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 Update: South African quotas on
  Chinese clothing and textiles:
has there been sufficient economic
           justification?


                   by

            Taku Fundira



            tralac Trade Brief
               No 09/2007
             December 2007
                                                                                                                                1


                  Update: South African quotas on Chinese clothing and textiles:
                        has there been sufficient economic justification?

                                                      by Taku Fundira




Key points: Nine months into the year – Are there any changes?


-      Some increase in China imports experienced in the third quarter but no overall change in
       market share.
-      There seems to be no change in the trend outlined in the earlier report and therefore still
       premature to determine the effectiveness of the quotas.
-      Importers may assess quota levels used to date in 2007, so that there may be an increase
       an increase in imports from China in the fourth quota, if the quota limits have not been
       exceeded.
-      This is a short preliminary note updating the third quarter trade. When the full 2007 data
       becomes available, we will analyse the situation in more depth.
-      We also note that our report is in values whereas the quota is in volumes. This will be
       discussed in more detail in the full 2007 analysis.


Introduction


In late 2006 South Africa unilaterally1 imposed quotas on the importation of selected clothing lines
from China. Implementation was delayed until 1 January 2007. The key motivation for these
quotas has been the claimed job losses in the industry. Quotas in these categories are supposed
to give South African Clothing and Textile firms space to operate with the aim of improving
competitiveness in domestic and export markets in the long run.


This policy decision by South Africa has been questioned by industry and stakeholders. In some of
the discussions held by tralac, questions raised include:


1.     Does the South African Clothing and Textile industry have what it takes to be competitive
       internationally or even locally for that matter?
2.     Will the quotas make any difference to the fate of those employed in the local industry or
       should they start looking elsewhere for employment?

1
 technically this is considered a Voluntary Export Restraint, but it is unilateral in the sense that RSA (a) did
not consult with the major stakeholders in any meaningful way and allocated the product lines in a
seemingly arbitrary manner; and (b) did not consult with its fellow SACU members.



             Update: South African quotas on Chinese clothing and textiles: has there been sufficient economic justification?
                                                TB09/2007 tralac | December 2007
                                                                                                                               2


3.    Can South Africa’s new Industrial Policy (released recently and available on South Africa’s
      Department of Trade and Industry website) address the challenges faced by the clothing and
      textile industry?
4.    How do the Chinese quotas affect the other members of the Southern African Customs
      Union?
5.    How are the Chinese quotas being implemented and how is implementation being monitored
      (keeping in mind, for example, that imports could be coming through the port of Walvis Bay
      in Namibia)?


The objective of this note, is to update the earlier report on “South African quotas on Chinese
clothing and textiles” prepared by tralac and released in September 20072. By monitoring on a
quarterly basis, we examine the changes in the selected quota imports and make preliminary
assessments as to whether they may be indicating that they are meeting their specific goal of
slowing the trade flows of clothing imports from China.


It should be noted that there may be slight differences in data presented in the first report to data
presented in this updated version especially for 2007 data as this is continuously updated and
therefore still provisional.


We maintain the hypothesis that “while the imports from China may have reduced in the selected
quota lines, imports from other sources and imports from China in non-quota lines may largely
compensate for any enforced reduction in the quota lines.”


We caution that (a) the nine-month time period is still not sufficient to establish definitive patterns
and (b) trade data between South Africa and Lesotho, a likely source of compensatory supply, is
not readily available. Thus, the results presented here are preliminary only.


Results up to September 2007


In the previous analysis we highlighted the following key points:


-    Chinese imports have decreased dramatically but have been replaced by a variety of other
     low cost imports.
-    Big increases in imports leading up to the quotas have also diminished the expected impact at
     least for the short term.

