End of Textile Quotas May Leave Poorer Countries Hanging by a Thread by Alan B. Nichols A Hong Kong apparel company with a manufacturing plant in Mauritius is returning to China after 30 years in the tiny African island nation, putting 6,000 employees out of work. Since 2003, Mauritius has lost some 20,000 apparel jobs, a trend exacerbated by the termination on Jan. 1, 2005, of all global textile and apparel quotas. In place since the early 1970s, the quotas, collectively known as the Multifiber Agreement (MFA), primarily served to limit the volume of exports to protect the domestic industries of the importing country. U.S. textiles and apparel companies in particular feared increased competition from abroad, but the quotas have, in fact, turned out to benefit nations with large, unskilled workforces, acting almost like an affirmative action program for poorer nations. The elimination of the quotas for all categories of textiles and apparel culminates a 10-year phase out established by the General Agreement on Tariffs and Trade talks of 1992-94, known as the Uruguay Round. The phase-out program began in 1995 under the World Trade Organization (WTO). In international trade lingo, the end of quotas is kn own as the post-MFA period. Ironically, the countries that led the drive to end quotas now may suffer the most. These include Indonesia, Pakistan, Bangladesh, Colombia and others whose economies are heavily based on textile exports. It was anticipated that without quotas, these nations would have greater access to the U.S. and European markets for their exports. But at the time, China was little more than a speck on the horizon. Today, because of its ability to under price its competitors, China is becoming the dominant global exporter of textiles and apparel, threatening to severely disrupt, if not wipe out, the textile sector of many emerging world nations, such as Mauritius. Safeguards to limit Chinese exports have been imposed by Turkey and litigation over safeguards is pending in the United States. However, safeguards, which were included in the Uruguay protocols, are scheduled to permanently expire in 2009. Peter Craig, the trade commissioner at the Embassy of Mauritius, said that unless some restraints are kept in place to prevent the complete domination of the global market by the Chinese and larger exporters, Mauritius and similarly vulnerable nations will experience economic disaster. According to Craig, Mauritius has been promoting foreign investment since 1982, enticing companies such as the Hong Kong apparel maker to establish manufacturing facilities on the island. He said the loss of that company is the latest insult to Mauritiusís apparel industry, which has suffered a drop in employment of more than 30 percent in the last few years. He added that this negative trend not only has national implications, but regional ones as well. ìFor a long time, we have been trying to create manufacturing capacity in sub-Sahara Africa,î Craig said, citing the crucial need for foreign investment. ìI call this value-added element to the development of infrastructureótransportation, shipping, electric power and so forth. With jobs comes political stability, better health for the people and a higher standard of living. ìWe are not just talking about women sewing on the last sleeve of a shirt,î he said, referring to the positive domino effect of higher manufacturing capacity both on the national and regional levels. According to the trade commissioner, Mauritius will survive because it has been diversifying its industrial base, but other countries in the region including Madagascar, Lesotho, Swaziland and Kenya, with their severe dependence on textiles, are facing a crisis. ìI recently told a manager for J.C. Penney that blood is going to run in the streets of sub-Saharan Africa,î he said. ìThere has to be some order in global trade, whether it be voluntary restraint by China and other dominant players or some imposed system of restraints to protect those countries with poorly integrated industries,î Craig said. ìWe are a country of 1.2 million peopleóWal-Mart employs as many. There is a letter from my minister to the WTO asking them to study the situation and come up with a viable set of options. If Mexico, even with the benefit of NAFTA [North American Free Trade Agreement], canít deal with this problem, then nobody can.î African nations enjoy preferential tariff treatment under the African Growth and Opportunity Act (AGOA). The program has seen a number of the poorest countries in the world, including Lesotho, Swaziland, Madagascar, Kenya and Uganda, become textile exporters. However, according to Manchester Trade President Stephen Lande, the failure to renew the right of poorer AGOA beneficiaries to incorporate yarns and fabrics from the most competitive sources could be the death knell for the successful program, especially in the post-MFA era. This is particularly true given the current situation, whereby newer exports are no longer counted toward quotas that shelter them from competition by larger, more established suppliers. Mexico shares Mauritiusís concern about China, according to Hector Marquez, trade minister at the Mexican Embassy in Washington, who confirmed that his country has also asked the WTO to analyze the long-range impact of Chinese exports in the new era. ìWe should analyze what the impact of China would be,î he said, adding that Mexicoís exports in textiles and apparel to the United States are slightly more than half those of Chinaó$7.2 billion to $13.5 billion. Not currently concerned about the potential threat of future textile trade imbalances to his country is newly installed Cambodian Ambassador Sereywath Ek. ìIt is not really traumatic for us,î he said. ìMost of our textile factories are keeping in close contact with U.S. buyers and for the time being the situation is OK. Yes, some of our factories have closed, but Cambodia will survive. The quota system had to come to an end one day.