Implications of the Introduction of the Agreement of Textiles and Clothing (ATC)

on the African Textiles and Clothing Sector

by Mr. Antero Hyvärinen

Senior Market Development Officer, ITC, Geneva

1.  INTRODUCTION 2.  INTERNATIONAL TRADE IN TEXTILES AND CLOTHING 3.  ROLE OF AFRICAN PRODUCERS OF TEXTILES AND CLOTHING 4.  AGREEMENT ON TEXTILES AND CLOTHING (ATC) 1995/2004 5.  IMPACT OF THE ATC ON AFRICAN COUNTRIES PRODUCING TEXTILES AND CLOTHING

1. INTRODUCTION For about forty years the international trade in textiles and clothing has been covered by several special arrangements, namely the Short Term Arrangement Regarding International Trade in Cotton Textiles (STA) in 1961 and the Long Term Arrangement (LTA)(1963-1973) followed by the Multifibre Arrangement – the MFA. The MFA was extended five times and eventually came to an end 31.12.1994 when the Agreement on Textiles and Clothing (ATC) was introduced on the following day. Since these arrangements were restricting the volume of trade they were not in conformity with the existing GATT Rules. Therefore this sector has remained outside the GATT (WTO) Rules. The MFA extended the coverage from cotton products also to include wool and Man-Made-Fibre (MMF) products. MFA was following the Cotton Arrangements through the provision of rules for imposition of restraints when a sudden increase in imports was about to cause market disruption or threat thereof in importing countries. Over the years this sector has become increasingly important for a large number of developing countries and transition economies. Today this sector represents about 9% of the global trade in manufactures and it employs some 24 million people. The following figures highlight the importance of this sector for a large number of developing countries: in 1998 some 72% of the export earnings of Bangladesh came from clothing exports. In India the figure for textiles and clothing exports was about 30%, in Pakistan 60%, in Sri Lanka 45% and in China 25% just to name a few. Consequently, the future developments in this sector are very closely followed in many parts of the world. 2.  INTERNATIONAL TRADE IN TEXTILES AND CLOTHING Trade in textiles in 1998 totalled US$ 151 billion, a drop of 5% from the corresponding figure for 1997, which was US$ 159 billion. This was the first time the value of the international textile trade was actually reduced, largely due to the recession in the South East Asia. The value of the global trade in clothing in 1998 was US$ 180 billion or 1% less than the previous year. China was the largest exporter of clothing in the world (over US$ 30 billion) and the US market was by far the biggest importer of clothing (US$ 55,7 billion) in the world. There has been a very fast growth of garment imports from Mexico to the U.S. and Canadian markets, which has been facilitated by the regional NAFTA agreement. Latin and Central American suppliers have lately continued to increase their exports to North American market. Mexico is now the largest supplier of clothing in the US market: in 1999 (about 2,370 million Square Meter Equivalents=SME). In addition to Mexico, some of the fastest growing suppliers in the U.S. market include Honduras (990 million SMEs), El Salvador(650 million SMEs and Dominican Republic (870 million SMEs). The EU is the world’s second largest exporter of textiles and clothing reaching in 1999 34,8 billion Euros – an increase of 19% from 1995. Between 1990-1998 the imports of clothing into the EU increased by 72% to US$ 48,8 billion and 31% in textiles to US$ 18,7 billion. The Middle East, notably the UAE has been developing garment exports both to North America and Europe to such an extent that both markets have already imposed quotas on products coming from the UAE. Recently the Central and Eastern European countries have been increasing their market share in Europe through an intensified co-operation (OPT = Outward Processing Trade) with several EU member countries. 3. ROLE OF AFRICAN PRODUCERS OF TEXTILES AND CLOTHING Africa has been traditionally a significant producer of raw materials, such as coffee, cocoa, sisal, tea, cotton etc. However, Africa does not appear as a significant processor of raw cotton into semi-finished and finished products. The easy quota- and duty-free access into the EU-markets accorded to African suppliers as signatories of the Lomé Convention has not been utilized to a large extent, Mauritius being an exception to this rule. However, it may be mentioned here that in cotton yarn imports into the EU in 1999 Egypt was ranked the third and Zambia the eight. The Trade and Development Act of 2000 is an important step towards the expansion of trade in the U.S. The new legislation will help both CBI (Caribbean Basin Initiative) and selected Sub-Saharan countries to have an easier access into the US market. The Act gives duty-free and quota-free benefits for some textiles and garments from eligible Sub-Saharan countries as of 01 October 2000 to 30 September 2008. Two North African countries, namely Morocco and Tunisia, have been benefiting from the duty-and quota-free access into the EU markets, where they are prominently amongst the largest clothing suppliers. In fact, in 1999 Tunisia (Euro 2,339 million) and Morocco (Euro 2,072 million) ranked fourth and fifth in value of garment exports into the EU after China P.R, Turkey and Hong Kong. The two countries were the largest suppliers of trousers into the EU in 1999, supplying 94 and 83 million pairs of trousers respectively. Mauritius, Morocco and Tunisia were amongst the top ten suppliers of T-shirts into the EU in 1999. According to the USA-ITA the top Sub-Saharan African suppliers of apparel in the US market in 1999 were Mauritius (about 40 million Square Metre Equivalents=SME) followed by Lesotho (about 32 million SMEs), South Africa (about 32 million), Madagascar (about 15 million) and Kenya (about 