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					        T&C Trade Challenges
          for Latin America

             The ATC Ended
         Is T&C a Normal Sector?


                   Presentation by
                Mr. Matthias KNAPPE
ALADI 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 sector
But:
• 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 Trade
 in Latin    7 Challenges    Finding
 America        For LA      Responses
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

                                       T&C Exports of ALADI Countries in 2003
90.0%


80.0%


70.0%


60.0%


50.0%


40.0%


30.0%


20.0%


10.0%


0.0%
        Argentina   Bolivia   Brazil   Chile   Colombia    Ecuador     Mexico     Paraguay   Peru   Uruguay   Venzuela

                                               % textile             % clothing
      US Imports from ALADI 3 year comparison

                                                    US - ALADI Apparel Imports 2003/2004
100'000



  10'000



         1'000
US$ millions




               100



               10



                1
                     Argentina   Bolivia   Brazil   Chile   Colombia   Ecuador   Mexico   Peru   Uruguay Venezuela   China


                0


                                           2003                2004                year-end March 2005
  US Import changes from ALADI 2004- 2005
                             US - ALADI Apparel Imports: 2004 / 2005 data change in %
600%

                                                 504%
                                                                           January                February                   March
500%
                                                                                               100%
                                                                                                                      88%
                                                                                                90%
                                                                                                                              79%
400%                                                                                            80%
                                                                                                70%
                                                                                                60%
                                                    273%                                        50%
                                                                                                              41%
300%                                                                                            40%
                                                                                                30%
                                                                                                20%
                                                                                                10%
200%                                                                                             0%
                                                        131%                                                         China

100%

                       24%                                     15%11% 9%                             28%25%30%
                             2%                                             1%                                      10%
  0%
                              -10% -17%-9% -3%                                                                                      -4%-13%
                                                                             -14% -16% -4% -5% -8%                    -23%
                                                                                                                          -4%
                -34%
        -57%-48%                                                                                                                    -84%
-100%
         Argentina      Bolivia       Brazil       Chile        Colombia    Ecuador      Mexico        Peru         Uruguay     Venezuela


-200%
US Imports from ALADI in 2004
                                                        347
                                                    M/B trousers
                                                        20%
                  Rest
                  25%




   639 W/G knit
     blouses                                                        348
       2%                                                      W/G slacks etc.
          647                                                       18%
       Trousers
          4%
              638
         M/B knit shirts
              4%
                    659
           Other MMF apparel                     338
                    5%         339
                                            M/B knit shirts
                         W/G knit blouses
                                                11%
                              10%
      Structure



T&C Trade
 in Latin    7 Challenges    Finding
 America        For LA      Responses
 World Garment Exports: Declining
 Growth Rates
                                                        Global Garment Trade
                       220                                                                      14%
                                                                                                12%
                       200
                                                                                                10%




                                                                                                      Year on Year Change
 Value in $ Billions




                       180                                                                      8%
                                                                                                6%
                       160
                                                                                                4%
                       140                                                                      2%
                                                                                                0%
                       120
                                                                                                -2%
                       100                                                                      -4%
                             1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

                                                Value
                                                               Year
                                                            Change     Poly. (Change)


Source: WTO; idea: D. Birnbaum
     1. Prices will fall further
     More supply and quota rents are gone

                             Trends in US T&C import prices, 1983-2003
            US$/sm e
                      2.7
                      2.5                          2.4 2.41
                                           2.31                  2.35 2.33
                      2.3            2.2                                      2.23 2.18
                                                                                        2.14
                      2.1
                                                                                                   1.89
                      1.9                                                                                  1.83
                              1.65
                      1.7
                      1.5
                            1983 1989 1994 1995 1996 1997 1998 1999 2000 2001 2002 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
              China prices down: 9% on average but up to 50% in key
              products in US (35% in EU)
                                                                          US Apparel Imports per Category in January 2005
               0
                             Kn                                                 Kn                                               Sk                                 Tr                                          Tr                                      Co
                     -2.09      i                                                  i                                                i   rts                 -2.22     ou                                 -2.5     ou                                       tto
                                    ts                                                 ts                                                                               se                                          se
                                         hi                              -5.3               hi                           -4.78                (3                             rs                                          rs                                      n
                                           rt                                                 rt                                                42                                                                                                                   un
              -10                               s                                                  s                                                 )                            M                                           W                                        de
                                                    M                                                  W                                                                              /B                                       /G                                           rw
                                                        /B                                              /G                                                                                 (3                                                   -9.27
                                                             (3                                              (3                                                                                                                     (3                                           ea
                                                                3                                                 38                                                                            47                                     4   8)                                         r(
                                                                    8)                                               )                                                                               )                                                                                     35
                                                                                                                                                                                                                                                                                              2   )
              -20
Change in %