î The Los Angeles Times struck a much more pessimistic note when discussing the impact on Cambodiaís textile industry in a world without quotas. ìThe end of the quotas has triggered what trade experts believe could be one of the largest migrations of production in history, jeopardizing Cambodiaís 220,000 apparel jobs,î according to a Jan. 26, 2005, article. ìHundreds of thousands more are threatened in Bangladesh, El Salvador, Lesotho and other countries that prospered under the quota system.î ìThe policy of our government is to commit to free trade,î said Ek, whose country joined the WTO only last September. ìAll ASEAN [Association of Southeast Asian Nations] countries are so committed, and our country hopes to compete in other industries such as fisheries and agricultural commodities, particularly rice.î Cambodiaís textile industry has a workforce of some 270,000 people, most of whom are women, according to EK, who said that 60 percent, or $1.4 billion, of the nationís textile exports are to the United States. ìI have heard from many companies in the U.S. that they prefer to buy from Cambodia because of our favorable working conditions. We are highly respected by the International Labor Organization as well.î Weighing in on the side of a free and open global trade market is Egyptian Ambassador Nabil Fahmy. ìGiven no quotas, we need to compete with many more countries and this we are satisfied to see,î he said. However, he added, ìElimination of trade restrictions are useful but must be done on a graduated basis. Nations need to eliminate imbalances where the concentration of wealth is too much in one place. The global markets shouldnít be dominated by either buyers or producers.î The impact of the end of the quotas was felt in Sri Lanka even before the final termination date. Sri Lankaís apparel industry is the nationís largest, directly or indirectly employing some 1 million workers. In factories that New York Times columnist Thomas Friedman has called ìso clean you can eat off them,î a highly skilled and educated workforce produces high-end lingerie for world-class labels, including Victoriaís Secret. Sri Lanka also specializes in outerwear and sportswear in an industry that has become vertically integrated, from the production of fabric all the way to the end product. Working conditions and benefits for workers are the envy of the rest of the world, and industrial facilities are well integrated with schools, parks, transportation and other elements of the community. Given the high quality of its products and the sophistication of its manufacturing and corporate structures, it is not surprising that the Sri Lankan textile and apparel industry has been thriving since the early 1980s, and the quotas have been a driving force in this spectacular growth, according to Sri Lankan Ambassador Devinda Subasinghe. ìThe quotas allowed us to grow by guaranteeing access to world markets,î said Subasinghe. As to the impact of the quota termination, ìThe jury is still out,î but he said the textile and apparel industry ìis very, very concernedî about the dramatic increase in Chinese exports, particularly since 2001. For instance, Chinese exports in man-made fiber bras increased 18 times between 2001 and 2004, according to the U.S. Department of Commerceís Office of Textiles and Apparel. So whatís the answer? ìThe solution is to level the playing field and continue to ensure access to the world markets by all apparel exporting nations,î Subasinghe said. Unlike China and other large exporting nations, Sri Lanka has a market economy and the national government has very few options to prop up its private industries. ìWe are also reviewing options with the United States to reduce the $250 million we pay in tariffs,î explained Subasinghe. ìThese tariffs increase our costs by 16 percent and are considerably higher than those imposed on some other nations.î In the domain of international trade, there are still many outstanding issues, including safeguards and tariff barriers that create imbalances that need to be resolved before a truly equitable trading environment exists for all the worldís exporters. There are a number of multilateral agreements under which certain countries enjoy major advantages for particular products. One such agreement currently before Congress is the Dominican Republic-Central America Free Trade Agreement. However, international trade is about much more than the exchange of goods and services among nations. Trade agreements are in effect political agreements, and although they may give favorable treatment to one country over another, there are important political considerations for enacting and perpetuating them. For instance, under the recently signed Qualified Industrial Zones agreement between the United States, Egypt and Israel, import duties are eliminated on selected products manufactured in Egypt provided that a certain percentage of the components in those products come from Israel. This agreement signifies a major step toward reconciliation of decades-long hostilities in the volatile Middle East. The textile and apparel quotas under the WTO apply only to WTO member countries. Vietnam and the former Soviet Republics are among non-member nations that will continue to be limited by bilateral quotas or other arrangements with the United States and other countries. The post-MFA period is likely to lead to lower prices for consumers, but the long-term adverse economic impact on the global economy is potentially negative, if not catastrophic, according to trade observers, who warn that in an economically interdependent world, it is shortsighted to ignore the ill effects on developing nations when the spoils of an open market system go to the most powerful. Alan B. Nichols is a contributing writer for The Washington Diplomat.