Monday, November 08, 20

Garment quota end reveals local infirmities

By Manila times Research

IN anticipation of the impending abolition of the international export quotas for garments
and textile next year, foreign buyers of the local garments industry are now cutting the
number of suppliers from the Philippines.

The Confederation of Garments Exporters of the Philippines (Congep), an umbrella

organization of 1,100 garments and textile exporters, said that most of the top buyers
from the United States and Europe are now trying to limit the sourcing of their products.

“This is now the trend in the global garments market, big names of the fashion industry
want to cut short their sourcing, like for example if Liz Claiborne used to source from
120 different companies they now want to deal with just seven or less,” a official of
Congep said.

Congep felt the changes in the global garments trade as major buyers such as GAP, Ann
Taylor, Liz Claiborne and Ralph Lauren started consolidating their purchases.

Given the trend, many believe that the most of the garments manufacturers, particularly
the small ones, will not be able to cope with the new demands of the industry and might
be force to shut down their operations.

As early as 2002, workers in the garments and textile industry had already felt the impact
of quota free environment when both big and small manufacturing plant started closing
down resulting in mass layoffs and even violation of the laborers’ right.

Ranking second in the country’s exports, the garments and textile industry is also one of
the leading employers in the manufacturing sector with 320,000 workers in 2003. This is
11 percent of the total employment of 3.03 million in the sector.

Undeniable effects

Congep president George Siy, admitted that while factory shutdowns will likely happen
during the quota free environment, not all small companies will be affected especially
businessmen who are open to change and partnership.

“There are effects that are undeniable,” Siy said, but he is optimistic that the garment
export industry will continue in the Philippines based on what they have experienced
during the last four years of the garment quota regime.

He said that although some companies had decided to stop their operations, there are new
companies opening and have invested millions of dollars in the country’s garment and
textile industry. Siy noted that the Philippines is still included in the international apparel
trade.

Records of the Garments and Textile Export Board (GTEB), despite uncertainties in
2005, show the country managed to get P1.04 billion in investments from new companies
since 2002 giving the country 388 new manufacturing facilities that generated 44,031
employment.

Although there were 269 factories that shut down and 42,128 layoffs, the Philippines got
a net gain of +119 in manufacturing facilities and +1,903 net gain in employment
generation.

Even with the perceived uncertainties, Congep is hopeful that the end of the quota era
will even boost the industry because it will give local companies opportunities to expand.

Siy said during the quota regime, garment manufacturers, particularly the bigger and the
more efficient ones, were not given a chance to grow because they are restricted to go
beyond the allotted quota.

Leveling the field?

For his part, GTEB executive director Serafin Juliano said the country has been able to
maintain the $2.7-billion revenue stream despite a business environment where
pessimism pervades.

Although the Philippines is expected to lose its share in the market, Juliano said the
business will still grow.

He noted that the country currently has 3 percent of the global market. With the lifting of
the quota, however, the US market will grow by 40 percent and the global market by 70
percent.

“So the interplay between market size and market share will accrue to net gain. We may
lose the market share and we will. But we will grow the business because we will have a
smaller share of a larger market, which is a reality,” Juliano pointed out.

He added the positive characteristic of a free-market environment is that it is not the

company which drives the business but the consumers. “The small companies that can
understand their capability and the importance of partnership as well as the need of the
consumer have an equal opportunity as the big companies.”

“Size is not everything, quality and costumer satisfaction is everything,” he added.

‘Catastrophic’
On January 1, 2005, the elimination of the quota system that has governed trade in the
garments sector for the past 40 years will introduce radical changes in the industry and
bring about a new international distribution of trade in clothing and textiles.

Around the globe, the local industry produces some $320 billion a year where the country
contributes 3 percent of the total output and employs half a million workers, mainly
women.

Analysts from the World Trade Organization said that when the quota regime ends by
January next year, production and exports would be dominated by China and India and
would leave 27 million workers out of jobs around the globe.

Threatened by the deadline, a group of 37 developing countries that are heavily

dependent on the revenues from exporting textile and clothing, including the Philippines,
have urge the WTO to commission a study of the global impact of phasing out the quota
system and be able to present recommendations to overcome future problems.

Industry players are all looking at China as a giant contender in the international arena
when the quota system gest lifted. Even the American Manufacturing Trade Action
Coalition executive director Augustine Tantillo described the elimination of the quotas as
a “pending catastrophe.”

In an earlier report, Tantillo said, “that since 2001, China has engaged in a premeditated
and systematic effort to monopolize world trade in textiles and clothing by undercutting
free-market prices through a complex scheme of industrial subsidy and currency
manipulation.”

China is said to be allotting 30 percent of its capacity for export while 70 percent caters
to the local needs.

Hypothetically, if its 1.3 billion populations decide to buy one extra shirt at the same
time, the country will have to import in large volumes to satisfy the demand.

However, rather than become the giant in the garment export, trade analysts believe that
China will be the largest export destination next to US and Japan.

The Manila Times Research. (November 8, 2004). Garment quota end reveals local
infirmities. The Manila Times. Retrieved August 1, 2005 from the World Wide Web:
http://www.manilatimes.net/national/2004/nov/08/yehey/business/20041108bus8.html