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| Issue date:01/02/2006 |
| ATA Journal for Asia on Textile & Apparel - Feb 2006 Issue |
| Source:Journal for Asia on Textile & Apparel |
| by Ajay Sinha, Ghazi Mahmud Iqbal and Baari La Inggi |
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| Along with a surge in export of textile goods, Asia's main textile production bases are looking to strengthen production ability while paying more attention to the domestic market |
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The signing ceremony at the 13th SAARC Summit held last November in Dhaka
Source: Press Information Bureau, Government of India |
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The watershed year for the global textile industry, 2005 has seen a new order of international textile trade. Kicking off the year was the surge of textile goods flowing from the east to the west, with China leading the way in terms of volume and value. Also entering the scene was the drop of unit price, and almost every exporting country recorded a price drop.
Then next, what guided the spotlight was the staggering of Chinese goods at the EU and the US ports. While some others were still pondering about how to play in the new scene, Chinese textile exporters had already had their products ready for pickup by clients. The pile was so high that the EU and the US had called for a halt of Chinese textile goods.
Since the middle of the year, headlines of papers had been reporting about the trade disputes between China and the two parties. And then there were exporters from other Asian countries prepared to welcome orders drained out of China, but two agreements had settled and cleared the way for the three parties to move on.
Growing in strength
Concluding the year of 2005, China remains the largest producing base in the world, its neighbors India and Pakistan are picking up during the year. Bangladesh and Sri Lanka are also drawing favorable pictures. However, from the South Asian part, Indonesia's official statistics about the performance of the textile industry was questioned.
Latest US textile and apparel import figures (million US$)
Source: Office of Textiles and Apparel, US Department of Commerce |
Looking ahead, in the keen competition, there is no doubt that textile industry in these Asian countries will continue to sharpen their edge in respect of product quality, variety, price, lead time, and so on, and many are calling for reforms, restructuring and replacing old machines. While they continue to seek the major portion in the traditional markets as in the EU and the US, many of them are switching attention to the domestic market and new overseas markets. For example, Asian Development Bank (ADB) Chief Economist Ifzal Ali previously had reminded that Beijing's opening up of its markets provides the potential for absorbing more exports from neighbors. The India's government also asked the industry to develop the internal markets.
Latest EU textile and apparel import figures ('000 euros)
Source: European Commission |
Free trade agreements take effect
Apart from competition that governed the Asian textile arena, Free Trade Agreements(FTAs) of both bilateral and regional types are expected to play a pivotal role in determining winners and losers in the new game. This year is a milestone that many international trade agreements are coming into effect. For example, under the South Asia Free Trade Agreement, developing SAARC (South Asian Association for Regional Cooperation), Pakistan, India and Sri Lanka are to cut tariffs to between zero and 5% within seven years. China and Pakistan also agreed to progressively lower tariff on more than 1,000 types of product including some textile items. Despite seeing each other as competitors, these Asian textile producers are actually seeking collaboration with each other, and many more of FTAs covering textile trades are already luring.
China to seek heathy, balanced growth
The world's largest producer and exporter of textile goods, China's textile industry is expected to conclude with good figures for 2005, due to increased investment in fixed assets and technological innovation.
During the first 10 months of last year, large-sized Chinese textile enterprises (with annual revenue of Rmb5 million) have achieved a growth of 26.33% in sales revenue. It is estimated that sales revenue would round up at Rmb2 trillion for the whole year.
For export performance, between January and November 2005, China exported some US$107.123 billion worth of textile and apparel, up 21.12% year-on-year, representing a share of 15.06% in China's total exports, according to the figures provided by the customs. While exports of textile products jumped 23.95% year-on-year to US$40.151 billion, that of apparel went up 19.48% to US$66.972 billion. The largest export market of China was the US (US$17.657 billion), followed by Japan (US$16.632 billion) and Hong Kong (US$13.444 billion).
