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Dr. Dean Spinanger Kiel Institute for World Economics dspinanger@ifw.uni-kiel.de The End of Enchainment : Will the Removal of Textile and Clothing Quotas Bring Us Enchantment? World Bank Seminar 25-26/04/05 I. Introduction and Overview There are some WTO issues not cl arified

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dr dean spinanger kiel institute for world economics dspinanger@ifw uni kiel de
Dr. Dean Spinanger

Kiel Institute for World Economics

dspinanger@ifw.uni-kiel.de

The End of Enchainment:Will the Removal of Textile and ClothingQuotas Bring Us Enchantment?World Bank Seminar25-26/04/05

i introduction and overview
I. Introduction and Overview

There are some WTO issues not clarified

.....why not???

Many countries are growing......

at a rate far above many other countries.

But in what areas???

......and how strong???

i introduction and overview3
I. Introduction and Overview

But others threw themselves onto the mercy of free trade.

Unfortunately „free trade“ seems to be interpreted differently around the world.

Often „free trade“ is associated with unfair competition.

That, of course, is BS.....

introduction and overview
Introduction and Overview

Free trade means letting in all goods into a country that are sold at a price which reflects production costs.

It does not mean notletting all those goods into a country that are very competitive.

Take a look at what some economies accomplished.

i introduction and overview7
I. Introduction and Overview

But now with almost all countries in the WTO,

With quotas having been removed on T&Cproducts..,

With other industries being more open.....

What might be happening as a result of all this????

ii what might happen
II: WHAT MIGHT HAPPEN?

What does the future hold for all those countries after China‘s WTO accession?

I am not a charlatan...but an economist.

There are basic economic principles which tell us what might be..

And these basic economic principles are packed into a cutting edge model.

ii what might happen9
II: WHAT MIGHT HAPPEN?

The model is called GTAP5.......

General Trade Analysis Project version 5.

It‘s robust,

very realistic,

and adaptable to specific needs.

the gtap5 model
The GTAP5 Model

General equilibrium: multi-sector, with linkages through intermediate inputs and factor markets.

Calibrated : the model is “bench-marked” to baseline scenario in 1997.

Data: GTAP social accounting matrix data.

Policy data: include GTAP tariffs, final WTO accession tariffs for P. R. China & Chinese Taipei, service sector protection, newly calculated quota rents and imputed competitive advantage for China.

iii what is going on
III: WHAT IS GOING ON?

But what does all this mean for T&C industries and for importers?

What options are open....and what other countries might serve as a base for production and/or sourcing?

Those who know best are in Hong Kong.

ii i what is going on
III. WHAT IS GOING ON?

There‘s a saying:

You have to know where you came from in order to know where you might be headed.

In other words:

What are the trends from the past telling us about where we are and might be heading?

the atc where are we now
The ATC: Where Are We Now?

Liberalization was a FARCE

Final tranche 2004: only sensitive products

Faking liberalization + finagling protection

Of course, guidelines were not precise

Motto was: Mañana is better than now

iii what is going on23
III. WHAT IS GOING ON?

In the time period 90–03 Mexico was beaten by Bangladesh in increasing its share in global clothing market among the top 25 exporters.

But Vietnam came from nowhere to #15,while Mexico climbed just 30 places based on its preferential access to North American markets.

average ranking of factors influencing investment decisions from 01 2000 and 02 3003
Average Ranking of Factors Influencing Investment Decisions from 01/2000 and 02/3003

Rank

10

9

1

3

5

8

4

2

6

10

8

7

7

11

9

14

12

6

13

15

5

17

16

4

18

3

0

20

40

60

Coefficient of variation (%)

iii what is going on27
III. WHAT IS GOING ON?

These are THE 7 KEY FACTORS to get in shape:

1. Politics and stability;

3. Quality of transport infrastructure;

5. Policies affecting trade and investment;

4. Quality of telecom infrastructure;

6. Labor costs;

8 Policies re. labor, health & environment;

10.Lack of capital/profit transaction restrictions.

iii what is going on32
III. WHAT IS GOING ON?

The message is clear:

Without coming up to the cut in these areas, T&C exporters will lose out in the battle for market shares now that quotas are eliminated.

And of course with China being a full-fledged member of the WTO since Doha, competition is all the greater.

