For over four decades, textile and garment exports from developing countries to certain developed countries have been subject to a series of quota restraints outside the normal rules of the General Agreement on Trade and Tariffs (GATTS), including the Multi-fibre Agreement which was in force from 1974 to 1994. These restrictions, which are yearly quantitative limits, were negotiated between the exporting and importing countries concerned. The quota system was instituted as a means of controlling the flow of goods manufactured in developing countries where labour and land are cheap, to the richer, consuming regions, particularly the US and EU. Such restrictions are a major departure from basic GATT rules, and particularly the principle of non-discrimination.
With the establishment of the World Trade Organisation on January 1st, 1995, began the 10-year phase out of quota restraints under the WTO Agreement on Textiles and Clothing (ATC). The ATC replaced the Multi-Fibre Agreement, and calls for the progressive elimination of quotas over a 10-year period and in four stages. We have now entered Stage Three which started from January 1st, 2002, and which will end on December 31, 2004. By January 1st, 2005, trade in textiles and clothing will be fully integrated into normal GATT rules as any other commodity.
Before we go into the consequences of this integration and total elimination of quotas, let’s take a look at the patterns that have emerged within the four decades when quota restriction was in place. Today, most of the textiles and clothing exported come from Asia. Early on, at the start of the 1980s, Hong Kong, like Singapore, Korea, Thailand and other Asian nations, was a major site of textiles and clothing production.
As a businessman and owner of a garment manufacturing and trading concern called Milo’s Manufacturing Group, which today specialises in knitwear, we begun production in the late 1950s. Since Hong Kong exports were limited by quantitative control, the only way to expand the business was to invest overseas.
In the ’70s, China had instituted its “Open Door Policy” which was indeed timely for Hong Kong’s entrepreneurs. China opened its Pearl River Delta through designated economic zones and Hong Kong took advantage of China’s low land and labour costs to expand its manufacturing activities.
Milo’s, like many other Hong Kong entrepreneurs, established offshore production, with a factory in Thailand in 1985 which handled 30% of our production. In the late Eighties, we established a factory in Dongguan in southern China. Hong Kong manufacturers set up facilities in all corners of the globe, from Australia to Central America, from South America to South Africa, from India to the Middle East, and Europe. Garments and textile manufacturers needed the flexibility to avail not only of lower-cost manufacturing but also of quota allocations to expand market and client base.
The end of the ATC would therefore mean that Hong Kong industrialists like ourselves would have more room to expand not only in our base regions but in other regions as well where there are textiles and clothing industries already established. There have been warnings from developed nations, particularly the US, that after the end of the quota era, China could go unchecked and possibly dominate the world’s textile and clothing sector. Such statement or warning has perhaps over-exaggerated China’s competitiveness, and that they are merely an excuse to continually impose trade barriers and protectionist measures even after full liberalisation of the textile and clothing sector.
When China joined the World Trade Organisation, it committed two provisions that would allow the US and all other WTO members to invoke safeguard measures against its textile and clothing products. These are the special textile safeguard and the product-specific safeguard. The special textile safeguard will last until the end of 2008, and stipulates that the importing country can invoke the restraints if imports from China cause market disruption. China will have no right to retaliate against these restraints.
The product-specific safeguard will be in effect for 12 years, until December 2013. Similarly, the importing country can invoke the restriction if imports from China cause market disruption, but it will require a public hearing before invocation of the safeguard. Both safeguards cannot be applied to the same product at the same time. In addition to these two safeguards, China will continue to be subject to simpler rules for invocation of anti-dumping restraints until 2016.
Despite the foreseeable opportunities that the post-quota era would bring for China and Hong Kong, these “China-specific” safeguards will certainly put limits on the predicted wider expansion of the industry in China. Even before full non-quota status has been reached, the US textiles manufacturers have already petitioned their government to impose the safeguards on China.
More uncertainty is thrown into the picture when it comes to non-tariff barriers. The chances of achieving the full potential of so-called free trade in the textiles and clothing sector would be slim if there is a surge in the use of non-tariff barriers in place of quotas and tariffs.
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