During the year, the industry was challenged by such unfavorable factor as international trade disputes and appreciation of China's currency - renminbi, but despite all these, it is predicted that most sectors in the industry will achieve an increase in profit, except the chemical fiber sector which has a projection of negative growth by 30% for 2005 due to oil price hikes. As of September, the chemical fiber sector registered a profit of Rmb3.709 billion, with the year-on-year decline at 25.24% over the same period in 2004.
Entering 2006, it is generally predicted that China's textile industry will continue to face such challenges as increasing cost of raw material especially for chemical fiber sector, as well as a shortage of domestic cotton supply.
Moreover, even when China has settled the dispute with the EU up to 2007 and with the US to 2008, uncertainties still linger since there are still possibilities for non-tariff barriers. Some small-and medium-sized Chinese textile producers have reported insufficient orders to sustain the business since they have not received quotas for exporting goods to the two major markets.
To prepare for the new round of competition, China Chamber of Commerce for Import & Export of Textiles has filed a proposal to the Ministry of Commerce, urging the government to set up a "Going out" fund which aims at encouraging domestic textile mills to tap overseas markets and to establish production lines outside China.
But apart from that, China is also seeking a balance, healthy growth in the textile industry and so a tighter control over new textile investments will be imposed in the coming years to prevent the Chinese textile economy from overheating. According to the National Development and Reform Commission, new textile facilities in China will have to meet higher standards on the environmental compliance in factory operations and the type of textile product a manufacturer choose to make may also be restricted.
India flexes muscle in export
The figures from the US Department of Commerce's Office of Textiles and Apparel suggested that India has benefited from the export quota imposed by the EU and the US on some of the Chinese textile items. As of December 10, India's cotton hosiery export went up 238% over last year, cotton skirts up 215%, knit fabric up 183%.
However, apart from the surge in some items, another study conducted by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) on Post-ATC Competitiveness & Protectionism suggested that India still has to work more on the overall export strength.
In the first nine months of the quota-free regime, India's textile exports dipped by 10.1% to US$4.7 billion while exports of readymade garments fell by 1.8% to US$5 billion, said the study.
During the reviewed period, exports of textiles and readymade garments to the EU accounted for 35.3% of India's textile exports, up by a meager 3.7% to US$3.4 billion. During January to June 2005, India's textiles and apparel exports to the US increased by about 24.2%.
According to the year-end release published by India's Ministry of Textile in December, while exports of textiles (including handicrafts, jute, and coir) formed 24.6% of total exports from India in 2001-2002, this percentage has decreased to 16.24% during the year 2004-05.
Fabric collection from Indian Rayon and Industries Ltd |
The Ministry admitted that although the growth has improved over the years, it is much less compared to the growth of some of neighboring countries like China, Bangladesh, Sri Lanka.
Entering the new fiscal year for 2005-06, the textile sector fared well in the first half of the year as the weighted production index went up by 10.3%, compared to a 6.5% rise in the corresponding period of the previous year. Investments also (excluding synthetic textiles) saw buoyant growth between July and October in 2005, scaled up by a hefty 109.3% to Rs 14,186 crore, compared with Rs 6,779 crore recorded in the same period in 2004.
For 2006, it is expected that India will see more investments to burgeon the textile economy, for which, the roadmap has been drawn by the Indian government. India's Union Textiles Minister, Shri Shankarsinh Vaghela, said at the Annual Economic Editors Conference, held last November, that the government has budgeted Rs 450 crore for the Technology Upgradation Fund Scheme (TUFS) in 2005-06 in order to promote the technological level of the textile industry. This registers an increase of over 80% from Rs 249 crore in 2003-04.
India's Union Textiles Minister, Shri Shankarsinh Vaghela
Source: Press Information Bureau, Government of India
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Mr Vaghela also pointed out the need to restructure 119 textile mills run by National Textile Corporation. Of them, 53 mills will be revived and the rests are proposed for closure. The Voluntary Retirement Scheme will be offered to affected employees.
Introducing some of the preferential terms for the textile industry in the 2005-06 government budget, Mr Vaghela highlighted that excise duty on Polyester Filament Yarn (PFY) has been reduced from 24% to 16%.
