How has the ATC been implemented so far?
A well staged phase out of the MFA is potentially beneficial to the economies of many developing countries. However there is strong criticism of the manner in which the ATC is being interpreted. The USA and European countries are seen as deliberately holding back on the process in order to protect their own industries.
Limited increase in export opportunity
The first stage of integration had little impact on developing countries. In the first place both the EU and USA added some minor products to the lists and cut back on under-used quotas in order to raise the starting point. Furthermore the list of products in the schedule of major importers, particularly in the EU, included items such as umbrellas, car seat belts, dolls clothes and parachutes. These fall within the rules but are of no value to developing countries trade. Clothing, the most important export for the poorest developing countries, has hardly been affected.
It is clear that the aim of the US and EU is to “end-load” the process so that most items of significance to developing country suppliers are only integrated in the final stage. Although this is strictly within the rules, developing counties claim that it is not in the spirit of the agreement. There is also concern about the capacity of many countries to respond to what would then be a sudden change in trading opportunities.
Use of safeguard procedures
During the GATT negotiations importing countries claimed that safeguard procedures would be used sparingly and only in situations of “actual damage” to domestic industry, However in the first year of the agreement the US initiated 24 actions against 14 exporting countries
- Rules of origin
Developing countries have also complained that increased pressure is being imposed to prove the genuine country of origin. There is also concern about the changes in rules of origin being introduced by the USA.. Asian countries claim that such changes breach the WTO rules.
- Reciprocal market access
The EU is increasing pressure on developing countries to open up their markets in return for a more sympathetic phase out programme. Both the EU and USA want to take advantage of the expected increase in demand for upmarket clothing by the growing Asian middle classes. Pressure is mainly directed at India and Pakistan, since most East and Southeast Asian countries and Bangladesh have already lowered their tariffs. Developing countries are refusing to accept these demands, claiming that further tariff cuts are not part of the ATC agreement.
-Textile Monitoring Body
The TMB is the WTO body which oversees implementation of the ATC. Concern has been expressed by developing countries about the closed nature of the TMB’s operations. Requests have been made for greater openness, particularly in explaining the reasons behind decisions.
Role of WTO meetings
The above concerns have expressed by developing countries in the relevant forums of the WTO. Concern has also been expressed about the situation of small suppliers and LDCs (Least Developed Countries). The WTO regularly states a commitment to the “full and faithful implementation of the provisions of the ATC”, with safeguard measures used “as sparingly as possible”. It was also stated that the TMB should “achieve transparency in providing rationale for its findings and recommendations.” However as yet there is little sign of any change.
What are the implications of the ATC?
It is difficult to predict what the effects of the ATC will be when all quotas are removed at the end of the phase out period. It is not even certain how much market access this will create, since the agreement does not relate to tariff barriers and many are suspicious that importing countries will find alternative means of protectionism. Both the USA and EU will also continue to give preferential treatment to certain less developed countries.
Nevertheless it is clear that the removal of quotas will mean changes in the location of the industry. A less controlled system will mean that both countries and companies will be in more direct competition to supply the world market. This will have implications for workers everywhere.
Implications for different countries
Some countries will gain from the ATC whilst others will lose. The general assumption is that there will be an increase in the movement of the garment industry from North to South, i.e. from industrialised in Europe and North America to poorer less industrialised countries. However the situation is more complicated than this and the greatest relocation could be from one relatively poor country to another. The MFA did have the effect of guaranteeing a Northern market to a wide range of poor countries. Without the MFA there will be a more open market and the overall result is likely to be a concentration of the industry in a smaller number of low cost locations. Marginal suppliers are likely to be squeezed out
In a more open market the relative competitiveness of countries depends mainly on:-
- wage costs - supply of fabric, yarn and other materials
- infrastructure for transport and marketing - nearness to markets
On this basis the general prediction is as follows : Asia will experience the greatest changes in the distribution of production.
China has the highest predicted growth. Not only does China have a huge low cost labour force, it also has its own textile industry and will benefit from Hong Kong’s well established financial and marketing expertise. China is already emerging as a dominant supplier in spite of high quota restrictions. At present China is not a member of the WTO and is therefore not entitled to the liberalising provision of the ATC. However once it does join up it will be entitled to the same treatment as other countries.
India and Pakistan are predicted to benefit on the basis of low wages costs and access to domestically produced fabrics.
Korea is also seen as having the advantages of its own (especially synthetic) fabrics, together with high productivity and overall efficiency.
Bangladesh is expected to lose. Bangladesh is the clearest example of a country
which developed a garment industry as a direct result of the MFA and other trade agreements. Bangladesh has had free access to EU markets and the US also gave Bangladesh sizeable quotas so that it became a major supplier to both the American market and European markets. Once quotas are removed Bangladesh is expected to suffer from its lack of textile industry and poorly developed infrastructure.
