Never before has an international trade agreement, or rather the expiry of an agreement, caused such uproar globally among stakeholders as has been the case with the agreement on textiles and clothing (ATC).

This WTO agreement, which is binding on all WTO member states and which had been in place since 1995 after replacing the decades-old multifibre agreement, provided the framework for a structured removal of trade-restricting quotas on textiles and garments over 10 years.

Having been heavily back-loaded, the final (and by far the largest) tranche of quotas was phased out on December 31 2004.

Quotas were imposed mainly by industrialised countries as a means of controlling the surging imports of textiles from developing countries, which were proving to be substantially more competitive.

Despite heavy quota restrictions directed at it, China has become the world's superpower in textile and clothing production and trade.

But why such an uproar over the removal of quotas? While it is true that a quota-free environment signifies an important step in the quest for the removal of trade barriers, the associated adjustment costs are, ironically, likely to hit many developing countries far harder than the developed world.

Quota restrictions - which were levelled mainly by Europe and the US on an ad-hoc basis and only against countries perceived to be a particular threat - led to a global diffusion of the sector as countries not facing quota restrictions became important production centres.

Mauritius, for example, re-engineered its agro-based economy to become an important regional textile and clothing powerhouse, incentivised by quota-free and largely duty-free access to both the EU and US markets.

However, not unlike South Africa, Lesotho, Swaziland and Malawi, it was drawing its competitiveness from competing in otherwise quota-constrained categories.

Much of this relative advantage was removed in a flash with the recent expiry of the ATC.

Already the warning signs are ringing true. Recent media reports spoke of six factory closures in Lesotho, and further ones in Swaziland, leaving close to 10 000 without employment.

In South Africa 30 000 textile workers lost their jobs over the past two years as companies battled to compete with lower-priced imports.

Recent developments affecting the sector must be seen in a broader context as having far-reaching implications for the region: will the decision by investors to locate production in the region still be viable in the absence of the quota-induced competitive advantage?

Will the benefits provided by African Growth and Opportunity Act (Agoa), the American trade preference programme that assures African countries' clothing exports duty-free entry into the US (a waiver of the 15 to 20 percent import duty), still be sufficient now that China and India may freely export their wares at a fraction of the cost?

Why would European or US retailers still choose to source in the southern African region when the cost of paying import duty on highly competitive Asian imports is the cheaper option?

Thus far there appears to have been no or little policy response to these vexing issues

.

While the government's textile industry task team has been revived, and recent media reports of government-led public hearings with affected stakeholders noted, this would seem to be a case of too little and too late, especially when considering the demand-driven value-chain dynamics within this sector.

These predict that global production will increasingly be driven (and be at the mercy of) large retail corporates, further putting pressure on a "race to the bottom", where price becomes the overriding determinant of competitiveness.

Just a few weeks ago, global branded goods producers and retailers like Reebok and Polo Ralph Lauren - which from now on will have access to quota-unconstrained sources of supply - reported record profits.

But the flip-side of the coin is that recent developments may have served as an important reminder (some might say wake-up call) to trade negotiators and policy makers from the regional bloc, the Southern African Customs Union (Sacu).

With negotiations for a free trade area between Sacu and the South American Mercosur country grouping recently concluded without much fanfare, the more important ones with the US having stalled over various substantive issues, and further agreements with China and India in the pipeline (without forgetting the ongoing negotiations for economic partnership agreements between various Southern African Development Community countries and the EU), it is time to face up to certain realities: anything less than a push for substantially less restrictive origin rules for our textile and clothing exports under current and future trade agreements will be meaningless and merely contribute to the demise of this important sector.

And anything less than greater co-ordination between domestic and regional industrial policy will make the task of pressing for meaningful market access with our key trade partners a fruitless task.

[ Source: Eckart Naumann ]

Eckart Naumann is an economist and associate of the Trade Law Centre for Southern Africa (Tralac), an independent organisation based in Stellenbosch.

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