Moreover, the Optional Central Value Added Tax (CENVAT) Scheme has been extended to stand-alone texturizing units at 8% excise duty with CENVAT credit or at nil duty without CENVAT credit. Duties on specified textile machinery items, raw materials and spare parts for manufacture of such machinery have been reduced from 20% to 10%. The existing concessionary duty of 5% on some other machinery is maintained.
For textile workers, Mr Vaghela revealed that the government has introduced the "Mahatma Gandhi Bunkar Bima Yojana" (MGBBY) which is a health insurance scheme providing handloom weavers with a higher insured amount in the case of natural as well as accidental death. "We are committed to enhancing the welfare and well-being of the workers particularly handloom weavers and handicraft artisans in the unorganized sector by providing social security, health insurance and so on," he said.
Pakistan saw steady growth in key markets
The textile sector contributed 60% of Pakistan's exports. The figure went up to US$8.926 billion in 2004-05 from US$8.252 billion in 2003-04, showing an increase of about 8.1%.
Between July 2004 and June 2005, major categories that registered an increase over the previous year were: cotton fabrics which went up to US$2.050 billion from US$1.711 billion in previous fiscal year; readymade garments US$2.722 billion (US$2.452 billion); textile made-ups including bedlinen US$1.916 billion (US$1.799 billion). While export of towels increased to 139,168 million kg from 101,806 million kg, raw cotton also went up to 117,084 million tonnes from 37,307 million tonnes.
A decrease was witnessed in some textile items such as yarn, tent and canvas, and art silk and synthetic textiles.
Country-wise, the US is Pakistan's largest textile importers. For the first time, the figure broke the gate of US$2 billion, concluding at US$2.5 billion in 2004-05 fiscal year, an increase of US$800 million over 2003-04, accounting for around 80% of the total exports to the US, thanks to the heavy investment drained into the textile sector in the last couple of years.
Beginning the first five months of the 2005-06 fiscal year, i.e. between July and November, Pakistan has registered the largest growth in bedlinen with 79.59%, totaling US$797.855 million in value and accounting for 10.07% in export value. Major markets are the US, followed by the UK, Germany and UAE.
In that five months, ready made garment, making up the largest share in export value at 18.92%, also achieved a big growth at 72.30%, totaling US$546.827 million.
Among the textile products, cotton yarn ranks third in terms of value growth with 42.65%, totaling US$540.713 million. Major markets include Hong Kong, followed by China, US and South Korea.
Meanwhile, cotton cloth is of the highest export value totaling US$905.800 million, with a year-on-year growth of 32.87%. The biggest market is the US, followed by Turkey, Hong Kong, and UAE.
With Pakistan's textile and garment exports stood at around US$8 billion in 2004-2005, the share is still considered not very substantial in the global textile trade worth more than US$300 billion. The industrial leaders believed that Pakistan should, in the coming two years, tap as much share as possible before China fully avails the free market access under WTO quota free regime.
For 05-06, target for textile export is set at around US$11 billion. Like the counterparts in other countries, Pakistan's textile industry is seeking to diversify its product range to further increase share especially in women wears for exports to the US, the EU, and Japan.
Moreover, with some preferential bilateral trade agreements coming into effect this year, Pakistan is expected to enjoy a more favorable trade environment. For example, from the EU, Pakistan will enjoy generalized system of preference (GSP), in which cotton and textile products can have 20% tariff cuts. Moreover, according to the Early Harvest Programme for the Free Trade Agreement signed China will give zero tariff treatment to 769 eight-digit tariff items originated from Pakistan for textile items mainly including cotton, grey cloth, blended cloth.
The government was also trying to start negotiations with US on FTA, seeking additional market access from the US for its textile products that were currently facing high tariffs. A US delegation was scheduled to arrive Pakistan in January to hold final round of talks with the Pakistani authorities to finalize the remaining controversial articles of the Bilateral Investment Treaty (BIT).
Dialogue on signing FTA with Bangladesh, Indonesia and Thailand will be initiated soon.