WHAT‘S GOING ON OUT THERE???

slide33
Sweden's Clothing Imports from Selected Regions in Percent of Total Non-OECD Imports plus Portugal, Spain and Greece (1980-2001)

Source: Own calculations based on Swedish import data. Moving 3-year-average.

slide34
Sweden's Clothing Imports from Selected Regions in Percent of Total Non-OECD Imports plus Portugal, Spain and Greece (1980-2001)

Source: Own calculations based on Swedish import data. Moving 3-year-average.

slide35
Clothing Imports of Sweden from China, 4 South Asian Countries and EURO-RIM in % of NON-OECD Clothing Imports, 1990-2001
slide36
Clothing (SITC 84) Imports of Major EU Countries and USA from Selected South Asian Countries in % of Non-OECD Imports, 1990–2003

Sweden United Kingdom

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

slide37
Clothing (SITC 84) Imports of Major EU Countries and USA from Selected South Asian Countries in % of Non-OECD Imports, 1990–2003

Germany France

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

slide38
Clothing (SITC 84) Imports of Major EU Countries and USA from Selected South Asian Countries in % of Non-OECD Imports, 1990–2003

Italy Netherlands

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

slide39
Clothing (SITC 84) Imports of Major EU Countries and USA from Selected South Asian Countries in % of Non-OECD Imports, 1990–2003

United States Canada

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

slide40
Clothing (SITC 84) Imports of Major EU Countries and USA from Selected South Asian Countries in % of Non-OECD Imports, 1990–2003

Japan Australia + NewZealand *

* 2003 only Australia

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

us textile sitc 65 and clothing sitc 84 imports from africa and latin america
US Textile (SITC 65) and Clothing (SITC 84) Imports from Africa and Latin America

SITC 65

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

us textile sitc 65 and clothing sitc 84 imports from africa and latin america42
US Textile (SITC 65) and Clothing (SITC 84) Imports from Africa and Latin America

SITC 84

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

canadian textile sitc 65 and clothing sitc 84 imports from africa and latin america
Canadian Textile (SITC 65) and Clothing (SITC 84) Imports from Africa and Latin America

SITC 65

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

canadian textile sitc 65 and clothing sitc 84 imports from africa and latin america44
Canadian Textile(SITC 65) and Clothing (SITC 84) Imports from Africa and Latin America

SITC 84

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

eu textile sitc 65 and clothing sitc 84 imports from africa and latin america
EU* Textile (SITC 65) and Clothing (SITC 84) Imports from Africa and Latin America

SITC 65

* 2003 without Greece, Finland and Sweden

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

eu textile sitc 65 and clothing sitc 84 imports from africa and latin america46
EU* Textile(SITC 65) and Clothing (SITC 84) Imports from Africa and Latin America

SITC 84

* 2003 without Greece, Finland and Sweden

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

japanese textile sitc 65 and clothing sitc 84 imports from africa and latin america
Japanese Textile (SITC 65) and Clothing (SITC 84) Imports from Africa and Latin America

SITC 65 SITC 84

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

slide48
Australian and New Zealand Textile (SITC 65) and Clothing (SITC 84) Imports from Africa and Latin America

SITC 65 SITC 84

Source: OECD, ITCS (http://www.sourceoecd.org), own calculations.

and where are the dangers
AND WHERE ARE THE DANGERS??

The dangers are clear:

When countries are too, too successful they get hit with NTBs.

This could mean, for instance, antidumping measures (ADMs) or other non-tariff measures (NTMs).

Remember the impct of the dumping measures portrayed earlier.

the future is uncertain
The Future Is Uncertain

Of course the future is uncertain....but that is life.

However, the large economic model, set up to map future trade and growth after quota removal and China‘s WTO accession (Francois & Spinanger, 2001), shows that China, India, Taiwan, Hong Kong and Vietnam would gain most (%).

But the above 7 factors have to be taken into account here when viewing the results!!!!!

the future is less uncertain
The Future Is Less Uncertain

If the affected economies were to change their policies and rid themselves of outdated baggage, they could perform much better.

Carpe diem, as the Romans said...it is not too late.

ratio of measures m to initiations i
Ratio of Measures (M) to Initiations (I)

In the following diagrams the ratio of measures enacted to initiations announced over the period 95 – 02 is shown in the caption.

The yearly values of measures enacted has been lagged by one period.

and which sectors were affected
And Which Sectors Were Affected?

Base metals (XV) and chemical products (VI) were by far the most affected areas.

T&C products (XI) were hit by a relatively small number of ADMs, similar to machinery (XVI) but less than plastics (VII).

Other sectors hit were stone, glass/glassware etc (XIII) and agricultural products (I – IV).

