T&C Trade ChallengesT&C Trade Challengesfor Latin Americafor Latin America

The ATC EndedThe ATC EndedIs T&C a Is T&C a NNormal Sector?ormal Sector?

Presentation by Presentation by Mr. Matthias KNAPPEMr. Matthias KNAPPE

ALADI Secretariat Montevideo, Uruguay, 25-26 May 2005ALADI Secretariat Montevideo, Uruguay, 25-26 May 2005

T&C is not (yet) a Normal Sector for Business

• Purely rules-related: T&C is a normal sectorBut:• 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)

Structure

T&C Tradein LatinAmerica

7 ChallengesFor LA

FindingResponses

Characteristics of T&C 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

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 (CAFTA:knit; 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

T&C Exports from ALADI Countries in 2003

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Paraguay Peru Uruguay Venzuela

T&C Exports of ALADI Countries in 2003

% textile % clothing

US Imports from ALADI 3 year comparison

US - ALADI Apparel Imports 2003/2004

0

1

10

100

1'000

10'000

100'000

Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela China

US$

mill

ions

2003 2004 year-end March 2005

US Import changes from ALADI 2004- 2005US - ALADI Apparel Imports: 2004 / 2005 data change in %

24%

504%

1% 10%11%

-5%

25%

-23%-4%

-84%-17%

15%

-4%

28%

-57%

2%

-9%

273%

-14%-48%

-34%-3%

9%

131%

-16% -8%

30%

-13%-4%-10%

-200%

-100%

0%

100%

200%

300%

400%

500%

600%

Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela

January February March

41%

88%79%

0%10%20%30%40%50%60%70%80%90%

100%

China

US Imports from ALADI in 2004

339 W/G knit blouses

10%

659 Other MMF apparel

5%

638 M/B knit shirts

4%

647 Trousers

4%

639 W/G knitblouses

2%

Rest25%

338 M/B knit shirts

11%

348 W/G slacks etc.

18%

347 M/B trousers

20%

Structure

T&C Tradein LatinAmerica

7 ChallengesFor LA

FindingResponses

World Garment Exports: Declining Growth Rates

Global Garment Trade

100

120

140

160

180

200

220

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Year

Value

in $

Billio

ns

-4%-2%0%2%4%6%8%10%12%14%

Year

on Y

ear C

hang

e

Value Change Poly. (Change)

Source: WTO; idea: D. Birnbaum

1. Prices will fall furtherMore supply and quota rents are gone

1.65

2.22.31

2.4 2.41 2.35 2.332.23 2.18 2.14

1.89 1.83

1.5

1.7

1.9

2.1

2.3

2.5

2.7

US$/sme

1983 1989 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Trends in US T&C import prices, 1983-2003

Source: Robin Anson, Director Textiles Intelligence; ITMF, Dresden October 2003; www.textilesintelligence.com and Textile Outlook International No. 110 March-April 2004

US Apparel Imports Unit Value Jan 05 to Jan 04

US Apparel Imports per Category in January 2005

-2.09-5.3 -4.78

-2.22 -2.5

-9.27

-50.96

-37.35

-53.86

-46.56

-54.9

-48.43

-60

-50

-40

-30

-20

-10

0

Cha

nge

in %

World unit value change China unit value change

Source: OTEXA

China prices down: 9% on average but up to 50% in key products in US (35% in EU)

2. Country & Enterprise Consolidation

Likely Post 2004 Sourcing Pattern

010203040506070

Under Quota Year 2005/6 Year 2010

Year

Num

ber o

f Cou

ntrie

s

Source: US Department of Commerce: Report to the Congressional Textile Caucus on the administration’s efforts on textile issues; Washington, September 2002

Changing Enterprise Requirements

• Mega companies or smaller flexible firms >• 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

