Johannesburg - Preliminary analysis of macroeconomic trade and employment data and evidence from key stakeholders
confirm earlier findings that quotas have failed as an intervention which was intended to stimulate growth and employment in the clothing industry, a review has found.
By all accounts, the crisis which gripped the industry in 2005 has since deepened while the challenges facing South African manufacturers have been amplified by general economic downturn, the review found.
The Review of the Impact of the China Restraint Agreement on the Clothing and Textile Industry in South Africa was conducted independently by Professor Mike Morris and Lyn Reed of the School of Economics at the University of Cape Town.
"Macroeconomic trade data shows that whilst quotas have effectively curtailed Chinese clothing imports, especially in quota lines, local firms continue to be challenged by competitors from emergent supplier locations which are even cheaper than China," the reviewers wrote.
This, they added, has had a deleterious effect on the reprieve from foreign competition that quotas were intended to afford the local industry.
"A combination of increasingly challenging economic conditions and the renewed exposure to China's formidable competitive forces is likely to see the South African clothing industry in a worse position in the future than from which it started prior to quotas."
The review accuses the government of having demonstrated a "tunnelled vision perspective on the clothing sector crisis, bowing to the narrow political agendas of sectoral interest groups".
"This is despite considerable international evidence that import
restrictions would not be the silver bullet that would boost employment and revive output," it stated.
It said that the belief that low cost Chinese imports are the cause of the crisis reflects a simplistic and shallow understanding of the complexity of the problems which engulf the sector.
"As predicted, the DTI has had to backtrack on its initial statement that quotas 'were cast in stone' and additional quota has been granted albeit with strings attached (Clotrade 2007b, 2008)."
"The empirical evidence presented in previous sections suggests that quotas have had little impact on employment and output but instead may have simply encouraged retailers to prematurely identify alternative supply bases."
Given rising costs in China and increasing pressure to conform with environmental and human rights standards, this may have robbed local manufacturers of a window of opportunity in which they could win supply contracts before alternative foreign suppliers were established, the review notes.
"According to one firm interviewed, whereas retailers previously 'just imported from China, they have now developed a whole import strategy'.
Furthermore, if suppliers are secured in even lower cost locations that China, this could exert additional downward pressure on local supplier prices and further erode their bargaining position relative to their customers, swinging the balance of power more towards retailers.
In particular, the quotas on fabric are counter-productive, especially where fabric unavailability had created an incentive to import already made-up garments.
"The failure of quotas to achieve forecasts for employment and
manufacturing activity should constitute sufficient motivation for their discontinuation. However, if domestic reasons are inadequate for quota withdrawal, growing tension in South Africa's trade relation with China is additional motivation.
"Chinese authorities are openly discontented with the repercussions which restrictions on their clothing imports have on their domestic industry and employment which are unjustified if they do not reduce cheap imports into South Africa as a whole but simply fuel clothing exports from other countries (Enslin-Payne 2007).
"Given the significant contribution of clothing and textiles industries to their employment and GDP, the Chinese are unlikely to find the agreement conducive to sustainable future trade relations. This disquiet also comes amid recent controversies relating to human rights abuse in some of the newly emerging supplier countries such as Myanmar (Robbins 2007).
"In tandem with the Chinese, the WTO has issued a similar warning against the efficacy of safeguards which in the US and the EU had not led to a reduction in imports but had simply benefited a host of other countries rather than alleviating the burden on local manufacturers (Le Roux 2007)," the reviewers stated.
"The Chinese quota agreement has run a substantial part of its life time without achieving any of its purported aims. It remains to be seen whether the DTI will acknowledge this and act on it," they added.
- I-Net Bridge