2
 Read tralac Trade Brief No 6/2007, available online:
http://www.tralac.org/pdf/20070911_TB06_China_clothing_textiles.pdf



            Update: South African quotas on Chinese clothing and textiles: has there been sufficient economic justification?
                                               TB09/2007 tralac | December 2007
                                                                                                                                                      3


-                  Increasing deviations between SA and Chinese data for the past two quarters are troubling,
                   and may suggest that enhanced monitoring is needed.
-                  No immediate evidence exists that local industry has taken up the challenge, although this is
                   based on export figures and for the first six months only.
-                  Findings are preliminary, but to date the quotas have produced little economic justification for
                   their continued existence.
-                  The quotas may even have done more damage than good as importers have established a
                   variety of new markets to source from in future.


In this analysis we attempt to update the results up to September 2007, more specifically the three
quarter year (January to September) analysis. For comparative purposes reference is made to the
analysis presented in the earlier report in order to get a clear understanding of the results.


A quarterly trend analysis of the South African quota line imports since 1996 is shown in Figure 1.
Note that under the review period, both imports from the World and China followed the same trend.
However, after the first quarter of 2007, imports from China move in the opposite direction and lag
behind as the imports from the World begin to recover in the second quarter. Imports from China
only begin to recover in the third quarter of 2007 a result likely attributed to market adjustments
after the sudden shock caused by the quota implementation in the first quarter of 2007.


Figure 1: South African imports in quota lines – China vs. World (Quarterly)

                    3,500



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    R (millions)




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                                                                             The World           China




                                   Update: South African quotas on Chinese clothing and textiles: has there been sufficient economic justification?
                                                                      TB09/2007 tralac | December 2007
                                                                                                                                4


Source: World Trade Atlas; South African (SARS) data


The trend for the third quarter year (January to September) analysis is no different to the one that
the half year analysis gave which was outlined earlier. Although, the drop in Chinese figures is still
much more pronounced than the aggregate World imports, there has been an increase in imports
culminating from the third quarter recovery as shown above in Figure 1. Chinese imports increased
by 47 percent in the 2007 third quarter, from R751 million in second quarter to R1.1 billion.


Table 1 gives an exact breakdown of the countries that have taken China’s place in the section of
the South African market targeted by the quota lines for the third quarter year analysis.


In the half year analysis China’s share decreased by nearly 40 per cent from R1574 million for
January to June 2006 to R953 million in January to June 2007. During that review period the
countries with the biggest value gains for 2007 compared to 2006 were Pakistan, Malaysia,
Mauritius, Vietnam and the UK, all with increases of between R24 million and R35 million. The
rise in nearly R20 million worth of imports from Zimbabwe was somewhat surprising given the
current economic difficulties facing the country.                     Myanmar, Malaysia and Vietnam showed
significant gains from a very low base within the six month review period, considerably
strengthening their position within the targeted clothing and textile lines. Myanmar increased its
quota line exports to South Africa by 1451per cent, Malaysia by 1011 per cent and Vietnam by 524
per cent.3


However, the third quarter year (January to September) analysis for the 2006 and 2007 paints a
slightly different picture especially regarding countries with the biggest value gains although in
terms of market share China’s share decline remained constant at 40 percent. However, when you
consider the biggest movers in terms of value for the review period, Pakistan and the UK do not
feature and are replaced by Indonesia and Hong Kong. Imports from Hong Kong and Zimbabwe
may well be originating from China (a) because of the proximity of Hong Kong to China and (b)
because most industries in Zimbabwe are feeling the brunt of the economic challenges the country
is facing and are most likely operating below optimum capacity to increase imports by R60 million
between the 2006 and 2007 review period.




3
  We note that a possible source for clothing as a substitute for Chinese imports is Lesotho, but the SARS
data does not record imports from Lesotho (or the other SACU partners). However, the dominant destination
for Lesotho’s clothing exports is the US and US data shows an increase in clothing imports from Lesotho
during the first 6 months of 2007. This possibly suggests no or limited change in exports from Lesotho to
South Africa.