Bangladesh may lose privilege of duty-free
Bangladesh's export of knitwear achieved a year-on-year growth of 31.26% between July 2004 and June 2005 (2004-05 fiscal year), totaling US$2.8 billion and exceeding the target by 12.78%, according to the Export Promotion Bureau (EPB).
For other major textile items, export of woven garment concluded at US$3.6 billion during 2004-05 fiscal year, went up slightly by 1.7%, jute goods at US$307 million (up 24.76%), home textile at US$156 million (up 15.24%) and textile fabrics at US$17 million (down 37.53%).
Although most of the textile items registered a growth in the last fiscal year, the situation for 05-06 may not be as optimistic since Bangladesh has been classified as a competitive exporting country by the US during the WTO ministerial meeting held in December last year, and it may lose the privilege of duty-free and quota-free market access.
On the one hand, this may show that the Bangladeshi textile industry is now competitive enough. But on the other hand, textile exports that earn 76% foreign currency for Bangladesh are no longer guaranteed with advantageous positions and put two million garment workers at risks of losing their jobs.
Under the drafted agreement, the products to fall under the 3% restricted list would be decided in one of two possible approaches: 10-digit level or 8-digit level. In the 10-digit approach, there will be some 780 apparel items, of which, some 300-350 will come under the restrictive list and some 50-60 major items under the review of the duty-free status. But, in the 8-digit approach, the benefit will be reduced since the US will try to exclude major items of Bangladesh to protect its domestic industry and employment.
Former President of BGMEA (Bangladesh Garments Manufacturers and Exporters Association), Annisul Huq, was a member of the Bangladesh delegation at WTO Hong Kong conference. He said that the new rules will not be effective immediately and there will be negotiations in 2006.
Bangladeshi Commerce Minister Altaf Hossain Choudhury added that Bangladesh will get the chance to bargain for its textiles when the two follow-up meetings are held in Geneva and Washington this year.
Another major improvement sought by the Bangladeshi textile industry is the factory conditions and labor rights, which have raised serious concern among foreign buyers. The Bangladeshi government has announced that it will draft specific codes of conduct for the readymade garment (RMG) sector and identify short, medium and long goals to achieve.
Sri Lanka hopes to utilize favorable trade terms
The apparel industry occupies a prominent position in Sri Lanka's industrial structure, and is the biggest earner of foreign currencies. Export of textiles and apparel accounted for more than half of total export earnings. Apparel export to major markets in the US and the EU totaled US$1,939.7 million from January to September last year.
For the first nine months of 2005, while apparel export for the US market grew by 9.5% to US$1,217.5 million, that for the EU market went up slightly to US$720.2 million from US$716.2 million recorded in the same period of 2004.
The Sri Lankan industry is very reliant on a few western developed markets mainly the EU and the US, which take in almost 95% of the exports. And in the post-quota time, on top of the two traditional markets, the Sri Lankan apparel industry will also strengthen its trade ties with India, with which a FTA was signed.
From its largest export market, US, the Sri Lankan textile industry will seek the signing of FTA in order to secure its export share there. Negotiations are already underway to explore the possibilities of obtaining duty free access for Sri Lankan products made with US fabrics and re-exported to the US.
For the EU, the Sri Lankan exporters are hoping that they will further utilize the preferential terms offered by the GSP plus the scheme that has come into effect since July 1, 2005. Although the new scheme is supposed to provide more duty free access into European markets, the rule of origin has not been modified. Since Sri Lanka has little local supply of yarns and fabrics, apparel exporters there face difficulty in making the local content to the level required by GSP plus.
To solve the problem of insufficient local fabric supply, the apparel industry is to introduce incentive schemes for fabric mills to relocate. The related associations have formed a special committee to make contacts with prospective investors in Hong Kong, the EU, the US and India.
Apart from seeking preferential terms in the international trades, Sri Lanka has also set for technological advancement. According to the Joint Apparel Forum, an alliance of apparel associations, 250 apparel specific marketers were trained for helping to boost productivity of 200 factories by 30% by 2007 and improving their manufacturing technology. The industry has also looked into improving the image of the industry, with introduction of labor laws, branding of products, developing EDI facilities at ports and customs.
