T

1

• TC Trade Challenges
• for Latin America
• The ATC Ended
• Is TC a Normal Sector?
• Presentation by
• Mr. Matthias KNAPPE
• ALADI Secretariat Montevideo, Uruguay, 25-26 May
  2005

2
TC is not (yet) a Normal Sector for Business

• Purely rules-related TC is a normal sector
• But
• Non-optimal preparation for competition despite
  10 years anticipation
• Industry is swimming and a new competition wave
  is expected with DDA
• Present concerns distract from DDA
• No special treatment anymore (1 classroom)

3
Structure

• TC Trade
• in Latin
• America

7 Challenges For LA
Finding Responses
4
Characteristics of TC industry in South America

• Poor market diversification mainly to US
• Poor product diversification underwear,
  knit-shirts, trousers nightwear
• Mainly CMT/maquila  full-package  to be
  developed only few countries are vertically
  integrated
• Poor linkage between foreign investors local
  industry
• Insufficient use of regional opportunities

5
US Imports 1st Quarter 2005

• Jan Feb strong, March lower growth
• China up 107 for apparel but strong increase
  in key cotton products (338/9) 1257 347/8
  1521 352 308
• But strong growth from preferential suppliers
  (CAFTAknit Andean knit woven focus is on
  duties rather shifts within than between regions
  
• But how reliable is the data e.g. EU confusion

For Jan/Feb 2005 Source OTEXA
6
TC Exports from ALADI Countries in 2003
7
US Imports from ALADI 3 year comparison
8
US Import changes from ALADI 2004- 2005
9
US Imports from ALADI in 2004
10
US Apparel Imports by Region
Source OTEXA and emergingtextiles.com
11
US Apparel Imports by Region
Source OTEXA and emergingtextiles.com
12
Structure

• TC Trade
• in Latin
• America

7 Challenges For LA
Finding Responses
13
World Garment Exports Declining Growth Rates
Source WTO idea D. Birnbaum
14
1. Prices will fall furtherMore supply and quota
rents are gone
Source Robin Anson, Director Textiles
Intelligence ITMF, Dresden October 2003
www.textilesintelligence.com and Textile Outlook
International No. 110 March-April 2004
15
US Apparel Imports Unit Value Jan 05 to Jan 04
China prices down 9 on average but up to 50 in
key products in US (35 in EU)
Source OTEXA
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US Apparel Imports Unit Value Jan 05 to Jan 04
Source OTEXA
17
2. Country Enterprise Consolidation
Source US Department of Commerce Report to the
Congressional Textile Caucus on the
administrations efforts on textile issues
Washington, September 2002
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Changing Enterprise Requirements

• Mega companies or smaller flexible firms gt
• Supplier has more responsibility
• Speed to market counts (standard apparel timely
  replenishment fashion apparel quick response)
• Trade policy and foreign investor response were
  key for apparel export development in many LDCs

19
Mega CompaniesGlobal Process for a Dress Shirt
Selected by fabric mill quality is fine
Vertical setup by fabric mill
Good relationship good in piece dye
Major shirt factory in TAL
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3. China as a WTO Member Major Player

• US clothing imports from China 2002 60 2003
  46 2004 32 Jan-Apr 2005 67
• Japan 85 of all clothing imports from China
• Australia 69 of clothing and 21 of all textile
  imports from China
• January 2005 exports to EU Knit apparel up 163
  woven apparel up 80
• January 2005 exports to US Knit apparel up 111
  woven apparel 79

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Chinas T-Shirt Exports to the EU in Jan 05
Source China Customs, 02/05
22
US Imports of Cotton T-Shirts Jan 05 Jan 04
Source OTEXA
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4. Use of Trade Remedies

• Safeguards (fairly traded imports)
• Antidumping duties (unfairly traded imports)
  mainly yarns, fabrics made ups trade chilling
  effect
• Countervailing duties Unfair trade practices
• TC products as targets for retaliation in
  dispute settlement cases.
• Possibility of new quotas against China
• 1) Special TC Safeguards until 31/12/2008
• 2) Product Specific Safeguards until 10/12/2013
  (all products, not only TC)
• To be discussed in detail tomorrow

24
Discriminatory Trade Policy Decision Influence
Sourcing Decisions
Source USA-ITA
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5. Doha Trade Negotiations and TC

• NAMA Negotiations reduction of high tariffs,
  tariff peaks and escalations specific formula
  sector approach? additional provisions for LDCs
  newly acceded countries (less than full
  reciprocity)
• Adjustment related issues impact NAMA
• Rules negotiations (e.g. ITCB request on AD)
• Identification, categorisation, examination
  treatment of NTBs
• South-South trade under NAMA or GSTP?
• ITCB and its future role for South America
• Market access development aspects of cotton