             Update: South African quotas on Chinese clothing and textiles: has there been sufficient economic justification?
                                                TB09/2007 tralac | December 2007
                                                                                                                              5


Table 1: Major SA market players in HS lines targeted by Chinese Import Quotas
(January to September) 2006 & 2007
                               Imports         Imports                                                    Value
                                  R               R                                                       change R
                              (millions)      (millions)      %share        %share        %change         (millions)
                                                                                           2006 to         2006 to
  Rank       Country             2006           2007            2006         2007           2007             2007
       0  --The World--         5,889.61       4,876.11          100.0        100.0              -17       -1,013.50
       1  China                 4,513.54       2,680.25           76.6         55.0              -41       -1,833.29
       2  Hong Kong               176.60         260.68            3.0          5.3               48            84.08
       3  India                   196.70         242.05            3.3          5.0               23            45.35
       4  Zimbabwe                 72.62         132.76            1.2          2.7               83            60.14
       5  Mauritius                55.85         132.18            0.9          2.7             137             76.33
       6  Indonesia                44.11         132.15            0.7          2.7             200             88.04
       7  Pakistan                 99.47         130.09            1.7          2.7               31            30.61
       8  Malawi                  125.49         127.88            2.1          2.6                2             2.39
       9  Vietnam                  17.07         111.51            0.3          2.3             553             94.43
      10  Malaysia                  5.18          91.41            0.1          1.9            1666             86.24
      11  Thailand                 56.21          85.48            1.0          1.8               52            29.27
      12  Turkey                   47.74          82.91            0.8          1.7               74            35.17
      13  Bangladesh               36.67          76.10            0.6          1.6             108             39.43
      14  Italy                    69.87          75.90            1.2          1.6                9             6.03
          United
     15 Kingdom                     40.96          63.78            0.7           1.3            56            22.82
     16 Myanmar                      6.15          61.69            0.1           1.3           903            55.54
     17 Taiwan                      47.50          48.27            0.8           1.0              2            0.76
     18 United States               40.66          40.51            0.7           0.8              0           -0.15
     19 Sri Lanka                    3.73          29.81            0.1           0.6           700            26.09
     20 France                      21.74          26.80            0.4           0.5            23             5.06
Big Movers (Value                                                                          2006 to          2006 to
change)                          2006            2007           2006         2007           2007             2007
      1 Vietnam                    17.07          111.51           0.3          2.3             553            94.43
      2 Indonesia                  44.11          132.15           0.7          2.7             200            88.04
      3 Malaysia                    5.18           91.41           0.1          1.9            1666            86.24
      4 Hong Kong                 176.60          260.68           3.0          5.3              48            84.08
      5 Mauritius                  55.85          132.18           0.9          2.7             137            76.33
                                                                                           2006 to          2006 to
Big Movers (% change)            2006            2007           2006         2007           2007             2007
      1 Malaysia                    5.18           91.41           0.1          1.9            1666            86.24
      2 Myanmar                     6.15           61.69           0.1          1.3             903            55.54
      3 Sri Lanka                   3.73           29.81           0.1          0.6             700            26.09
      4 Vietnam                    17.07          111.51           0.3          2.3             553            94.43
      5 Indonesia                  44.11          132.15           0.7          2.7             200            88.04
Source: World Trade Atlas; South African (SARS) data




           Update: South African quotas on Chinese clothing and textiles: has there been sufficient economic justification?
                                              TB09/2007 tralac | December 2007
                                                                                                                               6


Reconciliation between SA import data and Chinese export data


Chinese export data shows similar trends to those produced by the SARS import data (see
Figure 2). There are no discrepancies from the earlier analysis prepared in the first report. This
should not come as a surprise as these two figures should theoretically account for the same thing.
It should be noted however, that the Chinese export data is consistently at a much higher level
than the SARS import equivalent.