Mega Companies:Global Process for a Dress Shirt

Selected by fabric mill & quality is fine

Good relationship & good in piece dye

Vertical setup by fabric mill

Major shirt factory in TAL

Cotton

Yarn

Fabric

Garment

Retailer

Pakistan

HK – China OPA

Malaysia

US

ButtonLabelThreadChina USChina

Cheaper & close to factory

Supplier nominated by Customer

Malaysia

Inter-lining

Malaysia

Or Japan

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%

China's T-Shirt Exports in January 2005

883.05 881.41

679.96

502.58

328.85 324.79 299.35

206.86

-39.15 -30.41 -14.77 1.17

162.25

571.98

-35.2427.93

-51.83 -46.26 -57.67 -49.75 -45.99-100

100

300

500

700

900

Germany Spain US Italy France Ukraine CzechRepublic

Denmark England Canada Hungary Poland

Chan

ge in

%

Volume change Unit value change

5'864.20

18'566.12

1'000

5'000

9'000

13'000

17'000

21'000

Hungary Poland

Cha

nge

in %

Source: China Customs, 02/05

China’s T-Shirt Exports to the EU in Jan 05

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• T&C products as targets for retaliation in dispute

settlement cases.• Possibility of new quotas against China• 1) Special T&C Safeguards until 31/12/2008• 2) Product Specific Safeguards until 10/12/2013 (all

products, not only T&C)• To be discussed in detail tomorrow

Discriminatory Trade Policy Decision Influence Sourcing Decisions

After 2005, who do you think will have the most impact on international sourcing decisions?

15%

29%

50%

2%

4%

U.S. and European government officials

Sourcing executives from retailers andimporters

International World Trade Organization

Buying agents

International manufacturers

Source: USA-ITA

5. Doha Trade Negotiations and T&C• 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

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

But Preferential & Differential Treatment is Equally Important

Beginning in 2005, how important will free trade / preferential trade agreements be?

59%

21%

17%

3%Impossible to source competitive products

without them

Important as one element in a sourcing strategy

Not important unless they are renegotiated andsimplified.

They will be useless against competition fromChina

Source: USA-ITA

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

Summary: / Challenges

1. Price reduction2. Consolidation3. China? Or rather Improving

Competitiveness4. Use of trade remedies 5. DDA and T&C Trade6. Multilateral approach vs. FTAs/RTAs7. Imposition of new (buyers’) rules

Structure

T&C Tradein LatinAmerica

7 ChallengesFor LA

FindingResponses

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

3 Areas of South-South Trade Developmenta) 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-openerb) 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 areasCotton development needs to be seen in light of S-S trade

Hubs & Spokes Changes to Hub & Regional Hubs

USA

CRDR

ES

G

N

K SNM

L

HCAFTA

Sub Saharan Africa

Mex & CAN

What is in it for South America?

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

US Imports from SA: Fibre CompositionUS - ALADI Apparel Imports 2004

0%

20%

40%

60%

80%

100%

Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela

Cotton Apparel MMF Apparel Wool Apparel

The Phenomenon: Most Duty-free Access Utilisation is for Cotton Apparel

US Apparel Imports Cotton Apparel/MMF Apparel

1.802.39 2.56

3.29

1.881.79

2.69

5.29

6.886.34

5.346.39

5.68

2.802.90

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

2002 2003 2004

Ratio

Cot

ton/

MM

F Ap

pare

l

Andean

AGOA

Jordan

CBI

World

Tariff Peaks for Cotton & MMF Apparel

Cotton MMFProduct MFN Rate MFN RateAverage 13.2 23.4

Knit 15.5 28.2Woven 16.6 28.3

Knit 20 32Woven 17.6 26.4

Trousers, Breeches, Shorts

Shirts & Blouses

Source: USAID and USITC

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

THANK YOU !THANK YOU !For more information

http://www.intracen.org/textilesandclothinghttp://www.intracen.org/textilesandclothing

Contact:

Matthias KnappeMatthias Knappe, Senior Market Development Officer

Knappe@intracen.org

WTO Rules Governing WTO Rules Governing T&C TradeT&C TradeFrom 2005From 2005

Presentation by Presentation by Mr. Matthias KNAPPEMr. Matthias KNAPPE

ALADI Secretariat Montevideo, Uruguay, 25-26 May 2005ALADI Secretariat Montevideo, Uruguay, 25-26 May 2005

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.

