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DEVELOPME NT OF TE XTILE AND APPAREL INDUS TRY IN MOLDOVA th August 14 2007 Heikki Mattila CONTENTS 1

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DEVELOPME NT OF TE XTILE AND APPAREL INDUS TRY IN MOLDOVA th August 14 2007 Heikki Mattila CONTENTS 1 Powered By Docstoc
					DEVELOPME NT OF TE XTILE AND APPAREL INDUS TRY IN MOLDOVA




                              th
                     August 14 , 2007
                      Heikki Mattila
CONTENTS


  1.    Background

  2.    Upgrading in the textile and apparel value chain

  2.1   Bulgaria
  2.2   The Baltic countries
  2.3   Portugal
  2.4   Romania
  2.5   Serbia
  2.6   Turkey


  3.    Taxation and control of material remnants and waste in inward processing trade in other
        countries

  4.    Recommendations

  4.1 Upgrading in the textile and apparel value chain
  4.2 Taxation and control of material remnants and waste

  Referenc es




                                                                                                  2
1. Background

The objective of this report is two-fold: First to present examples of how other countries have
developed their textile and apparel sectors and how Government can help the T/C sector to
transit from low-value added processing such as CM to higher value-added operations such as
Full-Package, Private Label and Own Label, secondly to recommend how to control and regulate
material consumption in inward processing trade and how to deal wit h cutting remnants.

The sourcing concepts used in apparel sourcing are often defined as follows:

CM
The manufacturer sells cutting and manufacturing services only and all materials imported for
processing as well as ready made goods to be ex port ed are owned by the customer.

CMT
The same as CM except the manufacturer buys some of the accessories like sewing thread,
buttons, etc.

Full-Package (Full Price, FOB)
The manufacturer buys all materials according to the customer’s specifications and invoices the
full value of the product at delivery.

Private Label
The manufacturer designs collections independently or jointly with the customer. The full -value
products are delivered under customer’s trademark.

Own Label
The manufacturer designs own collections and sells them under his own brand.

Box 1. Sourcing concepts


The customers may be classified into three main categories: manufacturers, wholesalers and
retailers. Manufacturers prefer often CM and CMT, while wholes alers and retailers favor Full-
Package, Private Label and Supplier Brands. According to Palpacuer the French retailers seem
to favor Full-Package to traditional buying and CMT, and the dominant objectives in French
fashion retailers’ sourcing policy are as follows:

        Develop direct sourcing without intermediaries.
        Increase continuous sourcing (instead of seasonal buying) and replenishment
         possibilities.
        Cent ralize and rationalize sourcing.
        Work with selected suppliers on long term basis.
        Supply chain int egration.


The French retailers’ main criteria for selecting suppliers in sequence of importanc e are:

       Price
       Quality
       Delivery time
       Ability to communicate
       Product specialization


                                                                                                  3
          Product design
          Ability to engage in stable relations
          Ability to acquire ret ailer-specific skills
          Financial stability and production volume

Upgrading to higher value adding concepts require special skills, more advanced technology and
financing as presented in Figure 1.




                           CM                CMT           FULL-PACKAGE        PRIVATE LABEL        OWN LABEL



                      Manufacturing      Manufacturing      Manufacturing       Manufacturing       Manufacturing
                                          Accessories      Material sourcing   Material sourcing   Material sourcing
        Skills                             sourcing         Material testing   Material testing    Material testing
    needed                                                                      Pattern design      Pattern design
                                                                               Garment design      Garment design
                                                                                                      Marketing



                       Production         Production          Production          Production          Production
                       machinery          machinery           machinery           machinery           machinery
  Technology             Internet           Internet           Internet            Internet            Internet
    needed                                                   Testing lab         Testing lab         Testing lab
                                                            Pattern design      Pattern design      Pattern design
                                                                 CAD                 CAD                 CAD
                                                                               Garment design      Garment design
                                                                                     CAD                 CAD



                                                           Cash at delivery
   Terms of          Cash at delivery   Cash at delivery         or             30 days credit      30 days credit
    payment                                                 30 days credit


   Financing           Labor costs        Labor costs        Labor costs         Labor costs         Labor costs
    needed                               Duty 5-10 %         Duty 5-10 %         Duty 5-10 %         Duty 5-10 %
                                           VAT 20 %           VAT 20 %            VAT 20 %            VAT 20 %
                                                             Receivables         Receivables         Receivables
                                                               30 days             30 days             30 days



Table 1.           Skills, technology and financial needs with different sourcing concepts (Source:
                   Trade diagnostic study of Moldova - modified)



According to the World Bank’s trade diagnostic study of Moldova, 93 % of Moldova’s apparel
exports were done on CMT basis in 2004. Virtually no textile materials, i.e. fabrics or accessories
for apparel products are produc ed in Moldova. Furthermore the bureaucratic trade regulations
did not encourage the apparel companies to upgrade towards more value added concepts.

In CM the producer receives materials from the customer and pays only customs handling charge
(in apparel 0.04 %) but no duty or VA T, as long as the customer owns the materials and the



                                                                                                              4
products during processing. Duty drawback means that duty (5-10 %) and/or VAT (20% ) are
payable when the producer imports the materials, but they are refunded when products made of
these materials are exported. Duty drawback would apply to CMT, Full -Package, Private Label
and Own label conc epts. Many countries especially in emerging economies use such a system in
order to make their export industries competitive in the world market. This is beneficial to local
garment manufacturers but not to local accessories and fabric producers. According to
comprehensive studies by Elena Ianch ovic hina of the World Bank the conclusion seems to be
that duty draw backs have a positive impact on export competitiveness and employment in export
oriented industries, but could lead to ex ports with low domestic value added since it does not
stimulate investments into domestic material producing capacity .

The total fabric waste in apparel production consists of cutting loss, roll ends and removed
defects. Cutting loss is fabric bet ween product components (sleeve, collar, back piece, etc.). Roll
ends are piec es of fabric that are too short to make a garment. Fabric defects are removed either
in spreading or later by re-cutting the defected part. All this is usually considered garbage with no
commercial value. Moldovan Customs, however, sees this differently and does not exempt them
from duty and VAT as they are considered material staying behind in Moldova. This procedure
originates probably from Soviet era as it is used in Russia, Belarus and Ukraine at least by certain
Customs offices. But in countries like Romania, Poland, Serbia and the Baltic countries it has not
been exercised.




                                                                                                    5
2. Upgrading in the textile and apparel value chain
In order to enhance the value added of any industry the producers should move up in the apparel
value chain from very low priced CM and CMT to Full-Package, Private label and Own label.
This, however, does not seem to be easy and usually takes a considerable lengt h of time as
demonstrated in the World Bank’s Trade diagnostic study of Moldova (Figure 2).




Figure 2.        The apparel industries in Portugal and Hong Kong have gradually transformed
                 from CM/ CMT production t o FOB/Private Label producers. The B altic area is
                 becoming a FOB area while the rest of the CIS count ries are CM/CMT producers


Experiences and plans for upgrading from selected countries are present ed on the following
pages.


2.1 Bulgaria

The textile and clothing industry employs 155 000 people in Bulgaria with 7.5 % share of
industrial production and 23.4 % of total ex ports. The main export market in 2005 was Germany
(28 %) followed by Greece (16%) and Italy (14%).

