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China to sew up Asian rivals when garment, textile quotas end

AFP, Singapore
Many of Asia's poorest nations are unprepared for the imminent end of a quota system governing global textile and clothing exports with widespread job losses inevitable as companies shift operations to China, analysts and industry players say.
Less competitive nations such as Bangladesh, Nepal, the Philippines, Cambodia and Indonesia are set to lose significant proportions of their garment and textile manufacturing industries -vital cogs in their economies -- as the multi-fibre agreement is phased out by January next year.
The multi fibre agreement, established in 1975, allocates quotas of clothing and textiles that developing nations with cheap labour can export to rich countries.
It has had the effect of giving a guaranteed market for not only Asian nations, but also Eastern Europe and Mexico, to the United States and Western Europe.
It has also harnessed China's expansion potential in the textile and clothing industry but experts say that with the leash taken off in 2005, the world's most populous nation will quickly dominate the export market.
A study by McKinsey consultants for DHL released in India this month showed China could account for half the world's clothing and textile exports by 2008, up from 21.6 percent in 2000.
The rest of Asia would see their share of the world trade fall to 20.1 percent in 2008 from 31.9 percent
in 2000, according to the report.
The rest of the world would suffer an even bigger decline, from 45.7 percent of the market in 2000 to 29.4 percent in 2008.
"Many commentators have expressed concern that China will wipe out less competitive exporting countries, " the McKinsey report said.
"Already for categories coming off quotas we have seen explosive growth in exports from China while factories in other countries such as Indonesia have been closing down."
A report last year from the Institute of World Economics' Dean Spinanger and Oxfam South Asia policy adviser Samar Verma gave striking examples of what trends clothing-export nations can expect from 2005.
The report highlighted China's emergence as the world's biggest supplier of bras, which the United States had removed from quota restrictions, within just 18 months after joining the World Trade Organisation in November 2001.
China's share of the bra export market jumped from about seven percent in 2001 to over 20 percent by the end of 2002, according to Spinanger and Verma.
However China's rapid domination of the bra export market led to the United States famously reintroducing export quotas on China for bras, knit fabrics and dressing gowns in November last year, sparking a bilateral trade row.
McKinsey and other experts say the US reaction to China's export power in bras could set a precedent
for how it will handle the Asian giant's domination of other clothing sectors from 2005.
"(Some commentators) believe that the US and Europe will not allow an animal the size of China to run wild and will use available mechanisms to at least slow sourcing to China," the McKinsey report said.
Under World Trade Organisation rules, the United States and the European Union can restrict Chinese exports under two separate types of "safeguard mechanisms" that can be used until 2008 and 2013 respectively.
Under these scenarios, McKinsey says China might be restricted to just 30.9 percent of the global export market in 2008.
However McKinsey highlights that restricting China would have a major impact on the size of the global textile and clothing trade.
If China is allowed to trade freely in textiles and clothing, global exports will be worth 248 billion US dollars in 2008 from 166 billion dollars in 2000. If not, global exports will be just 207 billion dollars in 2008.
Regardless of China's strength, nations that have been protected by the quota system and have been able to operate inefficiently will undoubtedly suffer.
Garment Manufacturers Association in Cambodia (GMAC) president Van Sou Ieng told AFP his nation's government must cut bureaucracy and corruption by September, when orders for next year are placed.