Rationale

The 2005 deadline for the phasing out of the quota system is approaching and many developing countries are starting to realise that the first eight years of the Agreement of Textiles and Clothing have not been utilised to prepare their respective industries. In the major importing countries the situation is different. In response to the ATC, one can observe a tendency in the major buying countries to grant specific concessions to identified countries, providing those countries with a comparative advantage over other T&C exporting developing countries. This tendency has resulted in a regionalisation of trade in T&C. While Mexico and Caribbean Basin countries became major suppliers to the US market, Eastern European and Mediterranean countries are the major supplying countries for the EU. Moreover, African LDCs benefit from AGOA to supply to the US market, while LDCs in general have quota-free and duty-free access to the EU market, subject to fulfilling strict rules of origin requirements. This practise has resulted in a very complex patchwork of international trade agreements, which makes it very difficult for many clothing-exporting SMEs from developing countries to determine their competitiveness vis-à-vis those of their major competitors. Moreover, the situation is changing frequently.

Trade in textiles and clothing will become more complicated and cumbersome for the selected countries, despite the fact that quotas will disappear. In most of the garment making companies in the selected countries, the relevant textiles and clothing-related knowledge is not available and the following deficiencies at the sector and strategy level will need to be overcome.

• Lack of national capacity to monitor the international business environment for trade in textiles and clothing and to provide early warnings in case new market access barriers are discussed.

• Absence of a co-ordinated approach and strategy to confront the challenges so as to keep old markets and to develop new ones.

• Lack of sector-specific strategies as an important tool to help industries and companies to orient themselves vis-à-vis their main markets and competitors.

The development of comprehensive action plans for T&C (to target export markets and to optimise sourcing/ import of fabrics and ancillaries) would be especially important, as market restrictions will loose their role in determining production and trade patterns.

• Insufficient co-operation among larger successful companies and a multitude of SMEs, which depend on subcontracting and receive earnings from quota rents.

The project will address the above-mentioned problem areas and needs. During the project, national action plans will be developed, which could then, at a later stage, be implemented by the countries concerned. The solution for the enterprise sector lies in specifically addressing the competitiveness factors elaborated in the action plans. The action plans will serve as a tool in themselves, assisting the T&C sector of the countries concerned in preparing their industries for the increased competition. Secondly, the action plans will serve as a first draft of a national project document, which the countries, in coordination with ITC, could then present to interested donor countries.

This proposal is a follow-up to the successfully implemented project “Capacity Building for LDC Garment Exporters to Meet 2005 Challenges”. Lessons learned from the implementation in four pilot countries (Cambodia, Lesotho, Malawi and Nepal) have been incorporated into the new approach and fine-tuned so as to ensure a fully demand-driven and sector-specific approach. Moreover, the new ITC strategic approach to help the T&C sector in developing countries and economies in transition has been finalised. It will be applied accordingly.

Following the new approach, industry-level briefings on the phasing out of the quota system will be combined with a broader programme of advisory and training services targeting sector-level competitiveness. National action plans will be developed, covering supply chain management, productivity improvement, product development and fashion-orientation, marketing and performance benchmarking.

Relationship with established policies and priorities:

This proposal follows the newly elaborated strategy of MDS for the product sector of textiles and clothing, providing a comprehensive approach for T&C enterprises to improve the overall competitiveness of their operations so as to remain in business after 2005. The project is also in line with capacity building efforts in the selected countries to more actively participate in the MTS to fully benefit and not to lose out from the implementation of the ATC. The project will lead to the development of comprehensive action plans in the participating countries and will provide vital inputs for the countries’ preparation for 2005.

After a pure LDC focus during the initial pilot project, the country base has been widened to include important T&C producing countries, which face major challenges ahead. For all countries T&C are of utmost importance for the countries’ development. Madagascar is already an active IF partner country and TA is under formulation, after political difficulties have been successfully overcome. In Kenya, UNDP is preparing a new programme cycle and will incorporate the area of trade for the first time. As the T&C sector is fast growing in the country, possibilities for integrating the sector into the overall approach will be explored with UNDP. Cuba has an important T&C sector, which is waiting for the possibilities to increase exports. The country has approached ITC several times and requested technical support in the area of textiles and clothing, starting with a workshop on the world market developments and the development of an action plan. El Salvador is an important garment exporter to the US, but has lost ground recently to Chinese competitors. Most of the investment in the sector is made by Asian investors, which have failed, so far, to develop roots to domestic enterprises, working as pure “maquiladoras”.

Full co-operation and the development of synergies will be pursued with IF activities and UNDP. Subsequent donor funding could be obtained. Furthermore, El Salvador and Cuba are members of the ITC World Tr@de Net programme. This project will build on the World Tr@de National Networks and will complement its activities with specific ATC-related assistance.

Anticipated outputs

The Governments and T&C related business community made fully aware of the business implications of the ATC and the expected market changes and how to prepare the industries accordingly. More than 300 officials and businessmen trained on the business implications of the ATC and on how to formulate competitive responses. A joint approach (action plan) developed with the respective business associations on how the quota phasing-out challenges could be overcome to sustain exports of T&C after 2005.

The action plans will, at the same time, serve as a needs assessment in the countries concerned. They will then serve as the basis for the development of a project proposal, jointly with the country concerned, for specific technical assistance in the product sector of T&C.

Duration and timing: 1 March 2003 – 31 December 2003