According to Textile Intelligence the Bulgarian production of textiles and clothing grew by 152 %
and 109 % respectively bet ween 2000 and 2006. Despite of difficulties, such as a large grey
economy, illicit working practices, high investment needs, low labor productivity and reliance on
imported textile materials, the article concludes that the outlook for B ulgarian textile and clothing
industry is good, because of:

       The sector consists mainly of flexible and fast-to-t he-market SMEs.
       Favorable geographical location close to other EU countries
       Low wages
       Removal of trade barriers due to E U membership



                                                                                                         6
Bulgaria’s apparel industry is very export oriented. According to Bulgarian Association of Apparel
and Textile Producers and Exporters most garment exports are done on CM and CMT basis.
Although many local producers have registered trade marks less than 10 % of total out put is sold
domestically.

The Bulgarian Apparel Sector Strategy (http://exdima.sippo.ch/SIPPO_bg_t extileEN.html)
produced under the Ministry of Economy’s coordination in 2004 estimates that the share of
Bulgarian producers’ participation in product development was only16 % while the rest of the total
output was pure CM or CMT. The following trends were identified by the companies:

        Most producers are export oriented oft en without any domestic sales.
        A big part of companies depend solely on 1 to 2 foreign customers.
        Trade intermediaries (customers buying offices in Bulgaria) cut the producers off from
         market information and make it difficult to find and approach new customers.
        The companies are interested in joint mark eting projects, but very few have been carried
         out so far.
        The very high proportion of CM production an d designs by customers decrease the
         added value and make low price the only means of competition.
        Many companies have registered trade marks, but do not use them.
        Only 1 % of the T/C sector companies are ISO9001 certified.
        Although a quality certificate is often a pre-condition for exports, the smaller companies
         cannot afford them.
        High dependenc e on imported materials prevents the Bulgarian textile sector from
         developing successfully.

The strategic objectives for the Bulgarian T/C sector are as follows:

       The sector will be dynamically developed in regards to design capability, management
        and marketing skills, work force skills, inter-firm net works.
       Sale of end-products will be promot ed by increasing the number of local companies
        manufacturing products under international brands, creating and increasing sale of own
        brands and increasing sale of private label services.
       Selling to the global market by diversification of markets and client structure, promoting
        Made in Bulgaria products and ent ering niche markets with higher added value.

The action plan for achieving the strategic targets includes the following:

       Increase the number and improve the quality of company web pages.
       Joint participation in international trade fairs.
       Increase cooperation between firms, i.e. marketing chains, etc.
       Join international distribution networks.
       Cooperate in material purchases in order to optimize volume and price.
       Introduce quality, environmental, social and other international standards.
       Encourage companies to implement design and ITC systems.
       Establish domestic brands and introduce them at export markets.
       Increase participation in international B2B fairs (materials, et c.)
       Establish real marketing departments in companies
       Improve the efficiency and legitimacy of industry associations and increase their dialogue
        with the Government.
       Adapt the objectives of higher, medium and vocational education to company needs.
       Establish R&D centers specializing in technology, design and production,
       Establish a Design and Fashion Support Centre for providing fashion trend services to
        member companies.



                                                                                                     7
         Establish a Productivity Support Center and a Marketing Support Centre.
         Stream-line customs clearing procedures.
         Improve taxation in order to promote re-investment of profits.
         Establish an export promotion fund for financial support of trade fair participation, etc.


2.2 The Baltic countries

After gaining independence the Baltic countries quickly turned into important garment suppliers.
The Nordic countries, especially Finland and S weden, as well as Germany set up sub -contracting
production in the area. There were several well equipped garment factories, some of which were
totally reorganized with modern machinery during the last years of Soviet Union. During the
privatization period many of these companies were bought by foreign apparel firms and the
industry became a part of Nordic and German T/ C clusters .

All production in the 90s was CM as the companies were not experienced in sourcing materials
and most of them did not have sufficient funds for financing material purchases. The Baltic
countries are small in area and population (Estonia 1. 6 million, Lat via 2.3 million and Lithuania
3.4 million). The small size of these countries may be one of the reasons that several companies
have been able to upgrade further from the basic CM or CMT. The other reason is rapidly rising
costs and today many companies in the Baltic area are delocalizing their garment manufacturing
to Belarus, Ukraine, Russia and further.

Estonia

At the beginning of 90s Estonia’s garment industry was very similar to what Moldova’s apparel
industry is today. Nearly everything was produced on CM or CMT basis for ex port wit h hardly no
own brands. The few textile producers concentrated on home textiles or knitwear materials. Most
apparel fabrics had to be imported. Several textile and apparel firms were bought fully or partly by
foreign companies during privatization. These FDIs were mostly acquisitions rather than new
investments. As result many factories were turned into foreign companies’ production subsidiaries
selling CM services and there was no interest to upgrade towards more value-added concepts.
Estonia’s own textile and apparel firms started gradually to develop their own brands and
collections selling them first in the domestic market and then in other Baltic states and Russia. As
the GDP level in Estonia grew foreign retail chains started to ent er the market from mid 90s. At
that time there was no competition from local retailers and the market was soon dominated by
foreign brands.

The main export markets for apparel products according to Estonian Clothing and Textile
Association (ETCA) in 2005 were Finland (31%), Sweden (20%), Russia (9%), Germany (6%),
UK (5%), Lat via (5%), Norway (5% ) and Lithuania (4%). Exports to Russia and other B altic
countries are likely to consist of Estonian brands while the rest of the exports are CM or CMT.
The reasons why aft er gaining independence the Estonian T/C industry became such an
important supplier to Scandinavia and Germany are as follows:

         Most garment and textile firms were well equipped with modern machinery and they had
          well trained pers onnel.
         Most factories were small and flexible and could respond quickly to customers’ requests.
         The general cost level was very competitive in the 90s.
         Estonia is close to these markets, and communications and logistics were easy and
          efficient.

According to Purju the special conditions that have shaped the development of the T/C sector in
Estonia are as follows:




                                                                                                       8
         Trade union representation is very weak and their bargaining power is limited. Only 14%
          of the total labor force belongs to labor unions.
         There are huge wage level differences from one industrial sector to another.
         Estonian Clothing and Textile Association (ECTA ) was established in 1993 for promoting
          the interests of Estonian T/C industry, but its influence on governmental policy is not as
          strong as in West European countries. The T/C cluster, like other industrial clusters in
          Estonia, is not well organized and lacks bargaining power.
         Only a few Estonian brands have been successful in Estonia and abroad.
         Well educated young people are currently moving to other EU countries and t he skilled
          work ers are leaving the T/C sector to work in higher paying sectors like electronics and
          services.
         Taxation policy is favorable bot h for corporations and individuals. Profits are not taxed if
          invested back into the company. Personal income tax is not progressive.


