Home 
Publications Catalog Online Publications Document
Asian Development Outlook 2006 : I. Developing Asia and the World : Textiles and Clothing in the Post-Quota Era: The Outlook for Asian Suppliers
Historical perspective on textiles and clothing in Asian developmentThe reintegration of textile and clothing trade into the system of world trade at the completion of the ATC on 31 December 2004 was of particular significance to Asian developing economies and had prompted much speculation of what the possible effects could be. These economies had seen large increases in exports of textiles and clothing—especially clothing—as they moved up the ladder of industrialization from largely agricultural economies to modern manufacturing and services-based economies over a 30—40-year period. In the last two decades, textiles and clothing have been the second-fastest growing segment of world trade (after electronics), despite the presence of the quota system (Hayashi 2005). Of course, in the decade after the ATC was agreed upon, market access improved, foreign investment flows rose, and buyers and suppliers began to reposition themselves in light of the PRC's WTO accession, the end of quotas, and the proliferation of preferential trade agreements. The success that economies like Japan; Hong Kong, China; Republic of Korea; Taipei,China; and Singapore had with textiles and clothing in the early stages of their industrialization, particularly before the quota system became embedded in the GATT in 1974, was outstanding, with export-led growth leading to rapid gains in production, employment (especially of younger female workers), and technological and management skills. These economies tended to develop large textile complexes and labor-intensive clothing industries, the latter dominated by small and medium enterprises. Following Japan's earlier experience, the East Asian newly industrialized economies that held large quotas in recognition of their large capacity and competitiveness in textiles and clothing in the 1960s and early 1970s, gradually became uncompetitive in the most labor-intensive segments of the industry. The rising labor and energy costs of the 1970s and early 1980s helped prompt the migration of these industries to Southeast Asia, a process that was accelerated by currency appreciation after the Plaza Accord of 1985 (Thee 1991 and 2003). Once reforms took hold in the PRC, textile and clothing factories from higher-cost locations in East Asia and Southeast Asia began to relocate production either there or to other locations where preferences were large enough and costs competitive enough to justify the investments. Hong Kong, China; Korea; and Taipei,China still retain niches in high-end fashion wear requiring very skilled sewing and design operations and in high-quality and capital-intensive segments of the textile industry, such as expensive man-made fabrics and industrial textiles. Korea and Taipei,China retain some of the largest textile capacity in Asia, with only the PRC, India, Pakistan, and Indonesia (ranked by size) having larger mill capacities (USITC 2004, Table 3.1). Thailand also has large textile capacity, exceeding that of Mexico in 2003 (USITC 2004). Pakistan has the third-largest cotton textile industry, after the PRC and India. Viet Nam is now developing a modern textile industry but it is in the early stages of development. USITC (2004) shows that large Asian countries have the lion's share of textile mill capacity in knitting, spinning, and weaving among all regions of the developing world. Outside Asia, Turkey, Mexico, and Egypt (ranked by size) have the most significant capacities among developing countries. The data for 2003 indicate that Asian-based textile mills accounted for 60% of world fiber consumption. Estimates of spinning and weaving capacities indicate that Asian mills accounted for 66% and 68%, respectively, of all machinery in these textile segments globally (USITC 2004).6 Member countries of the Organisation for Economic Co-operation and Development (OECD) imported about 31% of textile imports from non-OECD sources in 2001, of which 79% came from Asia. For the larger category in imports, namely clothing, two thirds of OECD imports were from non-OECD countries. Asian suppliers accounted for 44% of total OECD clothing imports or two thirds of all imports of clothing from non-OECD countries in 2001 (OECD 2004). The migration of textile production has been to large developing Asian countries; smaller countries almost exclusively assemble clothing but rely on imported intermediate textile fabrics. This process is still taking place as the largest textile company in Taipei,China—Formosa Plastics—has recently chosen to invest in a large-scale textile complex in Viet Nam.7 Later, it will be seen that the presence or absence of large-scale production capacity in intermediate textile products is a critical factor in the emerging trading environment. One consequence is that the textile industry is likely to be increasingly dominated by a few large Asian players. However, because of fragmentation, small countries that are competitive with low labor costs or highly skilled sewers, and have low trade costs because of smooth customs operations and good infrastructure, are likely to survive and may even thrive in the (almost) quota-free trading environment. For some Asian countries, the textile and clothing industry has become the leading source of manufactured exports and, indeed, total merchandise exports. Over 80% of the merchandise exports of Cambodia (85%) and Bangladesh (83%) are clothing. For Sri Lanka (55%), Nepal (51%), and Lao People's Democratic Republic (42%), clothing exports