1 THE SUSTAINABILITY OF GARMENT PRODUCTION AMONG NEW ASIAN EXPORTERS John Thoburn Professor of Development Economics Ritsumeikan Asia Pacific University (‘APU’), Japan and Senior Research Fellow School of Development Studies/Overseas Development Group University of East Anglia, UK International Conference on Globalization and Development in the Chinese Economic Region National Taiwan University, Taipei, June 2007

2 Research context and questions Context: garments have been the classic way in which developing countries have entered global markets as manufactures exporters Can vulnerable developing countries stay in the game now that the Agreement on Textiles and Clothing/Multi-Fibre Arrangement has ended?  In particular, recent entrants in Asia, vulnerable with heavy dependence on garment exporting indirectly we are asking Can textile and clothing (T&C) exporting remain a driver of industrialisation and development for developing countries?  Higher barriers to entry  Low labour costs no longer a key source of comparative advantage?  More difficult to upgrade products, processes, functions  Intensified competition from China And a supplementary question: does the footwear industry offer any pointers to likely post-MFA developments in the garment industry?

3 Dependence on garment exporting (share of total merchandise exports, 2003) Cambodia84% Bangladesh76% Lesotho65% Mauritius53% Sri Lanka52% Lao PDR42% Vietnam (share of exports)18% (incl textiles) Vietnam (share of manuf empl)23% (incl textiles) From UNCTAD 2005 (except Vietnam)

4 More on the context: long term challenges to garment exporters and the end of the Multi-Fibre Arrangement Exporters must sell within global value chains  Control by global buyers over entry into the global value chain  demands by global buyers for cheaper products, higher quality, shorter lead times, as buyers themselves face more competition  pressures to meet environmental and labour standards  buyers wishing to reduce number of suppliers – countries, and vendors in each country Cheap labour now not enough for competitive advantage  More barriers to entry in garments (need full-package manufacture)  Textiles have grown more capital-intensive and technologically advanced Competition from China  Predictions that China would sweep the board once MFA quotas had gone  Example of world footwear industry as pointer for post-MFA scene for clothing?

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6 Countries and stage of the research Country focus  Initially Vietnam and Cambodia, including footwear industry  Research on global buyers in Hong Kong and London, and key informants in China  Later Laos, and  Bangladesh and Myanmar: cooperative research under discussion Status  Joint research proposal with Professors Kenta GOTO and Kaoru NATSUDA of APU – for Japanese Ministry of Education Finance, and also APU internal funding  Discussion underway about links with Manchester/IDS/OU ‘Asian drivers’ project Relevant recent research projects  UK DfID globalisation project, (Thoburn)  EU research project on Vietnamese garments, (Thoburn)  ILO research on garments and labour standards (Goto)  JICA joint study team in Cambodia (Natsuda)

7 US imports of T & C (‘total MFA categories’) - from otexa (US $ billion) Change for year ending August 2006 [ y/e January 2006 in brackets ] World % [7.0 %] China % [25.3 %] Vietnam % [6.3 %] Cambodia % [22.3 %] Bangladesh % [21.5 %] India % [30.3 %] Pakistan % [17.7 %] Mexico % [-7.6 %] Sub-Saharan Africa % [-21.7 %] Lesotho % [-19.7 %] South Africa % [-51.2 %]

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9 The Taiwan dimension Taiwanese investment in garments, textiles and footwear in Asia Importance of Taiwanese small traders in linking domestic firms to export markets Possible Taiwanese researcher collaboration study of industrial relocation from Taiwan in garments, textiles and footwear  Interviewing Taiwan head offices of producing firms to discuss location policy  interviewing of Taiwanese producing firms in-country to discuss operations Investigate links between garment competitiveness and Taiwanese direct investment in textile production in garment exporting countries Study of Taiwanese intermediation in global garment and footwear trade  interviewing of global buyers located in Taiwan  interviewing of small traders in-country

10 Direct foreign investment in Vietnam, (MPI figures)

11 Initial answers to the research questions based on earlier research – for further investigation Can vulnerable developing countries stay in the game after the end of the ATC/MFA ?  Varied experience so far – serious problems for sub-Saharan Africa, but in US most Asian countries have done so, even those with many structural weaknesses, like Pakistan. Vietnam has functioned as ‘China but one’ using mainly Chinese textiles Can textile and clothing (T&C) exporting remain a driver of industrialisation and development for developing countries?  More control and consolidation by global buyers than in the past, so entry much more difficult and may be temporary, and staying more difficult  Limited freedom of action even for best-practice Hong Kong companies for example (eg not getting fruits of upgrading) perhaps this is changing as bigger NIC companies taken on more functions  Difficult for domestic companies (like Vietnam’s SOEs) to undertake essential product development – normally done in foreign investors’ head offices  In long term, need good local textile industry too to be competitive.