During the past 3 to 4 years the T/C sector in Estonia has gone through big changes. The
minimum wage level is still applied in the apparel industry while the electronics industry is paying
much higher wages. According to Estonian Clothing and Textile Association the wages paid in
the apparel industry are 65 % of the average industrial wage level. People have started to move
to better paying jobs and it is nearly impossible to recruit new people. Direct wage costs at
minimum level and other operating costs (gas, electricity, etc.) are increasing 20% to 30%
annually. The impact on the T/C sector has been the following:

         The Estonian branded manufacturers (Baltika, Klementi, PTA, etc.) are converting from
          producers to wholesalers and branded ret ailers. The factories are closed in Estonia and
          products are sourced from lower cost countries in East Europe and Asia.
         Foreign companies with sub-contracting operations or own factories in Estonia are
          delocalizing their production to lower cost countries. The total production value of the
          apparel sector has been declining since 2002.
         The delocalization process in most regions in Estonia does not seem to cause
          employment problems as people are leaving the T/C sector anyway and there are jobs
          available in better paying sectors, such as electronics and services.

Lat via
                                                                                                    th
The textile sector is the oldest branch of Lat vian industry. Many companies date back to the 19
century. The industry was modernized and developed during the Soviet times and in 1990 when
Lat via became independent there were a number of apparel companies and textile mills
producing cotton, flax and silk fabrics. Exports to the West European markets started gradually in
the 90s. Today a big part of exports are apparel products, but many textile companies have
survived and developed internationally known textile brands (Lauma, Ogre, Rita, Aurora-B altika,
Viola-Stils).

During the privatization proc ess the large state -owned firms were restructured and many new
flexibly operating apparel companies were establis hed, often with foreign capital. The T/C sector
comprised 664 companies employing 25 000 people in 2005, which is 14 % of total industrial
work force. According to Lat via’s Central Statistics Bureau the main export markets for T/ C
products in 2005 were Germany (14%), Sweden (13%), Estonia (10%), Denmark (10%) and
Russia (9% ).

According to the Lat vian Investment and Development Agency the critical success factors for the
textile and clothing industry have been as follows:




                                                                                                          9
       Short lead times and reliable deliveries due to proximity to the main markets and
        advanced production management. Small orders are accepted and delivery time varies
        between 2 to 6 weeks.
       Ability to produce high quality products both for subcontracting and own brands.
       Good design skills for own brands. The Lat vian Academy of A rts has high quality
        education for designers.
       Well trained workforce due to well organized vocational educ ation. The work force is also
        flexible in terms of working time.
       Well educated and experienced engineers from Riga Technic al University.
       Capable and dedicated senior management with good English and German language
        skills and which often are co-owners in the company.
       Modern production facilities and many companies have carried out considerable
        investment programs during the past years.
       A combination of low labor costs and high labor productivity.
       Several companies have quality certificates, such as Oeko-tex, ISO9001 and IS O14000.
       There are strong companies bot h in the textile and garment sec tor, for example in ladies
        underwear, whic h makes Lat via a one-stop-shop for the customers.

The main problem that Lat via’s textile and clothing sector fac es today is increasing costs. As
result many firms have started to deloc alize their production to Belarus, Ukraine and Russia.


Lithuania

The historic background of the Lithuanian textile and clothing industry is very similar as in Lat via.
The sector employs 47 000 people and 2/3 of the companies are apparel producers and 1/ 3
textile manufacturers. The key trading partners today are UK, Germany, Sweden, Denmark and
Italy. Most of exports are on CM and CMT basis, but several firms have also developed their own
brands and sell them domestically and to export to neighboring count ries. As a part of the global
textile and apparel value chain Lithuanian producers are facing increasing competition from lower
cost regions, especially from Asia. Many CM and CMT customers are currently shifting their
order away from Lithuania.

To survive the Lithuanian T/C sector feels that it is important to develop flexible production
systems for small fashion orders and to emphasize own brand development. Several companies
have been successful in int roducing their brands in the domestic and nearby markets, for
example Audejas, Audimas, Utenos Trikotazas, Roze and Omnitekas , but the domestic market is
dominated by foreign brands and retail chains. The National Development Strategy for the Textile
and Clothing Sector, 2005-2010 lists the following objectives for maintaining the competitive
advantage of the sector:

       Lithuania’s T/C sector must emphasize its ability to produce and supply flexibly well
        designed high quality products, such as fabrics, trimmings, auxiliary mat erials and
        apparel products.
       By using new multi-functional materials, new generation textile products with high added
        value can be developed for medical purposes, automobile, aviation and space industries
        as well as for safety and protective garments.
       Further funding must be sought from EC for structural developm ent as well as for
        research and development projects.

SWOT analysis by Glinskiene et al defines the current situation in the Lithuanian textile and
clothing industry as follows:




                                                                                                   10
Strengths:

       Large work force in the sector.
       More than 80 % of products are exported.
       Export volumes larger than imports.
       Labor productivity is competitive compared to European suppliers.
       Workforce is experienced and highly qualified.
       Advanced technologies in use.

Weaknesses:

       Exports consist mainly of CM and CMT.
       Profit ability is low.
       Export volume is decreasing.
       Investments are dec reasing.
       Direct foreign investments are decreasing since 2000.
       The lowest labor productivity among all Lithuania’s industrial sectors.
       Labor cost forms a large part of the cost structure due to CMT.

Opportunities:

       Lithuania is still regarded as a favorable trading partner by EU customers.
       Cert ain competitive advantage can be achieved by developing flexibility.

Threats:

       Competition from Chinese suppliers.
       Low material and direct foreign investment do es not allow for upgrading of technology.
       Increasing labor costs.


2.3 Portugal

Portugal became an import ant supplier of garments to the rest of Europe already in the 80s.
Although there was a large textile industry in Portugal, most exports were CM and only a few
companies started to offer CMT. After Portugal became a member in EU support money became
available. The Ministry of Industry organized special funds co-financed by EU at the end of 80s
and early 90s for the industry to get grants and loans for investments and productivity
developments. The focus of these development funds and programs was to improve productivity
and to upgrade the industry to more value-adding businesses. In the 90s Portugal’s Government
set up a special office for supporting the SME sector of Portugal, called IAPME I
(http://www.portugaloffer.com/iapmei/). IAPME I’s mission is to ‘Design and carry out policies
that support and enable companies to expand. IAPMEI focuses in partic ular on upgrading and
innovation for small and medium-sized enterprises operating in the secondary and tertiary
sectors, including T/C sector’.

A special investment initiative RE TE X was set up in 1994 in order to modernize the Portuguese
T/C industry (http://ec.europa.eu/regional_policy/reg_prog/po/prog_222.htm ). The total budget of
the program was € 542 million, and the money was available to the T/ C sector only . EU financ ed
75 % while the Portuguese Government put up the rest. Altogether 1756 projects were carried
out during 1994-1999. The maximum grant for investments was 50 % and for consulting servic es
70 %. RETE X was followed by other similar programs, like PEDIP and PEDIP II. Each program
focused on specific topics, such as investments, capacity development, improvement of
management know how, exports, etc. RETE X was organized as follows:




                                                                                                  11
RE TE X was a special program for textile and clothing industry (1992 -1999). Companies
interested in project funding had to present a project proposal to the Ministry. The application
had to be supported by a diagnostic study, strategy plan, project plan and project proposal.



