The garment industries in Mexico and Bangladesh face an uncertain future, according to a recent report published in Textile Outlook International.
Both countries have built successful garment export industries, but they are no longer achieving the growth which they enjoyed during the 1990s. Their garment exports are threatened by the unprecedented trade liberalisation - the phasing out of the quota system by 2005.
Bangladesh currently benefits from quota-free access to EU markets and generous quotas for US markets, while Nafta member Mexico enjoys quota-free access to the US market. But these advantages will have disappeared by the end of 2004. And in both cases, international competitiveness will be hampered by an absence of backward linkages into the yarn and fabric sectors, and hence an overreliance on foreign suppliers.
The garment industries in the two countries have something else in common. Both fear that China will use its enormous resources to flood the world's markets. Now that China is a member of the World Trade Organisation (WTO), other WTO countries are no longer permitted to maintain quotas on Chinese exports after 2004.
Structurally, however, the industries in Mexico and Bangladesh could hardly be more different.
Mexico's export sector is concentrated mainly in maquiladoras or in-bond assembly plants located close to the US border. Incoming components or part-assembled goods can be freely imported without being liable to customs duty, and can then be exported to foreign markets, mostly those in the USA, without hindrance.
Critics of the maquiladora system argue that, because activities remain concentrated in a relatively small part of the country, the Mexican economy as a whole is deprived of some of the benefits normally associated with industrialisation. In addition, maquiladoras have often been accused of working to a different set of rules from the mainstream Mexican economy-not least in the area of labour conditions.
Furthermore, most of the textile and clothing maquiladoras are owned or part-owned by foreign interests, chiefly US companies, with little interest in transferring the skills and technology which would benefit the Mexican economy as a whole.
Instead, Mexico is seen by these firms as offering: a convenient location with close proximity to the US market; a low wage workforce; and a means of enabling the US textile industry to survive through production sharing.
Bangladesh's garment industry is geographically more dispersed than Mexico' s. This is despite a concentration of activity in and around the capital city of Dhaka, and a growing garment manufacturing presence in the country's export processing zones (EPZs). Bangladesh's garment industry also appears to be more entrepreneurial - more than 95% of garment factories are owned by Bangladeshi companies or families rather than foreign investors.
The fact that most of the investment is in local hands means Bangladeshi owners have a vested interest in the industry's future. Investment in the Mexican garment export industry, by contrast, is probably more susceptible to the impulses of foreign investors and to changes in the relative competitiveness of different production locations.
On the other hand, having a foreign presence can improve access by manufacturers to the outside world-especially foreign markets, provided they are allowed to do business directly with foreign customers rather than intermediaries such as local agents.
Foreign investment will certainly be needed in both countries if their respective industries are to take an important step in securing their futures-namely the development of "backward linkages" or upstream operations in yarn and fabric manufacture.
In both Mexico and Bangladesh, the reliance of the garment industry on imported materials is a major weakness. For garment makers, the need to import materials results in higher procurement costs and hinders efforts to speed up response times. Also, it renders producers vulnerable to exchange rate movements, logistical and transportation problems, and the risk of disruption to supplies through political, social or military conflict.
In 1996 Mexico became the USA's leading textile and apparel supplier in volume terms, fuelled by its quota-free and duty-free access to the US market under Nafta (North American Free Trade Agreement). But in recent years confidence in the industry's future has been evaporating.
In 2002 China regained its position as the number one supplier to the USA in both value and volume following its accession to the World Trade Organisation (WTO), and the removal of a whole batch of products from quota.
US textile and apparel imports from Mexico, meanwhile, rose in volume by only 1% in 2002 and declined in value by 3.6%2. The prospect of guaranteed markets for Mexican garments in the USA is now looking less secure. Not surprisingly, investors are getting nervous.
The 125% increase in US import volume from China in 2002 has sent shivers through the boardrooms of companies not only in the USA but also in many developing countries. Growing numbers of firms fear that Chinese suppliers will progressively squeeze them out of global markets.
Moves by the US industry to reintroduce quotas on Chinese exports will therefore be welcomed by manufacturers in Mexico and Bangladesh as much as by those in the USA. But under the terms of the WTO, the reintroduction of quotas can only be temporary.
Ultimately, garment makers in Mexico and Bangladesh will have to adopt strategies appropriate for a world in which winners will be decided on the basis of their international competitiveness-not on the basis of their quota-free access to the major markets.