However, the ratio of applied measures to initiated proceedings (M/I) was by far the highest for T&C products (72%) showing that economies were more serious about trying to protect the sector.

ratio of measures m to initiations i62
Ratio of Measures (M) to Initiations (I)

In the following diagrams the ratio of measures enacted to initiations announced over the period 95 – 02 is shown in the caption.

The yearly values of measures enacted has been lagged by one period.

anti dumping vs competition laws
Anti-Dumping vs. Competition Laws

Objective:

Basic: Protects Protects

(domestic) competition

competitors

Actual: Protects Generally

domestic no distinction

from foreign between domestic &

competitors foreign competition

anti dumping vs competition laws72
Anti-Dumping vs. Competition Laws

Initiation:

Actions can only be In addition

initiated by executiveprivate litigants

branch and the can initiate

relevant industry proceedings.

anti dumping vs competition laws73
Anti-Dumping vs. Competition Laws

Administration:

Partly/mostly through Subject to full

executive branch/ supervision

commerce or foreignby courts.

trade ministry; appeals

through courts.

anti dumping vs competition laws74
Anti-Dumping vs. Competition Laws

Standards:

Injury

Requires only Requires „direct

showing that unfair causation“ and

practice „contributed“ showing of

to material injury reasonable restraint

above so-called of trade or

minimum injury substantial

level (i.e. de minimus) lessening of

competition

anti dumping vs competition laws75
Anti-Dumping vs. Competition Laws

Standards:

Pricing

Requires no Requires showing

evidence predatory intent

on intent. re. pricing aimed at

competitors.

Does not require Requires showing

showing of selling below-cost pricing

below cost. and capability of recoupment.

what can be done
What Can Be Done????

Boils down to 2 key questions:

DOES PROCESS PRODUCE ALLEGED EVIDENCE??

DOES EVIDENCE PROVE CRIME WAS COMMITTED??

problem areas
Problem Areas

Determination of dumping (Art. 2)

Determination of injury (Art.3)

Investigation procedures (Art.5 & 6)

Price undertakings (Art. 8)

Imposition/Collection of duties (Art. 9)

Review (Art.11)

Dispute settlement (Art.17)

conclusions
Conclusions

ADMs are going to increase all the more as liberalization opens up markets.

The DOHA ROUND must do something.

But even if...other NTMS are lurking.

Competition policy is a true alternative, but stands little chance of approval.

Ergo AD rules have to be tightened!!!!!

may the future be brighter
May the Future Be Brighter...

For sure the ATC must rest in peace after 2004...even if NMS countries have to struggle all the more with restructuring.

All calculations show that - aside from agriculture – the most welfare gains can be made by burying the quotas ASAP.

But what do policymakers/businessmen think about the future of T&C trade?

BIG EU CONFERENCE IN MAY, 2003, ADDRESSED THE ISSUES........

scope and thrust of eu atc conference
Scope and Thrust of EU ATC Conference

Attended by over 800 participants from 70 countries.

65 speakers from governments, international organizations, industry, unions and academia.

Addressed key challenges facing T&C sectors in post ATC period

scope and thrust
Scope and Thrust

Dealt with impact of quota elimination and DDA on ICs, DCs and LDCs.

Looked at implications within RTAs

Discussed promotion of sustainable development and „ethical“ trade.

Debated overall trading rules and their effectiveness.

specifics lamy
Specifics: Lamy

Commissioner Lamy said quotas will definitely fall as of 31/12/05.

He didn‘t say that just 15% of the quotas have been removed by the ICs.

Feared that quota elimination might give way to other forms of protection.

specifics supachai
Specifics: Supachai

Director General of WTO pointed to the over 80% of the quotas remaining and feared contingent protection.

Between USA, EU and Canada over 1100 quotas will have to be eliminated.

Suggested possible earlier „voluntary liberalization“ to ease logjam as of 31/12/04.

specifics ricupero
Specifics: Ricupero

Secretary General spoke at length about the benefits of trade liberalization and of missed opportunities in case of T&C products.

He pointed to what the benefits would be for the EU without the quotas, namely €250/year for 4 person household, more with younger kids.

Invited WTO members to find a compromise between competitiveness and solidarity with the weak in which GSP principle would apply.

specifics general
Specifics: General

Reciprocity issues were emphasized by the EU and US...no favors in advance.

US, EU and Japan can‘t go on providing over 75% of T&C trading opportunities – India, China, Pakistan, Brazil et al must open up.