             Diagnostic Study
           Strategy Preparation
               Project Plan
             Project Proposal
                                                          Investments
                                                     Project Implementation
                                                      Cons ulting services




        Final report with estimated
                  results
      Financial records with invoices




Grant money was available for the following costs:

        Costs                                                  Grant max %        Grant max €

Cons ulting fees for preparation of diagnostic
study, strategy plan, project plan and project                      70 %              50 000 €
proposal, as well as final reports.

Cons ulting fees for productivity built up                          60 %             125 000 €

IT, CAD and CAM systems and equipment                               50 %              75 000 €

Trans port systems in production and warehouse,
quality control systems and equipment together with                 40 %             150 000 €
installation.

Refurbishing of factory buildings and environment                   60 %             200 000 €

Dissemination, i.e. organizing an open door workshop
to show other companies what was done and                           100%              25 000 €
what was achieved.



Project preparation and supervision was carried out by consulting consortiums, which consist of
local and int ernational consultants bringing international consulting know how int o the count ry and
enhancing the skills of local consultants.

By 2001 the textile and clothing industry in Portugal employed more than 200 000 people, 25 %
of the total industrial workforce. Of the total 13 000 T/C companies more than 70 % employ less
than 10 people. Such small companies may export themselves, but several trading companies
were established, which on behalf of these SMEs collect orders from customers and distribute
them to small producers. Unfortunately the Portuguese apparel companies were slow in


                                                                                                   12
developing own brands and international fashion chains took over the Portuguese market in the
90s. Today relatively few firms have own brands and companies that sell Full-P ackage services
or Private label are moving their production to lower cost countries like Romania, Ukraine and
Morocco.


2.4 Romania

Before E U membership Romania was for years the third largest extra EU supplier of apparel
products to EU after China and Turkey. Currently the 360 000 people representing 14 % of the
total work force are employed by the Romanian apparel indust ry, which stands for 25 % of
Romania’s total exports. In 2005 over 90 % of T/C sector’s output was exported to EU.
Most of the apparel exports are done on CM and CMT basis and the range of customers vary
from top level European brands to low cost retailers . The labor cost is relatively high compared to
near-by countries. In 2006 the average monthly direct wage level in the textile industry was € 217
and in the garment industry € 190. The labor productivity is not very high. Romania’s garment
exports to EU have been decreasing since 2005.

The success of Romania’s textile and clothing sector was largely built during the socialist era and
right after Romania became a market economy. The large state owned enterprises were
reorganized and privatized and several new privately owned SMEs were established. There are
several high quality and high volume producers of heavy apparel (men’s suits, ladies blazers,
overcoats, etc.) in Romania, and they are still able to fully sell their capacity. Currently Romania
is facing the following problems:

       Most of exports are CM and CMT with only some Full-package sales.
       High labor costs together with low labor productivity makes Romania less interesting to
        CM and CMT customers.
       There is a shortage of labor in the T/ C sector as people go after better paying jobs. The
        salaries in the textile and clothing sector are 30 % lower than the average paid in
        Romanian industry.
                                                              st
       Implementation of EU customs tariffs on January 1 2007 is likely to lead Romanian CMT
        and Full-package providers to source materials from Asia, which will weaken the position
        of domestic textile industry.
       Since 2004 all major T/C sector indicators (production volume, exports, employment and
        foreign and domestic investments) have been heading down hill.
       According to some estimates CMT production, which accounted for 68% of total garment
        output and 80 % of total exports in 2005 will largely move out from Romania by 2010.
        Half of the 8 000 textile and apparel companies could disappear reducing the total output
        by 10% to 25%.

Despite of increasing cost pressure the Romanian apparel industry is confident that it will be a ble
to compete in the future, because:

       Proximity to EU.
       Specialization in high quality heavy apparel, where, like in men’s suits, very little
        competition comes from Asia.
       Still low standard minut e cost and skilled labor.
       Gradual transition from CMT to Full-Package production.
       Despite of growing invasion of foreign brands and ret ail chains popular domestic retail
        chains also exist.
       Romania has a large domestic market.




                                                                                                   13
2.5 Serbia

During the transition period since 2000 Serbian macro economy has stabiliz ed and the real
annual GDP growth has varied bet ween 2 % and 5.3 %. The textile and garment production
represented 7 % of total manufacturing out put and 3 % of GDP employing 75 000 people in 2003.
Before disint egration of the former Yugoslavia textile industry was one of the main export
industries and over 70% of exports went to European customers. During the embargo most textile
and apparel companies were forced to focus on the domestic market. Several large scale state
owned textile mills had to scale down their volume and some ended up in bankruptcy. But at the
same time a number of new SMEs especially in the apparel sector was set up. By focusing on the
domestic market with very little foreign competition they built strong brands and own retail chains.
Today the value of apparel exports is € 200 million a nd 70 % is exported to EU usually on CMT
basis.

The labor costs in Serbia’s T/C sector are among the lowest in Europe, way below 100 €/month in
the T/ C sector. The cost price of one production minut e is very competitive. The labor force is
skilled and experienced. There are special schools for training sewing operators and technicians,
and 100 textile engineers graduate annually.

The Serbian apparel industry depends heavily on imported fabrics as most of domestic fabric
production has collapsed. The free trade agreements between Serbia and E U, Russia and
Cent ral European countries have reduc ed import duties to 0%.

According to Serbian Investment and Export Promotion Agency the keys to success for t he local
T/C sector are as follows:

       One of the most price competitive textile and apparel industries in Europe.
       Quick and flexible deliveries and low order minimums.
       Closeness to main European markets, especially Italy.
       Good educational system produces hi ghly skilled workers and management.
       Serbian industry is a supplier to high quality brands in Europe and USA and through
        these contact understands top quality requirements.
       Strong domestic brands and ret ail chains can compete in the local market and near -by
        countries.

2.6 Turkey

According to the Association of Turkish Clothi ng Industry the Turkish apparel industry is:

       The driving engine of Turkish economy in terms of investment, production and
        employment.
       Apparel is the leading ex port product.
                        th                   nd
       Turkey is the 5 largest global and 2 largest EU supplier.
       The industry is internationally competitive and has growth pot ential.

There are about 40 000 textile and clothing producing companies in Turkey, mostly family owned
SMEs. But also 25 % of the 500 largest enterprises in Turkey are T/C firms. About 10 000 of
these companies are exporters. All kinds of textiles and garments are produced in Turkey, which
makes Turkey a one-stop-shop for the customers. Because of this Turkish T/C companies are
primarily Full-Package providers, although CM and CMT is still largely available. Several Turkish
firms have also developed their own brands and sell them domestically and al so for export.
Another strong point is that many of the larger firms have made investments in backward and
forward linkages thus controlling a longer piece of the supply chain. This has attracted many
large US customers like Liz Claiborne, Tommy Hilfiger and GAP. The firms that have made




                                                                                                 14
downstream investments, i.e. they have became retailers, have developed their own product and
retail brands.

Development of export trading companies (E TCs) were promoted already in the 1980s.
According to Neidik et al, ETCs were formed when small firms came toget her to get better
financing and marketing support, and today there are 31 E TCs accounting for about 30 % of
Turkish textile and apparel exports. Some of the earlier E TCs were set up by large T/C producers
and gradually they started to export goods made by other companies as well. The trading
companies are active exporters of Turkish made goods with excellent Int ernet trading sites and
sales offices in EU and the USA.

