World Textiles and Clothing after Quota Elimination: Winners and Losers

21 pages, published in Issue 114, November-December 2004   Report price: Euro 395.00; US$ 520.00

The Agreement on Textiles and Clothing (ATC) expired at the end of 2004, marking the end of quotas limiting textile and clothing trade between World Trade Organisation (WTO) members. Large developing countries?notably China, India and Pakistan?were the most restricted by quotas. By implication, these are the likely winners from the quota phase-out, especially China and India. The main losers are likely to be high wage firms in the quota-restricted countries who have enjoyed protection for over 40 years. However, losers will also include small developing countries located far from the major Western markets which benefited from quota-free access to those markets.

Future competitiveness in textiles and clothing will depend on total cost, lead times, design and quality. Low labour costs alone will not be enough to make firms competitive. This is especially true of firms in developing countries where wages represent only a small share of total costs. Equally, producers in higher wage countries have a chance of compensating for their higher wage costs if they have lower nonlabour input costs and offer good design and short lead times.

Norway?s experience may provide a foretaste of what will happen in the EU in 2005 and beyond. The country eliminated its last quotas on January 1, 2001?four years ahead of Canada, the EU, and the USA. Since then, China and Bangladesh have increased their shares of the Norwegian market while EU and local producers have lost shares. But the biggest gains have been made by lower cost regional exporters such as Romania and Turkey.

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