are also by far the largest item in merchandise exports. For Pakistan, 70% of merchandise exports are in textiles or clothing.8 It is hard to overstate the significance of the employment and incomes that accrue to female workers, often new entrants to the labor force. Without these jobs, there would be little alternative formal employment of young female workers in manufacturing. The opening of the formerly closed economies of South Asia and the transitional economies of Southeast Asia would not have been as rapid, had it not been for the growth of a strong export-oriented industrial lobby based in the clothing sector. As pointed out in Part 3 of the Asian Development Outlook 2006, the development of export-oriented manufacturing industries under open trade regimes has had important social benefits for Asian countries related to employment, participation rates, household formation, and female status in society. It has also had some beneficial impacts on labor standards and human rights, as experience in Cambodia demonstrates. Cambodia, for example, has adopted International Labour Organization codes and conventions and has taken their enforcement quite seriously as a result of the critical position of the export-oriented clothing industry and its reliance on markets in the EU and North America.9 Some fear that these benefits may be lost if the industry collapsed. This anxiety has been repeatedly expressed for the small clothing exporters in the region, but is the concern—expressed in such articles as the Far Eastern Economic Review (2003)—valid? An attempt is made to address this issue in the following section. Before turning to recent trade performance, it is important to note briefly the industrial structure of textiles and clothing and to understand the various factors thought to be important in determining where production takes place. Viewed as an integrated whole, the value chain in textiles and clothing consists of the following five production stages (Figure 1.4.1): (i) spinning of fibers into yarn; (ii) knitting or weaving of yarn into gray fabric; (iii) dyeing, printing, and finishing of fabrics for clothing production; (iv) cutting of fabric into clothing parts; and (v) assembly or sewing operations (combined with accessories like buttons and zippers) to create finished clothing.  The presence of large domestic supplies of cotton or wool as in PRC, India, Pakistan, and Egypt provides a basis for cotton and wool textile production, but cotton or wool may also be imported from other suppliers of raw material (e.g., Australia and New Zealand). Man-made fabric (MMF) is produced from polyester filaments. Finishing operations are capital intensive (particularly dyeing and fabric finishing) and require large supplies of freshwater and power in addition to chemicals, dyes, and paints. Cutting and assembly operations for clothing are often subdivided as well, with simple sewing being the most labor intensive of all the production stages. A developing country typically begins with importing cut clothing pieces for sewing into clothing items. As the industry develops, cutting of fabrics and sewing the pieces into clothing represents a second phase of development. As the producers become more sophisticated, standard trim and accessories are added to production (e.g., white buttons on men's dress shirts). Finally, a full-package clothing producer does the sourcing of the fabric and contracts for the cutting, sewing, and trim operations along a global supply chain or production network. The ability to fragment production allows the full-package producer to place each operation in the most cost-effective location. The big differences in factor prices are what enable low-income developing countries to enter these global production networks. For example, clothing workers in Indonesia (earning $0.27/hour), India ($0.38/hour), Bangladesh ($0.39/hour), Pakistan ($0.41/hour), and Sri Lanka ($0.48/hour) can compete with those in the PRC ($0.78/hour) in labor-intensive sewing operations, provided that productivity is adequate, while workers in Mexico ($2.45/hour) may have difficulty doing so for markets as distant as Japan or Europe (USITC 2004). However, it takes only 2 days to ship clothing from Mexico to US retail outlets, but 21 days for clothing from the PRC to reach retail markets in Los Angeles, and time is literally money (Hummels 2001).10 Hence, in certain clothing categories, the labor cost advantage of the PRC may be offset by geographic proximity, if trade costs are low in the competitor country. The following factors must also be taken into account in addition to time, distance, and labor cost adjusted for productivity (unit labor costs): business climate in the supplying country (including policies and conditions for trade, investment, and the financial and labor markets); infrastructure (including use of electricity, informatics, ports, roads, telecommunications, water, and human resource-related infrastructure in, for example, health and education); and, most important, market access (whether a supplier is entitled to preferential tariff treatment or is subject to discriminatory tariff and nontariff barriers). All of these factors must be taken into consideration to understand the outcome of the liberalization that was completed under the ATC.11 While space prevents this brief review from conducting an evaluation of these factors in the developing Asian countries, it can be assumed that those that perform well in the post-quota trading environment are likely to have satisfied the requirements in most dimensions of these factors.
|
© 2008 Asian Development Bank Privacy | Terms of Use |
 Top of page |
Back