Neidik et al define the following points to be behind the Turkish T/C success:

       The sector consists mainly of family run SMEs, which are flexible and able to rapidly
        respond to demand changes. This has been a critical factor in Tukey’s as Turkey’s T/C
        sector relies on E U rather than US. EU buys smaller runs and more fashionable products.
       There are bot h integrated firms (fabric and garment manufacturing) and several
        independent material produc ers and apparel producers. This makes it easy for Turkey to
        offer Full-package services as well as Private Label.
       Turkish brands and retail chains have meant that Turkish companies have been able to
        maintain a meaningful share of the domestic retail market. Now these firms are
        expanding to export markets with their brands and ret ail chains.
       Textile and apparel sector has managed to attract foreign direct investments, although in
        general the number of FDIs is low in Turkey. Well known international companies with
        investments in Turkey include firms like Levi Strauss, VF, Hugo Boss, Polgat and Adidas.
       The free trade agreement and Customs Union wit h EU opened the E U market for Turkey.
        Turkey participates very actively in several EU organizations even though they are not an
        EU member. The Association of Turkish Clot hing Manufacturers is a member of
        EURA TE X enabling them to participat e in lobbying EU in textile policy making.
       Turkish T/C firms have actively set up part nerships with international companies outside
        Turkey in order to capitalize on low cost production and to be directly at the market.
        Some of these firms are production companies and some trading companies. Examples
        of these are Turkish investments into the near-by countries like Romania, Moldova,
        Uzbekistan, Jordan and Turkmenistan. According to some estimates there are around
        3 000 Turkish firms from various industries operating in Bulgaria alone.

The Turkish Clothing Industry Horizon 2010 Road Ma p by the Association of Turkish Cl othing
Manufacturers lists, among others, the following strat egy objectives for the industry:

       Lower the share of sub-contracting service sales in exports.
       Replace the low cost simple products by upper middle class product s in sub-contracting
        sales.
       Increase the share of upper middle class Turkish branded fashion products in exports to
        50 % by 2010.
       Switch from passive to active marketing and change the approach from production to
        trading.
       Switch to flexible production methods.
       Improve integration level in production.
       Increase partnerships with international companies in terms of production and marketing.
       Promote e-commerce infrastructure.
       Improve training and education in technical, design and marketing areas.
       Increase Government support in R&D, investments, quality and market development.
       Ensure favorable financ e conditions for investments and operational needs.
       Promote mergers in textile and clothing industries.
       Promote Turkish ret ail chains.



                                                                                               15
   Form national clothing industry advisory board.
   Set up clothing industry development fund.
   Establish a clothing researc h institute.
   Develop e-design ability and form a design agency.
   Reduce dependency on wholes alers and go directly to EU end customers.
   Target sales to international retail customers as they buy Full-Package services and
    Turkish brands while int ernational branded manufacturers favor CMT.




                                                                                           16
3. Taxation and control of material remnants and waste in inward
processing trade in other countries


Customs offices in many countries are concerned that all mat erial sent out for processing may not
actually be used for the order. Due to fabric defects, order quantity and different kinds of
production equipment it is not possible to exactly define the cons umption in advance.
Furthermore, customers usually send out extra fabric in order to ens ure that the produc er is able
to complete the order. Cutting waste is normally bet ween 10 % and 25 % of total material sent out
for processing. Left over material may be useful for the producer or the customer, but cutting
remnants are garbage and have no value. Based on interviews of customers and produces the
material consumption control procedures in different countries are described on the following
paragraphs.

Belarus

The customer presents an estimate on material quantity and value to be consumed for each order
to domestic Customs office as well as to the producer. The producer presents this estimate to
the local Customs office in Belarus when clearing customs for incoming material. When exporting
the ready made products the quantity of p roducts is checked against the order. Any left over
fabric is either returned or used for making new samples for the same customer. The producer
pays no import duty or VA T providing that all material is used or still usable leftovers are returned.
Officially there are three ways to deal with cutting remnants:

    1.    They are returned to the customer (no duty, no VAT)
    2.    They are destroy ed under supervision of the Customs (no duty, no VAT)
    3.    The producer clears customs for them and pays duty and VA T

Local Customs Offices seem to apply the regulations differently, as defined by A. Goer of Barn
AS:

‘For example one our contactors in Belarus sends back all the waste (physically in the truck)
according to the doc ument. Another, from the same country, sends only 1 small box per mont h,
but in documents he writes all what is needed. A third one sends nothing back, only in
documents. This all depends on the policy of local customs office and the relation between the
factory and the customs.’

The current Customs Code of the Republic of Belarus valid since 1996 is being harmonized wit h
the Russian Customs Code. The current Code does not specify how processing waste should be
treated.

http://www.law.by/work/EnglPortal.nsf/ ThemaSort/BEF24B31A 88CB05B C22570A7003DB 4F6?O
penDocument

Bulgaria

As an EU member these formalities do no more concern production in Bulgaria. Before the
membership, when exporting the ready-made goods, the producer reported actual consumption
of all mat erials in detail. Some left over material was acceptable and could stay in Bulgaria, but
not in large quantity. Such material imports as well as cutting remnants were exempt from duty
and VA T.




                                                                                                    17
Romania

Before E U membership it was possible to produce CM products for E U customers without paying
import duty on fabric. A permission had to be applied from the local Customs Office for each
import and EUR1 certificate was required in order to be tax and duty free. When exporting the
ready made goods the producers had to present to the Custom office, along wit h the export
invoic e, a consumption note in order to justify the consumption of import ed fabric. Usually around
2 % of waste and left over fabrics were all owed. Larger quantities were returned to the customer
in order to avoid duty and tax consequences. The companies usually declared their total waste to
be 2 % and did not pay duty or VA T.

Russia

No duty is paid for materials import ed to Russia for production as long as the ready made goods
are exported. Russian customs request a document, which states the total consumption of
various materials per garment. When the ready made products are exported they control that the
equal number of garments is shipped. In case the number of garments is lower than initially
defined, for example due to high number of defects in fabric, there are normally no duty
sanctions. The customs procedures vary greatly from one location to another in Russia. Some
regional Customs offices allow small quantities of left over fabric to stay in Russia and levies no
duty on it or on cutting remnants. Another Customs office may request that such materials are
burned at the presence of a Customs official to avoid paying duty and VA T.

