Textiles and Clothing: What Happens after 2005? Some Observers Predict That by 2005-06, Major Textile and Clothing Buyers Will Reduce by Half the Number of Countries They Source from. the Challenge for Countries and Companies Is to Remain an Important Source for These Buyers. This Article Explores the Coming Changes in the Market and Highlights Steps Governments and Exporters Can Take Now to Avoid Adverse Impacts

By Knappe, Matthias | International Trade Forum, April-June 2003 | Go to article overview

Textiles and Clothing: What Happens after 2005? Some Observers Predict That by 2005-06, Major Textile and Clothing Buyers Will Reduce by Half the Number of Countries They Source from. the Challenge for Countries and Companies Is to Remain an Important Source for These Buyers. This Article Explores the Coming Changes in the Market and Highlights Steps Governments and Exporters Can Take Now to Avoid Adverse Impacts


Knappe, Matthias, International Trade Forum


On 31 December 2004, the Agreement on Textiles and Clothing (ATC) will end, and with it the quota system for international trade in textiles and clothing. As a result, trade in these sectors will undergo a fundamental change. By 2005 the sector will have been fully integrated into the WTO General Agreement on Tariffs and Trade (GATT), and all quotas will have disappeared.

Only tariffs should remain as a market entry mechanism. Moreover, WTO members will discuss tariff reductions and ways to reduce tariff peaks, high tariffs and tariff escalations under the Doha Development Agenda. A market currently characterized by artificial comparative advantages and managed trade will realign as market forces become the dominant determinant in the sector. A shift in market fundamentals will considerably affect exports from many developing countries and economies in transition, where national incomes depend to a large extent on exporting garments.

Countries such as Cambodia, Bangladesh and Nepal, with a share of garment exports in total merchandise exports of 85%, 75% and 40% respectively, need to attempt to keep at least part of their present markets or face higher unemployment and deeper poverty. In fact, developing countries risk losing heavily from the final liberalization of trade in textiles and clothing if they are not well prepared for the expected business and market changes. Instead of winning new export markets as they had expected following the Uruguay Round negotiations, many countries risk losing existing markets. These losses, in turn, could undermine commitment to the Doha Development Agenda. Countries and firms must prepare for a new reality in the textiles and clothing trade.

Winners and losers

While nobody can give a precise picture of the global textiles and clothing market after 2004, there are some indicators of the potential winners and losers of the quota phase-out. Three important indicators are highlighted below:

* Use of quotas. Countries which are fully using their quotas in the years preceding 2005 will probably increase their exports after that date. Countries which are not able to fill their present quotas are unlikely to benefit from a market opening. Quota performance monitoring, therefore, is essential As only Canada, the European Union (EU) and the United States continue to impose quotas--1,007 between them--this is a feasible task for countries to undertake.

* Exploiting liberalized categories. The changes stemming from the liberalization of product categories, which followed the third stage of the ATC in January 2002, give a clue to possible developments. At that time, the United States integrated seven product categories into WTO, thereby abolishing quotas and causing trade flows to change tremendously. In all liberalized quota categories, China greatly increased its exports to the US market, in some cases up to several hundred per cent. While other countries increased exports in some categories, only China did so across the board, mainly to the detriment of Central American and Caribbean countries, and of some other small producers which lost market share.

* Critical export mass. Developing countries that are not under quota constraints will face intense competition which they have not experienced before. For developing countries that do not currently have meaningful export quantities, it will become even more difficult to enter or to remain in world markets, and critical mass will become an important issue. Major international buyers are unlikely to source from a country where only a few companies serve the world market.

Challenges of the new trading reality

As the textiles and clothing sector is fully integrated into the WTO/GATT, those countries and companies which adapt first to the challenges of the new market will be better placed to secure their market position. Pure economic performance and well-managed competitive advantages will count more than ever before. …

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Textiles and Clothing: What Happens after 2005? Some Observers Predict That by 2005-06, Major Textile and Clothing Buyers Will Reduce by Half the Number of Countries They Source from. the Challenge for Countries and Companies Is to Remain an Important Source for These Buyers. This Article Explores the Coming Changes in the Market and Highlights Steps Governments and Exporters Can Take Now to Avoid Adverse Impacts
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