Figure 3 uses the respective series 1996 first quarter values as base in an attempt to account for
this difference in levels. This is done reasonably successfully as the series move very close to
each other for the majority of the period under investigation. Key to note is the apparent decline in
the differences in levels between the two datasets as we experience the stabilisation in China
customs data and the increase in South Africa SARS data in the third quarter of 2007. This is
consistent with the hypothesis that the timing of the second quarter trade was such that there was
substantive exports from China late in the quarter that had not actually landed in South Africa
during the second quarter (but arrived in third quarter). To substantiate this argument Figure 4
gives the ratio of Chinese exports to South African imports for the quota lines.                                       The ratio
consistently fluctuated between the 0.5 and 1 level from the beginning of 2003 (the start of China’s
increased role in the sector) up until the fourth quarter of 2006. However, the first two quarters of
2007 have seen the difference between the two series increase dramatically, especially the second
quarter of 2007 where the ratio of Chinese exports to South African imports for the same products
more than doubled the level it had been for the past three years. However we note the decline in
the ratio in the third quarter of 2007 down to almost the same level as in the first quarter of 2007.




            Update: South African quotas on Chinese clothing and textiles: has there been sufficient economic justification?
                                               TB09/2007 tralac | December 2007
                                                                                                                                                                                                                                                                       Index Value (1996 Q1 = 100)                                                                                                                                                                                                                              R (million)
                                                                                                                                                                                                                          1s                                                                                                                                                                                                                                                       1s
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             4000
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                                                                                                                                                                                                                                tr                                                                                                                                                                                                                                                 3r        19
                                                                                                                                                                                                                                    19                                                                                                                                                                                                                                               d          97
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                                                                                                                                                                                                                             t Q 98                                                                                                                                                                                                                                                3r        19
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                                                                                                                                                                                                                             t Q 99                                                                                                                                                                                                                                                3r        19
                                                                                                                                                                                                                                tr                                                                                                                                                                                                                                                   d          99
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Q
                                                                                                                                                                                                                          3r        20                                                                                                                                                                                                                                                    tr
                                                                                                                                                                                                                             d         00                                                                                                                                                                                                                                          1s        19
                                                                                                                                                                                                                               Q                                                                                                                                                                                                                                                      t Q 99
                                                                                                                                                                                                                                 tr
                                                                                                                                                                                                                                    20                                                                                                                                                                                                                                                   tr
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                                                                                                                                                                                                                                    20                                                                                                                                                                                                                                                    tr
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                                                                                                                                                                                                                          1s        20                                                                                                                                                                                                                                             3r        20




                                                                                                                                                                                                                                                                                                                                                                                                                  Source: World Trade Atlas; Chinese Customs data
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     d          01
                                                                                                                                                                                                                             t Q 01                                                                                                                                                                                                                                                     Q
                                                                                                                                                                                                                                tr                                                                                                                                                                                                                                                        tr
                                                                                                                                                                                                                          3r        20                                                                                                                                                                                                                                             1s        20
                                                                                                                                                                                                                             d         02                                                                                                                                                                                                                                             t Q 01




                                                                                                                                                                                                   South Africa imports
                                                                                                                                                                                                                               Q                                                                                                                                                                                                                                                         tr
                                                                                                                                                                                                                                 tr




                                                                                                                                                                                                                                                                                                                                                                                                                                                                    South Africa
                                                                                                                                                                                                                                    20                                                                                                                                                                                                                                             3r        20
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                                                                                                                                                                                                                             d         03
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                                   TB09/2007 tralac | December 2007
                                                                                                                                                                                                                                 tr                                                                                                                                                                                                                                                3r        20
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                                                                                                                                                                                                                          1s                                                                                                                                                                                                                                                            Q
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                                                                                                                                                                                                   China Exports
                                                                                                                                                                                                                                tr                                                                                                                                                                                                                                                 1s        20
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           Figure 2: Chinese quota line exports to South Africa (Quarterly)