The new Customs Code of Russia from 2003 (http://www.customs.ru/tk_en/) stipulates in Atricle
183 only in general terms how waste is treated under inward processing scheme and does not
specify how it should be done for clothing production. Article 183 stipulat es that ‘ The wastes
which have formed as a res ult of the goods inward processing procedure shall be liable for
customs duties and taxes equivalent to those applicable to the goods imported to the customs
territory of the Russian Federation in that state, except:

    (a) The said wastes have been export ed from the customs territory of the Russian
        Federation, or
    (b) Processed into the state in which their further commercial utilisation on the customs
        territory of the Russian Federation is no longer possible and they cannot be restored to
        their original state by any economic ally feasible method’

The Article stipulates further that
‘ Wherever it is impossible to determine the wastes’ customs value using the method based on
the value of a transaction with imported goods or identical goods, the waste’s customs value shall
be det ermined as equivalent to one of the following values:
          -   the price of sale of the appraised wastes at the instance of their initial sale in the
          customs territory of the Russian Federation to a buyer who is not interdependent upon
          any participant of the goods processing transaction;
          -    the price of sale of the goods identical to or homogenous with appraised wastes
          provided said goods were manufactured as a result of analogous processing operations
          under the terms and conditions of the inward processing proc edure at the instance of
          their initial sale in the customs territory of the Russian Federation to a buyer who is not
          interdependent upon any participant of the goods processing transaction;
          -   the price of a transaction with the goods identical to or homogenous with appraised
          wastes which were sold as export goods to the Russian Federation and imported to the
          Russian Federation in the period concurrent with the time of declaration of the
          appraised wastes;




                                                                                                   18
           -    the price of the goods identical to or homogenous with appraised wastes transacted
           at the domestic market of the Russian Federation between independent buyers and
           sellers less the taxes levied on said goods at their sale in the Russian Federation.

The text is general and leaves room for int erpretation regarding cutting waste, and local Customs
Offices seem to interpret it differently.

Serbia

No duty or tax is levied on material imported for CM production. An import document for CM
production is issued for each order by the local Customs office stating the q uantity and value of
fabric, the number of garments to be made and consumption per piece. Goods must be exported
in 90 days. An extension of 60 days can be applied in case unexpected problems occur. If a part
of the fabric remains in Serbia the producer must pay import duty and VA T, which currently are 2
% and 18 %. Import duty for fabrics from E U will be 0% from the beginning of 2008.

Ukraine

Imported textile goods are subject to customs duty and VAT (20%). Customs clearance is furt her
subject to a processing fee, which is 0.2 % of the goods’ customs value. Mat erials imported for
processing are exempt from these taxes, providing that:

         Re-export takes place within 90 days.
         The material and the finished goods belong to the foreign customer.
         The tariff code must change as a result of proc essing.
         The cost of raw mat erial must be at least 20 % of the value of the finished goods.
         The imported raw material must be the main component at each stage of production.

The time period that materials stay in Ukraine may be extended from the 90 day limit for
production reasons. Importers of textile goods must issue an obligation for import duties and VA T
to the tax authorities in order to have the taxes cancelled. Any material that stays in Ukraine aft er
re-export will be taxed. Customs regulations treat the cutting remnants in a similar manner as in
Belarus, but also in Ukraine local customs offices enforce the regulations differently

Importation must be support ed by the following documentation:

         Import customs declaration.
         Cross-border contract.
         Obligation for import duties with consumption calculations.
         Customer order and invoice.
         Waybill.
         Compliance certificate.
         Certificate of origin.
         Any other documents as may be requested by Customs.

The new Customs Code of Ukraine, which came into force in 2 003, is currently available only in
Russian:

http://www.mdoffice.com.ua/pls/MDOffice/MDODocFolder.FindHelp?p_file=10& p_page=1000




                                                                                                   19
4. Recommendations

The draft of report ‘Program on Development of the Light Industry of the Republic of Moldova until
Year 2015’ and the ‘Action Plan’ were discussed in detail with the CEE D Team as well as with the
representatives of local apparel industry and the Ministry of Industry and Infrastructure. The
Program and the Action Plan were found to be well prepared. Several adjustments were,
however, decided during the visit especially regarding how to support upgrading and how to
stimulate the industry in improving productivity.

4.1 Upgrading in the textile and apparel value chain

Recommendations discussed in detail with the CEED Team during the visit can be summarized
as follows:

Education

Improving of higher education should be done with international help. EU offers support for this
area through special initiatives like Tempus and Erasmus :
(http://ec.europa.eu/education/programmes/tempus/index_en.html)
(http://www.europarl.europa.eu/ facts/4_16_1_en.htm).
Tempus II came to an end at the end of 2006, but Tempus III is currently under preparation.
Under this scheme Moldovan University signs an agreement with one of the European
Universities, which will then provide recommendation and assistance for improving the quality of
education. Erasmus funds exchange of students and professors. The initiative to participate in
these schemes must come from Moldova.

So called Dual system for vocational training, as in Germany, is currently discussed in Moldova.
The education would consist of training at vocational school as well as practical training in an
industrial company. Such a system is highly recommended, and assistance for establishing it
should also be sought from international sources.

Internship is compulsory to students in most Technical Universities in Europe. The objective is
that the student understands how the industry operates as well as to bring the University and
industry closer to each other. During the internship the students are paid by the companies for
their work and they also rec eive credits for their studies at the University.

Special training courses organiz ed by the companies should also be support ed by public funding.
The company must set up a training class with all necessary machinery and hire an instructor.
The cost of training as well as wages of workers, at least partly, should be paid by the
Government.

The quality of designer education should be improved in order to make it possible for the industry
to employ qualified designers when they upgrade to Full-P ackage, Private Label and Own Label.
This can be done in cooperation with an EU Design University, for example through Tempus and
Erasmus schemes.

The State University of Technology should approach AUTE X and apply for membership. AUTE X
(www.autex.org) is the Association of Textile Universities of Europe and they organize scientific
conferences, and many other kinds of events. Also they promote joint research projects funded
by EU. Non EU member Universities are welc ome to participate in such projects. The projects
would contribute to improving the quality of res earch and education in Moldova.




                                                                                                  20
Association of Apparel Industry

Moldova’s Association of Light Industry was established in 2006, but it does not yet have any
permanent staff and its strategy and responsibility areas are still being discussed. Most members
are from apparel and footwear industries, and in order to be more effective the association should
consider concentrating on these industries only and change the name to Association of Apparel
Industry. An efficiently organized industry association can lobby the Government in policy issues,
improve the image of the industry and offer its members different kinds of services like the
Finnish Federation of Textile and Clothing industry (http://www.finatex.fi/ finatex.html ). Finatex is
administrated by a Board of Directors. The Executive Director and office staff, all permanently
employed, are responsible for operations :


   Finatex – Federation of Finnish Textile and Clothing Industry
                                              http://www.finatex.fi/finatex.html



              Technical textiles                                                   Business to Business
                 28 members                                                             customers
             Sales 375 320 000 €               Work wear
                                              10 members
                                           Sales 99 300 000 €

             Fabrics, accessories
                 28 members                     Apparel
                                              87 members                               Retail sector
             Sales 168 800 000 €
                                           Sales 325 955 000

                Home textiles
                 15 members
             Turnover 42 115 000                   Total 168 member companies
         • wage agreements and legal services in labor disputes
         • lobby Finnish government and EU on behalf of industry’s interests
         • generate joint development projects
         • inform about sources for project funding
         • assist in joint stands at international fairs and apply for financial support
         • statistics regarding imports, exports and economical development
         • monitor EU legislation and policy
         • fashion trend services
         • promote member companies through web site and brochures


Figure 3. Areas of responsibility of Finatex

The Moldovan Association should seek international assistance in organizing the Association, for
example in form of a study tour to Port ugal. By visiting ANIVEC, the Association of Apparel
Industry of Portugal they would be able to see how an Industry Association operates, how the
Project Funding Schemes were carried out in the 90s and 00s and what kind of services a
Fashion Center offers its members. During the same trip the participants should als o visit
individual companies and CITEVE, a Competence Center of Portugal, which offers technical
assistance and services to the textile and clothing industries.