Thailand, Sri Lanka and the Philippines may also loose since they depend on imported fabric and on marketing/buying groups over which they have no control. Some predict that they will be unable to compete with even lower cost producers such as Vietnam.
Central America and Mexico are well placed to benefit in a more open market. Low wage levels and proximity to the US market mean that the industry is certain to flourish after the end of the phase our period. Haiti will also continue to have the competitive advantage of low wage costs.
Africa is not likely to be greatly affected since the clothing is not an important export. Mauritius is the exception since it is an example of a quota- related industry lacking any kind of domestic base. It is therefore likely to amongst the losers. However it is already investing in outward processing, notably in Madagascar.
Turkey is likely to continue as a major supplier to the European market. It has abundant access to cotton and quick turnaround times.
Greece, Portugal and other poorer countries within the European Union may lose out with the opening up of the European market
Eastern Europe has already gained a substantial share of the European market and is predicted to increase this with the MFA phase out. East European countries have the advantage of low costs and high quality combined with nearness to the market. There are also political reasons for increasing trade within the European continent.
Implications for companies
Analysis of the MFA phase out focuses on the implications for countries. However it is also important to look how companies might benefit from changing trade rules.
Industrialised countries first drew up the MFA to protect their own garment producers. At that time most clothing was produced by local manufacturers and sold to local or national retails. Now the industry operates in a very different way. It is mainly controlled by US and European based multinational companies which own no production facilities themselves but manage an international network of suppliers. This includes big retailers such as Walmart and brand based companies like Nike and Adidas. These companies control the industry on a global scale without government protection and have no interest in maintaining quota restrictions. With the phase out of MFA multinational companies will benefit from an increasingly open market. As poor countries compete to become major suppliers they can source more freely from the most profitable locations.
Governments of poor countries are likely to invest public money in attracting overseas investment whilst the main profits will go to these overseas companies. Meanwhile the ATC can be used as a way of persuading poor countries to open up their markets to more products from the North, through the “reciprocal market access” agreement. In other words, the main beneficiaries of the ATC may well be the multinational companies themselves.
The phase out may be in the interests of major business interests in the North but this does not mean it is in the interests of small manufacturers. Small companies are now having to compete even more with international suppliers and many are closing down. Larger manufactures are subcontracting an increasingly percentage of their production to lower wage economies. Meanwhile for manufacturers in the South the increased global competition means that there will be constant insecurity and increased pressure to reduce costs.
Implications for workers
Whatever the specific outcome of the MFA phase out there will be major shifts in the location of garment production over the next decade. In the long run there could be greater stability as the location of garment production becomes determined more by market forces than the arbitrary imposition of quotas. New jobs will be created in some countries and the overall the number of jobs for garment workers in the South will most likely increase.
However the initial impact will be highly disruptive to employment, particularly towards the end of the phase out period. Jobs will be lost not only in Europe and North America but also in some countries in the South. If countries like Bangladesh are no longer be unable to compete in a open market then factories will be closed overnight. Thousands of jobs are at stake, particularly for women who make up the majority of garment workers. Most workers have migrated from rural areas and it will be very difficult for them to return to their villages.
There are also likely to be negative implications for workers rights. The increase in competition at a global, national and local level is resulting in downward pressure on working conditions. With no quota restrictions labour costs will be an even more significant factor. The main shifts being predicted are to low wage economies where workers often lack basic labour rights. The notable example is China where comparative advantage is clearly linked to poverty and lack of workers’ and women’s rights.
Increased competition generally causes increased work intensity as labour costs are pushed to a minimum. More work is subcontracted to women and children at home or in small production units where there is no worker protection. These trends are universal, effecting workers in the industrialised North as much as those in the South.
Developing country leaders rightly claim that the MFA has unfairly restricted exports vital to their development. However development cannot be measured in only in terms of increased export earnings. It also has to be reflected in an improvement in the working and living conditions of garment workers themselves This will not be achieved simply through the removal of trade barriers. On the contrary, the increase in global competition associated with trade liberalisation is causing widespread insecurity and downward pressure on working conditions. Trade agreements such as the ATC have direct implications for people’s lives and it is essential that any such agreements be accompanied by policies which support the rights of workers at an international level.
Recommendations - Commitment to full and fair implementation of the ATC, with appropriate provision for poorest producers
- Education and training for workers on what the ATC means for them
- Recognition of the levels of job displacement associated with the ATC and provision of appropriate compensation or alternative employment
- Promotion of appropriate strategies to support the rights of workers at an international level