Trade Remedies • Safeguards (fairly traded imports)• Antidumping duties (unfairly traded imports): mainly

yarns, fabrics & made ups; trade chilling effect• Countervailing duties: Unfair trade practices• T&C products as targets for retaliation in dispute

settlement cases.• Possibility of new quotas against China• 1) Special T&C Safeguards until 31/12/2008• 2) Product Specific Safeguards until 10/12/2013 (all

products, not only T&C)

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

China’s Response: T&C 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 T&C 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

Doha Trade Negotiations and T&C• 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

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

Cotton Implications for T&C 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 T&C trade?• Development assistance for cotton in West Africa

4.- Understanding 4.- Understanding changing marketschanging markets

1.- Sector Strategy 1.- Sector Strategy DevelopmentDevelopment

Sourcing

Manufacturing

Sales (+Marketing, and Services)

Inbound LogisticsCustoms,

Import Clearance

Outbound LogisticsCustoms-GSP/Quota

Export Clearance

Sourcing

Manufacturing

Sales (+Marketing, and Services)

Inbound LogisticsCustoms,

Import Clearance

Outbound LogisticsCustoms-GSP/Quota

Export Clearance

2.- Understanding its’ 2.- Understanding its’ own and competitors’ own and competitors’

performanceperformance

3.- Developing fabric3.- Developing fabricsourcing skills to sourcing skills to

becomebecome““full-package”suppliersfull-package”suppliers

5.- Applying5.- Applying

e-applications in the e-applications in the

T&C sectorT&C sector

Implementing tailor-Implementing tailor- made market penetrationmade market penetrationapproaches in line with approaches in line with

buyer requirementsbuyer requirements

New ITC T&C websiteNew ITC T&C websiteWorkshopsWorkshops

Tailored Product & Tailored Product & Market DevelopmentMarket Development

““The SHAPE”The SHAPE”

““The FiT”The FiT”

Sourcing GuideSourcing Guideandand

databasedatabase

Business GuideBusiness Guide

in e-commerce for T&Cin e-commerce for T&C

ITCITCTailored ConsultationTailored Consultation

What can we do together ?

THANK YOU !THANK YOU !For more information

http://www.intracen.org/textilesandclothinghttp://www.intracen.org/textilesandclothing

Contact:

Matthias KnappeMatthias Knappe, Senior Market Development Officer

Knappe@intracen.org

Bolivia Apparel Export 2004

M/B knit shirts56%

W/G knit blouses18%

Nightwear/Pyjama6%

W/G slacks etc. 3%

W/G wool sweater2%

Knit shirts, blouses0%

Rest15%

Brazil Apparel Export 2004

W/G knit blouses11%

M/B knit shirts11%

Cotton underwear7%

M/B trousers6%

Dresses, gowns etc3%

W/G slacks etc. 37%

Rest25%

Chile Apparel Export 2004

M/B suit-typ CT16%

Wool trousers16%

M/B wool suits17%

M/B trousers17%

Rest34%

Colombia Apparel Export 2004

M/B knit shirts7%

M/B suit-typ CT6%

Cotton underwear6%

Other MMF apparel4%

Rest 41%

W/G slacks etc. 15%

M/B trousers21%

Ecuador Apparel Export 2004

M/B wool sweater2%

Nightwear/Pyjama2%

M/B trousers7%

Rest69%

M/B knit shirts17%

W/G wool sweater3%

Mexico Apparel Export 2004M/B trousers

22%

W/G slacks etc. 20%

M/B knit shirts8%

Rest32%

M/B knit shirts5%

Other MMF apparel5%

W/G knit blouses8%

Peru Apparel Export 2004

W/G slacks etc. 2%

Cotton sweater1%

M/B trousers2%

W/G knit blouses2%

M/B knit shirts37%

Rest13%

W/G knit blouses43%

Uruguay Apparel Export 2004

W/G coats18%

W/G wool sweater16%

M/B wool sweater16%

Knit shirts, blouses5%

Rest14%

M/B suit-typ CT31%