a tap that is
about to be turned on to full strength," warned
International Textile, Garment and Leather Workers
Federation general secretary Neil Kearney.
Though it is hardly the remit of a single
minister, industry leaders and experts have long warned
that both business and the government must work hard to
boost the country's competitiveness, ready to face free
competition and globalization. They point to the need
for countries such as Indonesia that benefited from
textile quotas to plan ahead to upgrade their
infrastructure and diversify their economies so the
reforms planned a decade ago, and now about to be
delivered, would prove to provide a long-term benefit
rather than a looming crisis.
Bandung, the
provincial capital of West Java, and once the main
textile and footwear production belt for exports and the
local market, has seen the closure of more than 100
factories over the past two years. Many companies have
moved to China and Vietnam to benefit from the lower
wages and higher productivity common to many of
Indonesia's competitors.
(Copyright 2004 Asia
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