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6. Multilateral vs. Complex System of FTAs

• CAFTA/Andean RTA negotiations distracts from NAMA
  (short vs. long term)
• RTAs need to provide new benefits, incl. regional
  cumulation
• But NAMA can erode these preferences
• Other countries also receive preferences
• AGOA and Canada with easy RofO
• QIZ in Jordan and Egypt
• EU New GSP scheme, incl. cumulation

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But Preferential Differential Treatment is
Equally Important
Source USA-ITA
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7. New Rules (e.g. FTAs, RTAs, Security)

• Preferential treatment continued USCBP
  intervention
• Codes of Conduct - Ethical Sourcing
• ECO Labelling Remain voluntary but can reduce
  market access
• Security US Customs-Trade Partnership Against

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Summary / Challenges

• 1. Price reduction
• 2. Consolidation
• 3. China? Or rather Improving
  Competitiveness
• 4. Use of trade remedies
• 5. DDA and TC Trade
• 6. Multilateral approach vs. FTAs/RTAs
• 7. Imposition of new (buyers) rules

30
Structure

• TC Trade
• in Latin
• America

7 Challenges For LA
Finding Responses
31
Closer Regional Cooperation

• Small countries will not be able to develop a
  vertically integrated industry
• A regional (or inter-regional) vertical approach
  is needed
• RTAs need to integrate closer regional
  cooperation, incl. Regional sourcing, CAFTA
  example
• RTAs could lead to product market
  diversification
• AFTEX developing regional complementarities
  exploiting synergies and in Latin America

32
3 Areas of South-South Trade Development

• a) DCs as a market
• QUAD market 80 of world imports post-ATC
  growth rate expected to be 1-5
• Large DC will grow much faster
• GSTP could be a door-opener
• b) S-S Trade of intermediaries to export to
  traditional markets (value chain cooperation)
• c) Improve relationship with foreign investors
• TCDC is key for all three areas
• Cotton development needs to be seen in light of
• S-S trade

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Hubs Spokes Changes to Hub Regional Hubs
CAFTA
ES
N
CR
H
DR
Mex CAN
G
USA
Sub Saharan Africa
L
N
M
S
K
What is in it for South America?
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Diversifying into MMF Apparel Exports to US

• The production skills set is not very different,
  but sourcing skills are needed
• Improving buyer relationship as any
  diversification strategy needs cooperation with
  buyers (to expand to support the product
  switch)
• Partnership with national and/or regional
  suppliers
• Joint marketing of regional apparel and textile
  companies

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US Imports from SA Fibre Composition
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The Phenomenon Most Duty-free Access Utilisation
is for Cotton Apparel
Andean
AGOA
Jordan
CBI
World
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Tariff Peaks for Cotton MMF Apparel
Source USAID and USITC
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Summary

• Closer Regional Cooperation (macro and meso level
  (AFTEX example)
• South-South Trade at 3 levels
• Diversification into MMF products coupled with
  south-south cooperation

39
THANK YOU ! For more information http//www.intrac
en.org/textilesandclothing
Contact Matthias Knappe, Senior Market
Development Officer Knappe_at_intracen.org
40

• WTO Rules Governing
• TC Trade
• From 2005
• Presentation by
• Mr. Matthias KNAPPE
• ALADI Secretariat Montevideo, Uruguay, 25-26 May
  2005

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Rules prevailing from 1 January 2005

• WTO principles of transparency
  non-discrimination
• Exceptions regional trade agreements special
  and prefential treatment
• Antidumping rules prevent unfair trading
  practices
• Safeguards prevent injury from trade flow
• Dispute settlement mechanism to resolve disputes
  that might arise.

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Trade Remedies

• Safeguards (fairly traded imports)
• Antidumping duties (unfairly traded imports)
  mainly yarns, fabrics made ups trade chilling
  effect
• Countervailing duties Unfair trade practices
• TC products as targets for retaliation in
  dispute settlement cases.
• Possibility of new quotas against China
• 1) Special TC Safeguards until 31/12/2008
• 2) Product Specific Safeguards until 10/12/2013
  (all products, not only TC)

43
Possibility for China special TC Safeguards

• Until 31/12/2008 for ATC products only
• Invoked by any member by asking for bilateral
  consultations if market disruption (threaten to
  impede the orderly development of TC trade)
• Request for consultations implies immediate
  limitation of exports at a pre-determined level
  (7.5 (6) above the amount imported during the
  last 12 months)
• Does not necessarily require China's agreement
• No WTO notification no multilateral surveillance
• Duration max. 12 months
• Not to remain in effect beyond one year, without
  reapplication, unless otherwise agreed