A high quality web site should be created by the association. The image of apparel industry,
which in the minds of Moldovan work force and students is not very high, can be improved by an
exciting web site. Furthermore, the web site can be used for commercial purposes by presenting
its members, their production services and products, like in Portugal:

http://www.anivec.com/Page01.aspx?& L=en

http://www.portugaloffer.com/garments.html




                                                                                                          21
An industry association is an independent and private organization financed by its members. The
Moldovan Government should encourage and support such associat ions by recognizing that they
play an important role in improving and upgrading industrial operations in Moldova.

Fashion center to distribute fashion trends

A Fashion Center should be established in Moldova, either independently or as part of the
Association of Apparel Industry. The Fashion Center does not offer design services, but provides
the apparel industry with fas hion trends collected from various sources. The representatives of
the Fashion Center visit all main fabric and fashion fairs in Europ e and are in contact with
Fashion Trend companies like Promostyl (http://www. promostyl.com/). By combining all this
information the Fashion Center then presents the Moldovan apparel producers color and fashion
trends regarding next seasons, organizes trend shows, etc.

Upgrading of Moldovan apparel industry

Establishing of Moldovan brands and retail chains should be supported as in order to set up a
branded business the goods must be sold in the domestic market first. The fashion ret ail market
in Moldova is still not very developed and there are only a few stores selling domestic brands.
Once international retail chains like Mango, Hugo Boss and Steilmann have taken over the
Moldovan market it will be too late to develop Moldovan brands.

But the first step for many Moldovan apparel producers is to upgrade from the basic CM to CMT
and Full-Package. CM customers often consist of branded manufacturers, which are looking for
the lowest price. Branded marketers and branded retailers prefer CMT and Full-Package, but
they avoid Moldova as such servic es are not available. In order to motivate and stimulate the
Moldovan apparel industry to upgrade, one to two buy ers from such companies in EU should be
invited to a workshop in Chisinau to highlight the services they are looking for. Technical
assistance for finding Full-Package customers is recommended. The assistance could be a list of
companies with contact information and visits to the companies jointly with Moldovan producers.

International standards, such as ISO 9000, IS O 14000, OecoTex, may be important for
companies that producer more advanced garments, such as protective wear and military
garments. They demonstrat e that the company is well organized and willing to comply with
international requirements. Other standards, for example regarding harmful substances in fabrics ,
or special properties are equally important to follow. Many Moldovan produc ers may not be aware
of such standards. The Association of Apparel Industry of Moldova or the Competence Center
described below should take an active role in making the standards known.

The Moldovan Government should recognize that the customs procedures are complicated and
not consistent in different parts of Moldova, as highlighted already by the World Bank’s Trade
Diagnostic Study published in 2004. The current procedures increas e direct and indirect costs
making Moldovan producers less attractive. Furthermore, they do not encourage the industry to
upgrade to CMT, Full -Package or Private Label, as the manufacturers would face further
complications in clearing customs and would need additional financing due to slow repayment of
duty and VA T. Drawback of both duty and VA T in Full-P ackage exports is applied by many
competing countries, but in Moldovan drawback applies to VAT only. Streamlining of customs
procedures with international assistance is highly recommended.

Anti-dumping duties are an instrument widely used by EU for protecting domestic industry from
international dumping and unfair competition. Anti-dumping action is initiated by EU industry
against an individual company or country, and the duties are set for particular products. Moldova
could exercise similar proc edures regarding the very low cost garment imports from the Far East,
which disrupt the domestic market and make it difficult for Moldovan producers to compete.




                                                                                               22
As no accessories, such as buttons, rivets, labels, fusibles, sewing thread, etc. for apparel
products are produced in Moldova, they have to be import ed. This is another barrier for the
industry to upgrade to CMT as they may not have direct contacts to international accessories
suppliers, and importing has to be financed. A feasibility study for establishing such industry in
Moldova should be carried out with donor or Government funding and presented to pot ential
international or domestic investors.

Project funding

Project funding schemes have been used in several countries for improving and upgrading
industries, as described earlier in this report in regards to Portugal. Most countries have also a
special Government agency for funding technology and R&D projects like TEKES in Finland
(http://www.tekes.fi/eng/). A project funding scheme is highly recommende d for improving
Moldovan apparel industry. The scheme should focus on capacity building, exports, technology
improvement, design and product development skills and upgrading to CMT, Full -P ackage,
Privat e Label and Own Label. For each project a detailed strategy and project plan supported by
a diagnostic study of the company would be required. Project funding would be more effective in
stimulating improvements and upgrading compared to direct export support or exemption from
VAT on machinery imports, as the companies would have to commit themselves to these projects
for development and upgrading.

The scheme could be co-funded by international donors and administrat ed by Moldovan
Government. The first step would be to develop a concept and a business plan for the scheme.

Cent er of competence

Competence centers operate in many countries. They are set up for a specific industry or for the
industry in general. These cent ers offer technical services for improving technology and
management skills in the industry. CITEVE (www.citeve. pt) is a competenc e center set up in
Portugal with the following mission:

‘CITEVE’s mission is the development of technical and technological capacities of the Portuguese
textile and clothing industries through innovation, encouragement and dissemination, promotion
of quality improvement and also as an instrument for the definition of industrial policies for the
sector.’

The first step in this case as well would be to develop a concept.


4.2 Taxation and control of material remnants and waste

Import duty and value added tax are used in Moldova in the same manner as in most competing
countries. Import of mat erial for processing (CM) is exempt of duty and VAT. Regarding more
value adding concepts like CMT, Full-P ackage and Privat e Label, drawback of VA T but not import
duty is available onc e the ready made goods are exported, while many competing countries allow
drawback of import duty as well. It should also be noted, that drawback of VAT in acces sories
import may put the domestic accessories industry into an unfavorable position as VAT is include
in their prices when they sell to exporting garment industry.

Taxation of cutting remnants in CM and CMT are treated in Moldova in a same way as in Bela rus,
Russia and Ukraine. They are regarded as material staying in the count ry and thus liable to VA T
and import duty, unless destroyed under the supervision of the Customs or returned to the
customer. For companies with no domestic sales this is a problem, as VAT does not apply to
export prices and the VAT on purchases prices can not be deducted. Cutting remnants can be up
to 15% - 25 % of the total material alloc ated for the order, so the cost impact is considerable.



                                                                                                     23
Furthermore, taxation is not consistent in the various customs offices and companies are treat ed
differently. Elastic materials, such as circular knits with elastic yarns produce a further problem.
The total meters supplied declines before production due to relaxation and shrinking.

This, however, is not the case in Serbia or Asian countries, where cutting remnants are regarded
as garbage with no commercial value and therefore exempt of VAT or import duty. From the
beginning of next the import duty on fabrics will be eliminated in Serbia. In order to be competitive
Moldova must find a way to renew taxation on processing materials. Two alt ernative solutions
should be considered:

    (A) All imports of textile materials are exempt from import duty and VA T as long as they are
        used for manufacturing of garments for domestic market or for export. Cutting remnants
        would not be an issue any longer, and this would encourage and stimulat e the industry to
        develop own brands and retail chains for domestic sales.

