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Post-Quota Winners and Losers

WASHINGTON — After unleashing global trade from the restraint of quotas on Jan. 1, the dust is far from settled, but China has lived up to...

WASHINGTON — After unleashing global trade from the restraint of quotas on Jan. 1, the dust is far from settled, but China has lived up to expectations and emerged as the primary beneficiary of the change.

Imports of Chinese apparel and textiles worth $4.8 billion entered the U.S. in the first quarter, a 60.5 percent jump compared with a year earlier, when trade among World Trade Organization countries was under quota constraints.

Among the other winners in the post-quota world are India and Bangladesh, which have large, low-cost workforces and significant manufacturing infrastructures.

"It's too early to draw the definitive conclusion," said Steve Lamar, senior vice president of the American Apparel & Footwear Association. "You're starting to see some trends shaping up that might be early indicators of longer-term trends."

One of these is the movement of production to China, but it will take time for sourcing patterns to adjust to a new trade landscape, he said.

"These shifts are going to take some time," he said. "It's not like you're all of a sudden going to see everything go overnight."

Propped up for years by the quota system, other countries, such as Mexico, lost ground in the importing game. Also losing out was Hong Kong, which largely finished goods produced in China and then shipped them to the U.S.

"The fact that they had a lot of quota made them competitive in the marketplace," said Michael Delaney, chief executive officer of Ralsey, a division of sourcing giant Li & Fung. "When that buffer or that barrier isn't in place, it becomes apparent that the underlying economics are not strong enough to support it."

However, sourcing since January has been a bit of a guessing game for vendors. When it joined the WTO in 2001, China agreed to temporary quotas, which could be applied to specific goods and renewed through 2008. These restrictions are meant to safeguard the domestic industry and ease it into the transition.

Safeguards quotas were imposed Friday on cotton knit shirts and blouses, cotton trousers and cotton and man-made fiber underwear, valued at $624.5 million annually, and petitions on another $3.35 billion worth of goods are pending. Vendors are vexed over whether those categories of goods will have fresh quotas imposed.

"This has a profound effect on people's sourcing decisions right now," said Delaney. "Without knowing what's going to happen in China, we have to look elsewhere."

Vendors often need eight or nine months to make sourcing decisions and can ill afford to get caught with goods in China that can't be brought to market.

"The overall hope was that it would be an orderly transition," said Delaney. "It's disheartening that they haven't figured out a more managed way to deal with this."

WINNERS: Countries that have seen the largest dollar increase in textile and apparel imports since quotas were dropped on Jan. 1.

CHINA
Up $1.8 billion
The world's most-populous country heads the list of gainers and has become the buzzword when it comes to international trade and apparel sourcing because of its girth and immense pool of low-cost labor. China joined the World Trade Organization in 2001, but agreed to a safeguard provision that allows quotas to be reimposed to protect domestic industries. Both the U.S. and the European Union are reviewing whether to implement the safeguards, which could be renewed until 2008. There are persistent calls for China to curtail subsidies to its industry and allow its currency to fluctuate on the open market. The country has also come under pressure from the Bush Administration to strengthen its enforcement of laws that protect intellectual property rights.
Population: 1.31 billion
Labor Force: 761 million
Per Capita Gross Domestic Product: $5,600
Industrial Production Growth Rate: 17.1 percent

INDIA
Up $258 million
If China is the biggest blip on the industry's sourcing radar, India, right next store and nearly as immense, comes in a close second. India has been a member of the WTO since 1995 and is considered a developing nation, meaning it gets special consideration in the current round of global trade talks. As Indian imports rise, the U.S. government has pressured the country to be more open to U.S. goods, noting that it has one of the most heavily protected textile markets in the world.
Population: 1.08 billion
Labor Force: 482 million
Per Capita Gross Domestic Product: $3,100
Industrial Production Growth Rate: 7.4 percent