                                                                                                                                                                                                                          3r        20                                                                                                                                                                                                                                                t Q 03
                                                                                                                                                                                                                             d         04                                                                                                                                                                                                                                                tr
                                                                                                                                                                                                                               Q                                                                                                                                                                                                                                                   3r        20
                                                                                                                                                                                                                                 tr                                                                                                                                                                                                                                                  d          04
                                                                                                                                                                                                                          1s        20                                                                                                                                                                                                                                                  Q
                                                                                                                                                                                                                             t Q 04                                                                                                                                                                                                                                                       tr
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   1s        20
                                                                                                                                                                                                                                tr                                                                                                                                                                                                                                                    t Q 04
                                                                                                                                                                                                                                    20
                                                                                                                                                                                                                          3r
                                                                                                                                                                                                                             d         05                                                                                                                                                                                                                                                tr
                                                                                                                                                                                                                               Q                                                                                                                                                                                                                                                   3r        20
                                                                                                                                                                                                                                 tr                                                                                                                                                                                                                                                  d          05
                                                                                                                                                                                                                                    20                                                                                                                                                                                                                                                  Q
                                                                                                                                                                                                                          1s                                                                                                                                                                                                                                                              tr
                                                                                                                                                                                                                             t Q 05                                                                                                                                                                                                                                                1s        20
                                                                                                                                                                                                                                tr                                                                                                                                                                                                                                                    t Q 05




                                                                                                                   Source: World Trade Atlas; South African (SARS) data and Chinese Customs data
                                                                                                                                                                                                                          3r        20                                                                                                                                                                                                                                                   tr
                                                                                                                                                                                                                             d         06                                                                                                                                                                                                                                          3r        20
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                                                                                                                                                                                                                          1s                                                                                                                                                                                                                                                       1s        20
                                                                                                                                                                                                                                                                                                                             Figure 3: South African imports vs. Chinese exports in quota lines (1996 Q1 = 100)




                                                                                                                                                                                                                             t Q 06                                                                                                                                                                                                                                                   t Q 06
                                                                                                                                                                                                                                tr




Update: South African quotas on Chinese clothing and textiles: has there been sufficient economic justification?
                                                                                                                                                                                                                                    20                                                                                                                                                                                                                                                   tr
                                                                                                                                                                                                                          3r                                                                                                                                                                                                                                                       3r        20
                                                                                                                                                                                                                             d         07                                                                                                                                                                                                                                            d          07
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                                                                                                                                                                                                                                       07                                                                                                                                                                                                                                                       07
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                                                                                                                                                                                       8


Figure 4: Ratio of Chinese exports to South African imports in quota lines (Quarterly)

                                        2.5




                                        2.0
  Ratio: China Exports to RSA imports




                                        1.5




                                        1.0




                                        0.5




                                        0.0
                                              1st Qtr    2nd 3rd Qtr 4th Qtr 1st Qtr 2nd 3rd Qtr 4th Qtr 1st Qtr 2nd 3rd Qtr 4th Qtr 1st Qtr 2nd 3rd Qtr 4th Qtr 1st Qtr 2nd 3rd Qtr
                                               2003      Qtr  2003 2003 2004          Qtr 2004 2004 2005          Qtr 2005 2005 2006          Qtr 2006 2006 2007          Qtr 2007
                                                        2003                         2004                        2005                        2006                        2007

                                                                                                                Series1


Source: World Trade Atlas; South African (SARS) data


Exports in quota lines


Given that the stated objective of the clothing import quota restrictions was to provide support to
the South African domestic sector it is instructive to examine the export profile of these same quota
lines. In this updated analysis there seems to be no change in the trend outlined in the earlier
report and therefore still too premature to determine whether these sectors are recovering.




References


Van Eeden J. and Sandrey R. 2007. South African quotas on Chinese clothing and textiles: has
there been sufficient economic justification? tralac Trade Brief No 6/ 2007




                                                    Update: South African quotas on Chinese clothing and textiles: has there been sufficient economic justification?
                                                                                       TB09/2007 tralac | December 2007

				
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