    (B) Cutting remnants are regarded as garbage wit h no commercial value. Technical
        instructions are prepared for the Customs regarding the remnants as follows:

    1.   A council of experts consisting of representatives of the Moldovan apparel industry,
         Moldovan customs and an international expert should be appointe d to draft technical
         instructions for the Customs offices in regards to how to tax waste and cutting remnants.
    2.   The principle should be that the processing waste, consisting of remnants bet ween
         product components, edge and end loss, removed defected parts and roll ends should be
         considered as garbage with no commercial value and therefore exempt from import duty
         and VA T, unless the company sells them or us es them commercially.
    3.   Standards for cutting waste with certain tolerance should be set for different types of
         products, for example trousers: 15 %, shirts:18 %, ladies fas hion 25 %, etc. The
         tolerance could be +/- 4 %. Once the cutting loss stays within these standards the waste
         is free of duty and VA T. Further allowance for shrinking of elastic materials must also be
         defined, depending on the amount of elastic yarns.
    4.   Each company should be obliged to keep records of their cutting loss by recordi ng the
         weight of cutting loss from each cut. When clearing customs the meters and weight g/m2
         are reported and by using these figures the total weight of fabric received can be
         calculated.
    5.   Customs officials are allowed to check the records when necessary.




References:

Association of textile and clothing industry of Lat via, 2004, Lat vian subcontracting directory.
(http://subcontracting.link.lv/index.php?external=7& )

Association of Turkish Clothing Manufacturers, 2006. Turkish clothing industry horizon 2010
road map – global targets and policies.

Baharat Books, 2003. Profile of the textile and clothing industry in Port ugal

Brandchannel.com, 2007. Estonia and Belarus: Branding the old block.
(http://www.brandchannel.com/ feat ures_effect.asp?pf_id=146)

Bulgarian Association of Apparel and Textile Producers and Exporters, 2007. Bulgarian T& C
industry in 2006 (http://www.bgtextiles.org/?cid=25& p=&id=502)




                                                                                                    24
Business Lithuania, 2007. The future of textile sector
(http://www.businesslithuania.lt/ru/publication/headings/innovation-the-future-textile-sector)

CHF International Romania, 2006. Sourcing guide for garments industry from Romania.

Curt eza, A. 2006. Agility of Romanian textile and apparel companies in the context of market
globalization

Customs code of the Republic of Belarus.
http://www.law.by/work/EnglPortal.nsf/ ThemaSort/BEF24B31A 88CB05B C22570A7003DB 4F6?O
penDocument

Customs code of Russian Federation. http://www.customs.ru/tk_en/

Customs code of Uk raine. http://www.welcomet o.kiev.ua/ili/docs/LAW_ENG/EQ92-IV_17-02-
04.HTML

DeCoster, J. 2006. Will Romania’s EU entry harm its apparel industry? (http://www.just-
style.com/article.aspx?ID=95759 )

Department of Trade and Industry, 2006. Notice to Importers: 2735. Outward processing trade for
textiles (OPT) – year 2007 arrangements for Belarus, China and Montenegro
(www.berr.gov.uk/files/file35847.pdf)

European Comission, 2005. EU and Ukraine end restrictions on trade in textiles.

European Commission, 2006, Portugal Textile
(http://ec.europa.eu/regional_policy/reg_prog/ po/prog_222.htm)

European Commission, 2005. The textiles and clothing industry in an enlarged community and
the outlook in the candidate states.

European Commission, 2007. Ukraine -EU: Bilateral trade relations.

Estonian Clothing and Textile Association, 2007. Estonian clothing and textile industry.
(http://www.textile.ee/eng_stat.asp)

Foreign A ffairs and International Trade Canada, 2007. Import regulations – Ukraine.
(http://www.infoexport.gc.ca/ie-en/DisplayDoc ument.jsp?did=13163)

German Agency for Technical Cooperation. 2006. The clothing industry in Bulgaria

Glinskiene, R. Daraskeviciute, B. Lipinskiene, D. 2006. The tendencies of strategic industry
development in Lithuania.

Hong Kong Trade Development Council, 2006. Romania’s EU accession could boost HK gtextile
trade.
(http://industries.tdctrade.com/content.aspx?data=industry_content _en&contentid= 726661&w_sid
=194& w_pid=693&w_nid=11697& w_cid= 726661&w_idt=1900 -01-01&w_oid=207&w_jid=)

Ianchovichina, E. 2004. Trade policy analysis in the presence of Duty Drawbacks.

Ianchovichina, E. 2005. Duty Drawbacks, competitiveness and growth: Are duty drawbacks
wort h the hassle?




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Kiefer, H. 2004. Market entry of Swedish Fashion retailer in Estonia taking into consideration
European competition law.

Lat vian investment and development agency: 2007. Textile and clothing industry in Lat via.

Ministry of economy of Bulgaria, 2004, Sector development strategy – Apparel production in
Bulgaria.

Ministry of Foreign Affairs of the Republic of Belarus, 2007. Non -tariff regulation of foreign trade
in the Republic of Belarus’ (http://www.mfa.gov.by/eng/index.php?d= economic/trade&id=3)

Mocanu, C. 2006, Upgrading the textiles, clothing and foot wear sector in Romania.

Neidik, B. Gereffi, G. 2004. Trade liberalization and export performance: Explaining Turkey’s
emergence and new role as a Full-P ackage supplier in the global textile and apparel value chain.

Palpacuer, F. 2004. The global sourcing patterns of French clothing retailers : Determinants and
implications for suppliers’ industrial upgrading.

Presnall, B. Gajic, D. Bisera, S. 2004. Textile industry in Serbia – a selected study and
company overview.

PriceWaterhouseCoopers, 2007. Importing and exporting – Ukraine.
(http://www.pwc.com/extweb/insights.nsf/docid/1A1E 0E662FA199B 080256F32002601AA )

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intensive industries: The case of Estonia

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apparel industry: Outsourcing and the embedded geographies of production.

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enlargement and regional relocation in the European textiles and clothing industry.

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(http://www.siepa.sr.gov.yu/site/en/home/1/key_industries/textile/ )

Textile Intelligence, June 2007, Bulgaria: Europe’s fastest growing textile and cl othing producer
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The World Bank, 2004. The Republic of Moldova trade diagnostic study. Report No. 30998-MD



Interviews:

Alexander Goer, Barn AS, Lat via (production in Russia, Belarus and Uk raine)

Ance Tanasiciuc, Marketing Manager of Dinasty Co., Romania

Antonela Curteza, Professor at Technical University of Iasi, Romania

Gordana Kovacevic, Purchase Manager, Jagger Mfg Co. Serbia

Liisa Anttila, Purchase Director of Flare -Trading Oy, Finland (production in Russia and Belarus)




                                                                                                     26
Raimo Kinnunen, Production Director of Turo Tailor Oy, Finland (production in Russia and
Romania)

Tatjana Radovanov, Serbian Investment and Export Promotion Agency

Tomi Luhtanen, Managing Director of I.N.A. Trading Ltd, Bulgaria




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