44
China Textile Safeguard implementation

• Has been invoked by the US
• on knitted fabrics, cotton and mmf dressing gowns
  bathrobes, cotton and mmf brassieres ended
  23-12-04
• Presently on socks exports (332, 632)
  (threat-based)
• US Court of Int. Trade enjoined CITA from
  considering threat-based petitions (hearing is
  scheduled for May)
• CITA to invoke safeguards on 338/339 347/348
  352/652
• CITA to invoke thread-based safeguards on
  638/639 647/648, 340/640
• Quotas will be low based on year ending Feb or
  Mar 2005 data plus 7.5 (for 338/9 almost filled)
• EU Will invoke against T-shirts flax yarns by
  end May unless China restrains its exports

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Can  China safeguards  protect US South
America trade?

• CBI apparel companies are top customers of US
  yarn and fabrics CITA considers OPT as an
  extension of US production but South America?
• CITA self-initiated investigations on 347/8,
  338/9, 352/652 US textile industry filed 7/14
  new petitions
• New quotas could be in place by May/June these
  will be low!
• AAFA  US import production follow a
  consistent pattern regardless of whether China is
  restrained 
• Safeguards on brassieres slowed imports from
  China helped reverse a decline of imports from
  CBI

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Chinas Response TC Export Taxes

• 148 products of HS chapters 61 62 in 6
  categories outerwear, dresses, knit and non-knit
  blouses, sleepwear and underwear.
• Tax either 0.2 yuan/piece or 0.3 yuan/piece i.e.
  0.024 and 0.06
• From 1. June tax will rise to 1-4 Y/p for 74
  classes of TC products some will be lowered
• Major objective to encourage manufacturers to
  switch to higher value-added products
• 50 major exporters agreed on 6 price coordinating
  panels to oversee export (price) developments and
  suggest floor prices

Announced by MOFCOM n 20 May 2005
47
WTO Post ATC Adjustment-related Issues

• Proposal by Mauritius i) WTO study to identify
  winners losers and recommend measures and
  solutions ii) CTG to establish a work programme
  on dealing with the findings and to help DCs
• Broad support and understanding of painful
  adjustement process, but no consensus
• Similar 20-10-04 request from Tanzania on behalf
  of LDCs.
• 19-01-05 it was agreed that WTO Secretariat will
  prepare a paper to look into options for LDCs to
  improve their competitiveness, incl. TA CB
• 20 May Tunisia (Turkey Jordan) called CTG to
  discuss remedies to problems faced agenda
  rejected

48
Doha Trade Negotiations and TC

• NAMA Negotiations reduction of high tariffs,
  tariff peaks and escalations specific formula
  sector approach? additional provisions for LDCs
  newly acceded countries (less than full
  reciprocity)
• Adjustment related issues impact NAMA
• Rules negotiations (e.g. ITCB request on AD)
• Identification, categorisation, examination
  treatment of NTBs
• South-South trade under NAMA or GSTP?
• ITCB and its future role for South America
• Market access development aspects of cotton

49
The Cotton Issue in WTO Market Access

• Market Distortion by Subsidies
• Appellate Body confirmed WTO interim ruling that
  US subsidies caused  serious prejudice  to
  Brazilian cotton producers
• US direct payments to farmers are trade
  distorting
• Payments to US mills and exporters to cover the
  difference of US and world prices to ensure US
  exports are not permissible
• West Africa Initiative Distinction between
  Market Access Development Issues

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Cotton Implications for TC Trade

• Long-term reduction of subsidies tends to
  increase price
• End of ATC increases demand for cotton shifts
  it to Asia price increase
• Supply response in Asia, Australia West Africa
  but in US and EU?
• Will possible end of US support for cotton have a
  negative impact on cotton fibre consumption?
• Impact of cotton negotiations on TC trade?
• Development assistance for cotton in West Africa

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What can we do together ?
1.- Sector Strategy Development
The SHAPE
2.- Understanding its own and competitors
performance
The FiT
3.- Developing fabric sourcing skills to
become full-packagesuppliers
Sourcing Guide and database
4.- Understanding changing markets
New ITC TC website Workshops Tailored Product
Market Development
5.- Applying e-applications in the TC sector
Business Guide in e-commerce for TC
Implementing tailor- made market
penetration approaches in line with buyer
requirements
ITC Tailored Consultation
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THANK YOU ! For more information http//www.intrac
en.org/textilesandclothing
Contact Matthias Knappe, Senior Market
Development Officer Knappe_at_intracen.org
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