AD/CV seen by EURATEX & US as ligit to counter NTBs in countries like India and China, whereby China was accused of currency dumping 40%.

specifics general86
Specifics: General

China was seen by many as a problem, coz they are taking too large shares of market.

Developing countries revealed their fears here too, worried also about losing their „quota protected“ market shares.

Developing countries worried about lower tariff rates as a result of liberalization coz it decreases the preferences they receive by the ICs.

specifics final
Specifics:Final

Reps from Carrefor, Levi Strauss, C&A and Marks and Spencers laid down their successful strategies in taking ethical dimensions into consideration.

All in all it revealed the deep-seated worries of many DCs about how the system will be working against them.

IC reps continued to point out that „All players must abide by the rules.“

AMEN..but what about ADMS and NTBS?

ratio of measures m to initiations i92
Ratio of Measures (M) to Initiations (I)

In the following diagrams the ratio of measures enacted to initiations announced over the period 95 – 02 is shown in the caption.

The yearly values of measures enacted has been lagged by one period.

and which sectors were affected93
And Which Sectors Were Affected?

Base metals (XV) and chemical products (VI) were by far the most affected areas.

T&C products (XI) were hit by a relatively small number of ADMs, similar to machinery (XVI) but less than plastics (VII).

Other sectors hit were stone, glass/glassware etc (XIII) and agricultural products (I – IV).

However, the ratio of applied measures to initiated proceedings (M/I) was by far the highest for T&C products (72%) showing that economies were more serious about trying to protect the sector.

ratio of measures m to initiations i96
Ratio of Measures (M) to Initiations (I)

In the following diagrams the ratio of measures enacted to initiations announced over the period 95 – 02 is shown in the caption.

The yearly values of measures enacted has been lagged by one period.

anti dumping vs competition laws105
Anti-Dumping vs. Competition Laws

Objective:

Basic: Protects Protects

(domestic) competition

competitors

Actual: Protects Generally

domestic no distinction

from foreign between domestic &

competitors foreign competition

anti dumping vs competition laws106
Anti-Dumping vs. Competition Laws

Initiation:

Actions can only be In addition

initiated by executiveprivate litigants

branch and the can initiate

relevant industry proceedings.

anti dumping vs competition laws107
Anti-Dumping vs. Competition Laws

Administration:

Partly/mostly through Subject to full

executive branch/ supervision

commerce or foreignby courts.

trade ministry; appeals

through courts.

anti dumping vs competition laws108
Anti-Dumping vs. Competition Laws

Standards:

Injury

Requires only Requires „direct

showing that unfair causation“ and

practice „contributed“ showing of

to material injury reasonable restraint

above so-called of trade or

minimum injury substantial

level (i.e. de minimus) lessening of

competition

anti dumping vs competition laws109
Anti-Dumping vs. Competition Laws

Standards:

Pricing

Requires no Requires showing

evidence predatory intent

on intent. re. pricing aimed at

competitors.

Does not require Requires showing

showing of selling below-cost pricing

below cost. and capability of recoupment.

what can be done110
What Can Be Done????

Boils down to 2 key questions:

DOES PROCESS PRODUCE ALLEGED EVIDENCE??

DOES EVIDENCE PROVE CRIME WAS COMMITTED??

problem areas111
Problem Areas

Determination of dumping (Art. 2)

Determination of injury (Art.3)

Investigation procedures (Art.5 & 6)

Price undertakings (Art. 8)

Imposition/Collection of duties (Art. 9)

Review (Art.11)

Dispute settlement (Art.17)

conclusions112
Conclusions

ADMs are going to increase all the more as liberalization opens up markets.

The DOHA ROUND must do something.

But even if...other NTMS are lurking.

Competition policy is a true alternative, but stands little chance of approval.

Ergo AD rules have to be tightened!!!!!

summary and conclusions
Summary and Conclusions

Given structure of the ATC a real danger exists that other forms of protectionism will take over after quotas are lifted as of 1/1/05.

This could particularly hit China which is expected to attract much more T&C activities due to competitive advantages beyond what relative prices might predict. Already machinery for T&C sector in China is pouring in.

slide114
Textile & Clothing Machinery Exports to Major Regions / Countries 1990 - 2003 – 3 Year Moving Average (US$ Mill.)
concluding remarks
Concluding Remarks

Will China continue to dominate?

Can NTBs be avoided given current trends?

What role will the time factor (i.e. nearness to market for JIT production) play?

Are there other factors?

What‘s the bottom line?