BANGLADESH
Up $96 million
Considered one of the most competitive markets for mass market apparel, Bangladesh has a low-cost workforce and increasing productivity, though it still lags behind China. The government has been working to improve labor standards, though overall economic reform has been held back by widespread corruption.
Population: 144 million
Labor Force: 65 million
Per Capita Gross Domestic Product: $2,000
Industrial Production Growth Rate: 6.5 percent

INDONESIA
Up $80 million
Indonesia has picked up share with a low-cost labor force that is both large and skilled. The country also has significant manufacturing base for raw materials, particularly synthetic textile goods. Persistent political and social unrest, however, have made investors wary.
Population: 242 million
Labor Force: 112 million
Per Capita Gross Domestic Product: $3,500
Industrial Production Growth Rate: 10.5 percent

SRI LANKA
Up $75 million
With a relatively small and high-cost labor pool, Sir Lanka has nonetheless managed to pick up its share of apparel and textile imports to the U.S. during the first quarter. The country relies heavily on imported yarns and fabrics for its apparel production, which could prove a disadvantage. Late last year, a tsunami killed nearly 40,000 in Sri Lanka and destroyed significant amounts of property, though the apparel industry was relatively unaffected.
Population: 20 million
Labor Force: 7 million
Per Capita Gross Domestic Product: $4,000
Industrial Production Growth Rate: 7.1 percent


LOSERS: Countries that have seen the largest dollar decrease in textile and apparel imports since Jan. 1.


HONG KONG
Down $148 million
A free-market economy, Hong Kong is highly dependent on international trade, handling many of the goods coming out of China. That has tapered off dramatically since quotas were dropped. Tiny geographically — Hong Kong is just six times the size of Washington, D.C. — it became a special administrative district of China in 1997 and operates in tandem with its larger neighbor under the "one country, two systems" rule.
Population: 7 million
Labor Force: 4 million
Per Capita Gross Domestic Product: $34,200
Industrial Production Growth Rate: 1 percent

MEXICO
Down $130 million
Mexico enjoys close proximity to the U.S. market and has tripled its trade with the U.S. and Canada since the implementation of the North American Free Trade Agreement in 1994, but has still lost out in the post-quota world. Fraught with corruption, the country is working on upgrading its infrastructure, modernizing its tax system and rejiggering its labor laws.
Population: 106 million
Labor Force: 35 million
Per Capita Gross Domestic Product: $9,600
Industrial Production Growth Rate: 3.8 percent

SOUTH KOREA
Down $96 million
Having developed a Westernized, service economy and a presidential system of leadership since the close of the Korean War in 1953, South Korea stands in stark contrast to its isolated northern neighbor. Its relatively high labor costs, however, put the country at a competitive disadvantage to China since the end of the quota regime. Anticipating the increased importance of China in the post-quota world, many South Korean textile firms have turned toward increasingly mechanized production and novel goods, such as fabric made from bamboo fibers.
Population: 48 million
Labor Force: 23 million
Per Capita Gross Domestic Product: $19,200
Industrial Production Growth Rate: 10.1 percent

RUSSIA
Down $63 million
Russia weathered a financial crisis in the late Nineties and has grown its economy for six straight years, but is still contending with a weak banking system, a climate that discourages investment and corruption. The U.S. government is also keeping a close eye on the former Communist nation for its weak enforcement of intellectual property laws.
Population: 143 million
Labor Force: 72 million
Per Capita Gross Domestic Product: $9,800
Industrial Production Growth Rate: 6.4 percent

CANADA
Down $62 million
Like Mexico, Canada's apparel manufacturing base has benefited from close proximity to the U.S. market and NAFTA, but has lost ground this year. The U.S. consumes the lion's share, or more than 85 percent, of the country's exports. Canada, however, has a relatively high-cost workforce, especially compared with Asian countries, such as China.
Population: 33 million
Labor Force: 17 million
Per Capita Gross Domestic Product: $31,500
Industrial Production Growth Rate: 2 percent

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