The end of quotas in the textiles and clothing industry benefits
large Asian producers. Yet other countries also have a stake in the
business. The sector plays a major economic role in many least
developed countries, especially in Africa, and in other small,
vulnerable countries. To avoid losing important business, their
firms need to exploit duty-free advantages to the full, diversify
products and expand their supply chains.
WTO members abolished quotas on trade in textiles and clothing
on 1 January 2005. As a result, prices are falling and major
Western buyers are narrowing their sources. On a global scale,
large Asian countries with vertically integrated industries are
becoming the world's leading suppliers. China in particular can
produce virtually any textile or clothing item at any quality and
Within supplier countries, there are signs of industry
consolidation. Larger companies are increasing production capacity,
often on the advice of their major customers. Small and
medium-sized firms (SMEs), on the other hand, face a shortage of
orders and some have already closed down.
It is not clear what will happen in many least developed
countries (LDCs) and small, vulnerable countries, with their
low-value products, fragmented industries resulting from past
reliance on quota protection and little regional cooperation. Since
textiles and clothing account for a high proportion of merchandise
exports and jobs - for example, 82% of merchandise exports in
Cambodia and 83% in Haiti and Lesotho - it means changing their
strategies to prevent serious economic consequences.
Most LDC clothing exports are made out of cotton, which
is relatively less protected than man-made fibre apparel. The
United States, for example, imposes an average 20% duty on imports
of cotton-knit shirts, but 32% duty on shirts of man-made
To make the most of their duty-free access,
firms should therefore develop clothing exports of man-made fibre
and improve their sourcing skills to find man-made fabrics. Garment
production skills are not very different whether using cotton or
man-made fabrics. LDCs could also explore markets for "ethnic"
textiles or clothing.
Improving trade facilitation services would bring significant
gains to LDCs and also increase investor confidence. According to
World Bank estimates, the average customs clearance time for sea
cargo is more than ten days in South Asia and Africa, nine days in
Latin America and the Caribbean and only two days in developed
countries. China is setting new benchmarks in trade facilitation.
Its modern ports and fast customs procedures reduce domestic lead
time, while direct shipping services to all major markets optimize
Similarly in the United States, most preferential access
agreements stipulate "yarn or fabric forward" rules of origin. That
means everything from yarn or fabric onwards to produce the garment
needs to originate in the beneficiary country or the United States.
As US yarn and fabric are generally not competitive compared to
Asia, these requirements undermine ways to improve the
competitiveness of LDCs.
countries produce raw cotton and finished garments, but they
rarely have domestic textiles industries that transform cotton into
yarn and cloth on a scale that meets export needs. At present,
producing clothing is a better fit for LDCs, being labour-intensive
rather than capital-intensive. But filling the "fabric gap" in the
chain could help them reduce costs and boost their competitiveness.
Cotton growers, ginners, fabric manufacturers and clothing
manufacturers in different parts of the continent should consider
collaborating in a regional value chain, from cotton to clothing,
to offer competitive products to major markets.
a country exports US$ 5 billion in garments annually, creating a
local textile industry or attracting foreign textile investors is
feasible. However, for countries where these exports are less than
US$ 2 billion (the case for all LDCs except Bangladesh), building a
local textile industry or persuading foreign textile mills to
invest is difficult and costly. To benefit from economies of scale,
a vertically integrated textile industry has to serve many clothing
factories. Thus, even if they are located in different countries of
the same region and are competitors on the final market, clothing
factories need to cooperate closely to attract the necessary
bringing on board the final buyer of the garment proves a clear
commitment to establishing a textile mill. This situation begins to
resemble a joint venture between buyer and suppliers in a region.
Some importers, realizing the need to show their core suppliers
that they are serious about strategic relationships, are now
planning to invest in factory operations.While these more
progressive importers are not interested in owning
factories, they realize that a 10%-20% investment increases their
credibility with the supplier. This relationship between
cooperating suppliers and one or two major buyers, willing to buy
from them in a long-term relationship, could attract the investment
for a regional textile mill.
Another solution would be to develop inter-regional trade along
the cotton value chain. Firms in sub-Saharan Africa could export
cotton to Asia and import cotton fabrics back to Africa for exports
of clothing to Western markets under duty-free schemes, providing a
win-win situation for all participating countries.
ITC's technical assistance response
The "Shape", a ten-step thinking process to develop a national
clothing strategy, applied in two workshops; assistance to
Benchmarking. The "FiT", a
software-based benchmarking tool for clothing manufacturers,
implemented through national associations, which receive training
to apply it; management of and access to global benchmarking
Sourcing. Fabric sourcing textbook,
Source It - Global Material Sourcing for the Clothing
Industry; training workshops for associations and firms;
sourcing missions to
help firms diversify suppliers; regional databases of suppliers in
Association of Southeast Asian Nations and South Asian Association
for Regional Cooperation countries.
Market trends. New ITC textiles and
clothing web site; workshops about future competitiveness
requirements; product and market development activities in national
E-trade. A guide on e-business applications in
textiles and clothing trade; training workshops; advice on
tailoring solutions to meet buyer requirements.
South-South trade. Tailor-made
projects to promote South-South trade in final products; increase
trade in intermediary products; facilitate technical cooperation
among developing countries. Research paper outlining possible ITC
assistance to develop the cotton sector.
For more information, contact Matthias Knappe (email@example.com)ITC
Senior Market Adviser on textiles and clothing
or visit http://www.intracen.org/textilesandclothing