13 million). The total US apparel trade during the same period was some 16 billion SMEs. In Sub-Saharan countries there are several countries which depend very heavily on cotton growing and exports of raw cotton. For a number of reasons most of these producers/exporters of raw cotton have remained, and most probably will remain, raw cotton exporters. The establishment of textile production requires heavy investments, and therefore, for most cotton producers, it has not been possible to find the necessary funds to import the required machinery. Some countries, such as Tanzania, have a large installed textile industry, with production capacities exceeding local demand. However, the capacity utilisation over the years has been very low due to a lack of electricity, water, skilled labour etc. In addition, a recent problem for local garment manufacturers in Sub-Saharan countries has been the very fast increase in imports of second-hand clothing, or "mitumba" as it is called in East Africa. According to Eurostat in 1998 the European Community exported some 515,800 tons of second-hand clothing at a value of some 486 million ECUs. Germany alone exported some 150,000 tons of worn clothing to a value of 121,5 million ECUs. Some of the clothing was distributed to the poor through various charitable organisations in a number of African and South American countries, but a significant part of worn clothing was sold on the local street market of capital cities. As a result many small garment manufacturers in Africa were not able to compete and quickly went out of business. 4.  AGREEMENT ON TEXTILES AND CLOHTING (ATC) 1995/2004 It was significant that this sector was included in the Uruguay Round of Multilateral Trade Negotiations in 1986. As stipulated by the ATC this sector will be fully integrated into WTO rules by 01.01.2005. In certain ways the ATC may resemble the MFA, but the fundamental difference is that there shall be no extension of this Agreement (article 9). The progressive dismantling of the MFA was one of the primary goals of the new Agreement. The integration programme for textiles and garments into GATT rules will be carried out as follows: by 01.01.2005 and within three stages, existing quotas will have been removed by progressively increasing permitted levels, from 01.01.1995, from 01.01.1998 and from 01.01.2002 to 31.12.2004. Thus, various textile categories are becoming subject to the rules of the WTO. So far the integration has made very little impact on international trade in textiles and clothing. It is already clear that the actual removal of the most important quota barriers will take place 31.12.2004. Consequently, the most sensitive quota products, such as T-shirts, men’s shirts, ladies’ blouses, jeans etc. will only be integrated on the last day of the ATC. 5.  IMPACT OF THE ATC ON AFRICAN COUNTRIES PRODUCING TEXTILES AND CLOTHING The feeling amongst many developing country producers/ exporters about the impact of the ATC has so far been rather guarded. The fact that the integration process within the ATC seems to have been far from satisfactory from the developing countries’ point of view may actually be a blessing in disguise. The remaining four years of the ATC will serve as a preparatory period for developing countries to be ready for the forthcoming quota-free international trade in textiles and clothing starting 1.1.2005. What is going to be the role of African textiles/clothing producers after the ATC? Looking into the future is always somewhat risky, but certain assumptions, however, can safely be made. At present there is a quota-free access into the EU market for the two North African and ACP countries and naturally this advantage will disappear with the ATC. The Lomé Convention will most probably be renewed, but there may be a somewhat lower tariff advantage vis-à-vis the competitors from other parts of the world. The US Growth and Opportunity Act will give similar special status to a number of sub-Saharan countries. The future development both for Morocco and Tunisia looks good. Both countries have a good garment production base and their nearness to the EU markets is an asset. Egypt, which is a very important producer of high quality, long staple cotton, may also become a more significant supplier of finished cotton products. The Sahel countries will primarily remain large cotton growers/exporters and there may be some premium for the production of green cotton in the future. The textile sector is unlikely to develop. In West Africa there may be some potential e.g. in Ghana for ethnic (kente) clothing as niche-markets and Nigeria has a large installed capacity for polyester staple and textile filament yarn even for exports. In Southern/Eastern Africa Zambia may have potential in the export of semi-finished cotton products and Zimbabwe will remain an important cotton producer/processor with considerable experience in this sector. South Africa has a large capacity for polyester stable production (50,000 tons) and it is also producing wool and cotton. Mauritius has gained a strong position in the world markets for high quality knitted goods and no doubt will continue to do so. At the same time there seems to be a ripple effect into other countries in the region. The production capacity in Mauritius is limited and therefore the overflow is being directed to Madagascar and some countries in East Africa. As regards foreign investment generally in this sector in Africa political stability will be an important factor. To sum up, there seems to be good possibilities for Mauritius, Morocco, Tunisia and Madagascar in the clothing sector. South Africa, Zambia, Uganda, Egypt and Senegal may also be able to compete in the post-ATC era. Some other countries, such as Nigeria, the Sudan, Ethiopia, Eritrea, Zimbabwe etc may also have some potential, provided that the political situation in the country remains calm.