Many ofAsia’s textile and clothing exporting countries are coping with the end of the Multi-Fibre Arrangement (MFA) better than had been predicted, according to a new report[1] by the International Labour Organization (ILO).

According to the report, forecasts that the end of textile and clothing (TC) quotas in January 2005 would be a labour and trade catastrophe for many developing countries in the region have not panned out.

The report presents the most up-to-date global picture of labour issues in the TC industry. It compares the situation of TC exporting countries in the first few months of 2005 with the same period in 2004, analyses some lessons and experiences and suggests some future strategies. The study, Promoting fair globalization in textiles and clothing in a post-MFA environment, has been prepared for a meeting on the social and economic impact of the ending of the MFA.

InAsia, the countries predicted to be the main beneficiaries of the post-MFA trading environment were those that suffered most under its restrictions –Pakistan,India, and particularlyChina. Equally, countries whose industries had received preferential treatment under the quotas -Bangladesh,Cambodia, andSri Lanka- were predicted to suffer.

WhileChinahas certainly benefited, the report cautions that its TC trade was artificially suppressed at the end of 2004 and artificially inflated in early 2005. In the first four months of 2005, Chinese TC exports were up 18.4 per cent, year-by-year. Exports to the US and EU rose 70 per cent and 45 per cent respectively, although some of the increased market share may come from rerouting of exports away from Hong Kong and Taiwan – both of which saw export values decline.

However,Bangladesh– one of the countries most often cited as a potential loser – has managed to maintain its comparative advantage, despite strong Chinese competition. After initially dropping by US$52 million in January, orders recovered strongly in February – up US$ 157 million – and in some sectors were up as much as 48 per cent.  New jobs are expected to be created. Manufacturers inBangladeshare also exploring new strategic alliances – for example withChina.

Cambodiaalso seems to have fared well, in fact better than many other developing economies of its size. The volume and value of US exports have increased since January, and the strength of the garment industries performance has prompted the IMF to reviseCambodia’s predicted 2005 GDP growth to 6 percent (from 2.3 per cent).  This performance is attributed toCambodia’s reputation for good labour standards, working conditions and social dialogue,and moreparticularly to the ILO project “Better Factories Cambodia” which has helped the country's garment industry deal with the phase-out of the MFA.

Pakistanhas also benefited, overall, with TC exports reaching a record US$3.048 billion during the first four months of 2005. This is an increase in average monthly TC exports of 22.1 per cent when compared with the average during the second half of 2004[2].

By contrast India – expected to be a major winner with predictions of up to one million new jobs created by 2010 - has had mixed results.  In January-March textile exports were up 28 per cent on 2004 but clothing exports fell 24 per cent, and overall TC exports fell by 3.4 per cent. Analysis of January/February figures indicates that, for products where both India and China have a strong comparative advantage, India seems to have lost market share to China, perhaps indicating that the full benefits of the new TC regime will only come when other issues affecting competitiveness, such as domestic regulation, are addressed.

Sri Lanka, also facing stiff competition, has been affected by other issues including low productivity and weak infrastructure. The consequence may be that larger enterprises benefit in the post-MFA environment while smaller manufacturers are squeezed.

Among smaller developing country exporters, the Philippines, Malaysia and Sri Lanka all suffered a decline in export values, while in Viet Nam clothing exports have stagnated and producers are expressing uncertainty in the face of Chinese competition.

In the Philippines, although orders were up 30 per cent in the first quarter of 2005, prices were down 10 per cent because of increased competition. The report cautions that the Philippines’ – and Indonesia’s – ability to remain important exporters depends on upgrading technology and repositioning themselves as higher value-added producers.

“This early data is encouraging,” saidJean-Paul Sajhau, the report’s author. “But adjusting an entire industry to trading new conditions takes time and the full impact on employment may not be clear for some months at least. Factors like consolidation of production, falling prices and overall competitiveness will also have an effect”.

Business, labour and government leaders will attend the high-level meeting inGeneva(24-26^th October) where the report will be discussed. The countries expected to be represented include key TC producers and consumers such asBangladesh,Cambodia,China, thePhilippines. Others due to participate include the World Bank, the WTO, OECD, European Union, UNCTAD, the International Trade Centre, the International Textiles and Clothing Bureau (ITCB) and concerned NGOs.