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Hanging by a thread
Textile factories throughout Asia face extinction as a long-standing
global trade pact is set to expire
By Aravind Adiga
October 26, 2004
Every morning, 24-year-old Shahida Begum leaves her home in one of Dhaka's
slums, winds her way into a posh diplomatic enclave and turns up for work at a
garment factory overlooking the U.S. embassy. She may not be making this
commute much longer. Like most of Bangladesh's 1.8 million textile workers, she
has heard rumors that the American and European companies that currently buy
clothes from her country will switch to Chinese manufacturers next year—leading
to closures of garment factories in Dhaka. The zero-sum math of globalization
makes little sense to one of its victims. "I know that everything in Dhaka's
markets is made in China," Begum says. "But how can the Chinese make clothes
more cheaply than we do, when I get paid so little?"
What could be impending catastrophe for Begum represents relief for Susheil
Joshi. In his office in Hong Kong, Joshi—the kind of person who will help
decide the fate of Begum and many like her next year—has a color-coded map of
the world behind him. On it, 36 countries are highlighted, places where Joshi,
who oversees global sourcing at the Children's Place, a North American chain of
affordable-clothing stores, visits each year to buy the merchandise his company
sells in America. Joshi does not enjoy having a travel schedule as packed as
Kofi Annan's. But a system of quotas, originally put in place in 1974 to
regulate a $350 billion-a-year global industry, limits the number of shirts,
towels and other textiles any country can export annually to the U.S. and the
European Union. As a result, the Children's Place—and all other American
retailers—can't buy exclusively from countries that make them most efficiently
and cheaply, such as China, but must also order from less competitive factories
in places such as Burma and Swaziland. "It's crazy: 80% of our clothing comes
from 20% of the countries," says Joshi. "But we need to go to all these places
because of the quota system."
On Dec. 31, the craziness comes to an end. That's when a 1995 trade pact called
the Agreement on Textiles and Clothing, signed by the members of the World
Trade Organization (WTO), stipulates an end to quotas—and buyers like Joshi are
free to find the best deals anywhere they can. Ghulam Faruq, a Bangladeshi
textile exporter, says American and European companies that currently buy from
about 60 countries might source from as few as 20 by 2006 and less than 10 by
2010. China is expected to be the biggest beneficiary under the new regime.
Most analysts expect that efficient Chinese manufacturers will be able to lower
their prices and, in particular, lure American buyers.
But for smaller developing countries that depend heavily upon textile
manufacturing for jobs, the end of quotas could be a dire economic blow. In
2002, for example, quotas on some items, including gloves and negligees, were
lifted by the U.S. By 2003, Chinese exports of those goods leaped nearly 200%
from their 2001 levels, while Sri Lanka's exports dropped more than 50% and
Bangladesh's fell 46%. If history repeats itself, millions of people could be
thrown out of work in some of the world's poorest and most politically volatile
countries—and in the richest as well. On Oct. 12, a coalition of U.S. textile
manufacturers and labor groups, claiming that thousands of American jobs might
be lost after quotas are lifted, petitioned Washington to impose trade
restrictions on imports of Chinese-made trousers, cotton shirts and other
goods.
Shahzad Arshad, a leading apparel exporter in Pakistan, says he fears a
disaster looms for his industry. Pakistan has been one of the main
beneficiaries of the current system. When China and India maxed out on their
annual quotas, American buyers often turned to Pakistan. Its garment industry
earned two-thirds of the country's export dollars last year. But Arshad fears
that at least 60% of the 2 million Pakistanis who work in the ready-made
garments sector could lose their jobs in coming years. "The new regime will
wipe out thousands of small and medium-size exporters," says Javed Puri, a
Pakistani textile exporter.
Similar concerns are rife in Sri Lanka, where textiles and garments make up
half of the country's exports, and the industry supports as many as 1 million
workers. In Nepal, where more than 300,000 workers depend directly or
indirectly on the garment sector for their livelihood, extending the quota
system "is a matter of life or death," says Prashant Pokhrel, a Nepali
exporter. Experts in Bangladesh fear that anywhere from $1.25 billion to $2.5
billion of that country's annual exports could be lost, with the shock waves
rippling through the nation's banking sector and the entire economy. Some 70%
of Bangladeshi garment workers are women; many come from backward rural areas.
If they lose their jobs and are forced to return home, "many will have no
option but to join the underground sex trade," says Nazma Akhter, president of
the Bangladesh Independent Garment Workers' Union Federation.
The end of quotas may not be entirely bleak for the developing world. In
Pakistan, for example, sales of some items in which the country's manufacturers
are internationally competitive, such as bedsheets and towels, could jump. But
only one country in South Asia truly relishes the prospect of the new regime.
"After China, India will be the biggest beneficiary of the lifting of quotas,"
says O.P. Lohia, managing director of Indo Rama Synthetics, a New Delhi-based,
leading manufacturer of synthetic fibers. India has advantages that many of its
neighbors lack: it grows raw materials like cotton, has a giant manufacturing
base, and is seen by foreign buyers as a counterweight to China. Chintan
Parikh, former chairman of the Indian Cotton Mills' Federation, says: "No
developed country would want China to get a share of global trade that is
alarming." A study commissioned by the Indian Cotton Mills' Federation predicts
that India's textile exports could surge from $11 billion in 2002 to $40
billion in 2010.
Although the mood in India is upbeat, Yogesh Malhotra, a textile analyst at
credit-rating agency ICRA, warns that uncertainties remain. He points out that
the country's textile industry is highly fragmented, made up of thousands of
small manufacturers. Whether they will survive after 2005, when exporters will
have to compensate for falling prices by selling more volume, is unclear. Joshi
of the Children's Place adds that, unlike China, India still doesn't have many
large, modern apparel factories and that its often antiquated plants might
struggle to handle the flood of new orders. For India, he says, "it will be
like surfing a wave for 18 months. Either the country will drown under the
inflow or will learn to glide."
With time running out, South Asian countries such as Nepal and Bangladesh are
warning that they could be facing disaster. On Oct. 1, they took their case to
a WTO council meeting and asked for the commission of a study looking into the
impact of phasing out quotas. Many South Asian countries say they're fighting
unfair competition. Bangladeshi exporter Ghulam Faruq believes, like many
others, that China manipulates its currency to keep it undervalued against the
U.S. dollar, thereby making its exports cheaper than Bangladesh's. But even if
its currency were to rise against the dollar, China would still have tremendous
advantages. According to data compiled in a recent International Monetary Fund
working paper, the average Chinese garment-industry worker was paid $1,600 in
2001, more than double his Indian counterpart's salary and four times what he'd
make in Bangladesh. Despite the Chinese worker's higher pay, the study found
his productivity was significantly higher: he adds $5,000 a year in value to
the garments he processes, compared with $2,600 by his Indian equivalent and
$900 by a Bangladeshi worker. The difference reflects China's greater
investment in modern manufacturing equipment and in infrastructure such as
transportation.
Although time is running out, South Asian nations may yet get a boost if the
U.S. textile industry persuades Washington to restrict clothing imports from
China for a few more years. Representatives of several Asian governments are
doing their own lobbying in the U.S. capitol, hoping to gain protection for at
least three more years. Without special treatment, garment industries in
countries such as Nepal are likely to become a free-trade casualty, says
exporter Pokhrel: "Death is the only prediction we can make."
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