              -30




              -40                                                               -37.35



                                                                                                                                                                    -46.56
              -50                                                                                                                                                                                                                                       -48.43
                             -50.96
                                                                                                                                 -53.86                                                                         -54.9
              -60

                                                                                       World unit value change                                           China unit value change


              Source: OTEXA
2. Country & Enterprise
Consolidation
                                                       Likely Post 2004 Sourcing Pattern

                              70
Number of Countries




                              60
                              50
                              40
                              30
                              20
                              10
                               0
                             Under Quota                                                 Year 2005/6                                                   Year 2010
                                                                                                Year

                      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
                       Supplier                               Selected by
 Cheaper &                            Cotton     Pakistan
                       nominated by                           fabric mill &
 close to factory      Customer                               quality is fine
                                                              Vertical setup
                                       Yarn      Malaysia     by fabric mill

China       China        US                                 Good
                                                            relationship &
Thread      Label       Button         Fabric    Malaysia   good in piece
                                                            dye
                                                                Major shirt
                                                 HK – China     factory in
                                      Garment
                                                 OPA            TAL

 Inter-     Malaysia
 lining     Or Japan                  Retailer   US
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 to the EU in Jan 05
                                                             China's T-Shirt Exports in January 2005


                     883.05      881.41                                                                                          21'000         18'566.12
              900
                                                                                                                                 17'000




                                                                                                                   Change in %
                                                                                                                                 13'000

              700
                                             679.96
                                                                                                                                  9'000
                                                                                                                                                                          5'864.20
                                                         571.98                                                                   5'000
Change in %




                                                                     502.58                                                       1'000
              500                                                                                                                                Hungary                  Poland


                                                                                 328.85     324.79
                                                                                                       299.35
              300
                                                                                                                      206.86                162.25

                     Germany       Spain        US         Italy      France      Ukraine    Czech     Denmark                   England     Canada         Hungary   Poland
              100                                                                           Republic


                                                                                               27.93
                                                                                                                                               -14.77          1.17
                        -51.83      -46.26      -57.67      -49.75      -39.15                            -30.41                   -35.24                              -45.99
              -100



                                                                     Volume change                     Unit value change
 Source: China Customs, 02/05
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?


                  International manufacturers    4%


                              Buying agents     2%


   International World Trade Organization                                     50%

     Sourcing executives from retailers and
                                                               29%
                  importers

  U.S. and European government officials              15%


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?


   They will be useless against competition from
                                                     17%
                       China

 Not important unless they are renegotiated and
                                                      21%
                   simplified.


 Important as one element in a sourcing strategy                 59%


       Impossible to source competitive products
                      without them                  3%



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 reduction
2. Consolidation
3. China? Or rather Improving
  Competitiveness
4. Use of trade remedies
5. DDA and T&C Trade
6. Multilateral approach vs. FTAs/RTAs
7. Imposition of new (buyers’) rules
      Structure



T&C Trade
 in Latin    7 Challenges    Finding
 America        For LA      Responses
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 Development
a) 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-opener
b) 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 areas
Cotton development needs to be seen in light of
S-S trade
Hubs & Spokes Changes to Hub & Regional Hubs

                   N       ES
              H                     CR
                   CAFTA                 Mex & CAN
                                         DR
          G



                       USA


               L
              Sub Saharan Africa
                M            N
                       K        S

        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 Composition
                                      US - ALADI Apparel Imports 2004
100%



80%



60%



40%



20%



 0%
       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

                           8.00
                                                     Andean
                                              6.88
                           7.00
                                                                                         6.34

                           6.00
                                             6.39    AGOA                                                       5.34
Ratio Cotton/MMF Apparel




                           5.00
                                                                                         5.68
                                                                                                                5.29

                           4.00
                                  Jordan
                                              2.90                                       2.80                    3.29
                           3.00
                                    CBI                                                                          2.56
                                              2.39                                       2.69
                           2.00
                                                                                                                 1.80
                                       World 1.79                                        1.88
                           1.00