But despite all the mentioned plans, at the beginning of 2006, there emerged fears that a two-decade-old civil war may restart and the public is feeling the pinch. The garment sector says past attacks scared away buyers from European and American large retail chains. This has made the Sri Lankan garment industry feeling uncertain.
Indonesia demands updated, accurate figures
Statistics have shown that the export value of textile and textile product (TPT) from Indonesia was US$7.65 billion in 2004 and was forecast to reach US$8.3 billion in 2005. However, a survey concluded that many export-oriented industries experienced a decline in sales in recent years.
The survey conducted by a team from the Coordinating Ministers of Economic Affairs during the second half of 2005 concluded that textile companies, particularly in such production bases as Bandung, Surabaya, Semarang and Bali, are having more trouble in export. Many companies report insufficient orders.
With quota phase-out, the situation of Indonesia's textile industry has got tougher, and data from Bank Indonesia indicates that the share of TPT industry in the local market had shrunk to 78% in 2001 and to 54% in 2003.
Many companies have expressed that buyers have demanded the same price as offered by the Chinese counterparts. Some weavers stop operation since the prices of imported fabrics are lower than the manufacturing costs of the industry.
Individual small and medium garment companies also reported that orders from large companies have slowed down, and they only have to work for one or two shifts instead of three as in the past.
Moreover, the flood of smuggling has worsened. Some bonded zones, where a number of duties are exempted, are suspected to be the center of smuggling activities due to briberies. A survey had alleged that 50% of the textile goods available at shopping malls were imported, including some smuggled goods.
The 2004 data from the Industry Ministry indicates that there were 2,661 companies in the TPT industry, including 28 fiber makers, 204 spinners, 1,044 fabric makers, 861 garment manufacturers and 524 in textile-related business. Although the companies have a total installed capacity of 6,021 million tons, actual production in 2004 was 4,361 million tons. The average utility of each sub-sector was 67.77%, compared with 80.48% in 2001.
While some people questioned the accuracy of the Ministry's data, the authority still projected that textile export can rise at US$600 million to US$800 million annually in the coming years. Moreover, like other Asian countries, the Ministry has introduced some machinery restructuring programs, shortening the machines' economic lifespan substantially from the previous 15 years to five years.
Some weavers have expressed that replacing old machinery is a must in order for them to produce fabrics required by the world market, in terms of both quality and price.
However, the findings from the economic affair team showed that, in general, garment manufacturers do not perceive machinery upgrades as the priority. Many of them expressed that what they are concerned about are the size of order and cash flow. Some manufacturers are even skeptical about the needs of machinery restructuring.
Some companies opined that how the preferential policies are put into practice is more important. CV. Wiska, a director of one textile company in Bandung, said it took a long time for the company to get its second-hand textile machine delivered and there were many complicated procedures involved.
Apart from the unfavorable factors mentioned, the overall slow down of the companies' performance in 2005 is mainly attributed to the practice of transshipment, in which some manufacturers sold their quotas to companies in the third countries. For this reason, export growth may not really reflect the real performance of the industry.
It is expected that the trade ministerial decree (Permendag No.17/2005) regarding rule of origin can minimize such practice.
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| Copyright © Adsale Publishing Limited. Any party needs to reprint any part of the content should get the written approval from Adsale Publishing Ltd and quote the source "ATA Journal for Asia on Textile & Apparel", Adsale Textile English Website - www.AdsaleATA.com. We reserve the right to take legal action against any party who reprints any part of this article without acknowledgement. For enquiry, please contact Editorial Department. |
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| Copyright © Adsale Publishing Limited. Any party needs to reprint any part of the content should get the written approval from Adsale Publishing Ltd and quote the source "ATA Journal for Asia on Textile & Apparel", Adsale Textile English Website - www.AdsaleATA.com. We reserve the right to take legal action against any party who reprints any part of this article without acknowledgement. For enquiry, please contact Editorial Department. |
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