                           0.00

                                           2002                                      2003                     2004
Tariff Peaks for Cotton & MMF Apparel

                      Cotton     MMF
             Product MFN Rate MFN Rate
             Average        13.2      23.4
             Trousers, Breeches, Shorts
             Knit           15.5      28.2
             Woven          16.6      28.3
             Shirts & Blouses
             Knit             20        32
             Woven          17.6      26.4
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 !
                      For more information

  http://www.intracen.org/textilesandclothing



Contact:
Matthias Knappe, Senior Market Development Officer
Knappe@intracen.org
      WTO Rules Governing
          T&C Trade
          From 2005


                   Presentation by
                Mr. Matthias KNAPPE
ALADI 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
                         What can we do together ?
                                           Sales
  1.- Sector Strategy
                                      (+Marketing,                   “The SHAPE”
      Development
                                      and Services)
                                   Sales
2.- Understanding its’
own and competitors’
                                (+Marketing,                           “The FiT”
     performance
                                       Outbound
                                and Services) Logistics
                                       Customs-GSP/Quota
                                             Export Clearance
  3.- Developing fabric                                             Sourcing Guide
   sourcing skills to            Outbound Logistics
                                 Customs-GSP/Quota                       and
         become                          Manufacturing
                                  Export Clearance                    database
“full-package”suppliers

                                             Inbound Logistics
                                                                 New ITC T&C website
  4.- Understanding             Manufacturing    Customs,
                                              Import Clearance        Workshops
  changing markets
                                                                  Tailored Product &
                                  Inbound Logistics              Market Development

     5.- Applying
                                      Customs,Sourcing
                                   Import Clearance
                                                                    Business Guide
 e-applications in the
                                                                 in e-commerce for T&C
      T&C sector                  Sourcing

  Implementing tailor-
made market penetration                                                   ITC
approaches in line with                                          Tailored Consultation
  buyer requirements
                 THANK YOU !
                      For more information

  http://www.intracen.org/textilesandclothing



Contact:
Matthias Knappe, Senior Market Development Officer
Knappe@intracen.org
                                   Bolivia Apparel Export 2004
                            Rest
                            15%


     Knit shirts, blouses
              0%
    W/G wool sweater
           2%
     W/G slacks etc.
           3%


Nightwear/Pyjama
       6%
                                                             M/B knit shirts
                                                                  56%




     W/G knit blouses
           18%
Brazil Apparel Export 2004


                            Rest
                            25%


                                                                        W/G slacks etc.
                                                                             37%




       Dresses, gowns etc
               3%


             M/B trousers
                  6%




                 Cotton underwear
                        7%

                                   W/G knit blouses   M/B knit shirts
                                         11%               11%
                  Chile Apparel Export 2004
                                              M/B trousers
                                                  17%




Rest
34%




                                                             M/B wool suits
                                                                  17%




                                               Wool trousers
M/B suit-typ CT                                     16%
     16%
              Colombia Apparel Export 2004
                                                     M/B trousers
                                                         21%




Rest
41%



                                                             W/G slacks etc.
                                                                  15%




                                                   M/B knit shirts
                                                        7%
       Other MMF apparel Cotton underwear M/B suit-typ CT
              4%                6%             6%
Ecuador Apparel Export 2004

                              M/B knit shirts
                                   17%




                                   M/B trousers
                                        7%


                                     W/G wool sweater
                                           3%
                                     Nightwear/Pyjama
                                            2%

                                  M/B wool sweater
            Rest                        2%
            69%
Mexico Apparel Export 2004
                                                                       M/B trousers
                                                                           22%



                  Rest
                  32%




                                                                                W/G slacks etc.
                                                                                     20%




             M/B knit shirts
                  5%


              Other MMF apparel
                     5%
                                  W/G knit blouses   M/B knit shirts
                                        8%                8%
                                 Peru Apparel Export 2004
                          Rest
                           13%
            Cotton sweater
                  1%
           M/B trousers
                 2%
W/G slacks etc.
      2%
W/G knit blouses                                            W/G knit blouses
      2%                                                          43%




            M/B knit shirts
                 37%
                               Uruguay Apparel Export 2004
                        Rest
                        14%


 Knit shirts, blouses
                                                                 M/B suit-typ CT
          5%
                                                                      31%




M/B wool sweater
     16%




             W/G wool sweater                                W/G coats
                  16%                                          18%

				
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