1. 1 Current Challenges for the S.A. Textile Industry Presented to: Portfolio Committee on Trade & Industry 19 Oct 2005 By The Textile Federation

2. 2 Outline of Presentation Macroeconomic Environment Chronology of Countering Import Surge State of the Textile industry Changed global environment Challenges Plan of action Conclusions

3. 3 Macroeconomic Environment(1) “Fiscal & Monetary Policy out of step with Industrial Policy” (Prof Ha-Joon Chang) High interest rates & low inflation do not: Encourage investment & growth Do not create jobs East Asian Experience Active industrial policy key to economic development Growth not deregulation attracts foreign investment

4. 4 Macroeconomic Environment(2) WTO still permits “activist trade policy” Tariff reduction does not equal abolition Infant industry protection is still permitted Emergency import sucharges permitted for Sectoral import surges BoP problems Not all subsidies are illegal LDC’s can use export subsidies Agricultural subsidies allowed Regional Development, R&D & environmental subsidies allowed

5. 5 Countering the Import Surge(1) Late 2003 – Submission to Govt Volatility & strengthening of the Rand Disruption of textile & clothing market by China Action required Feb 2004 Safeguard option probed Mar 2004 Min Erwin forms Tech Task Team Istanbul Declaration seeks Govt support May 2004 Task Team meets Official notification to the PRC Schedule for VRA on China by Aug 2004

6. 6 Countering the Import Surge(2) Jun 2004 Task Team Meeting VRA option discarded Sector strategies were requested Aug 2004 Safeguard Regulations introduced Oct 2004 DG advises Industry “Pursue Safeguards under Accession Protocol” Feb 2005 Task Team Reconvenes China no longer on Agenda Apr 2005 Task Team Restructuring strategies presented

7. 7 Countering the Import Surge(3) May 2005 Final Task Team Meeting DCC compromise proposals agreed Advised to apply for safeguards Sectors to be excluded from China & India FTA’s Period of 18 months lost Safeguard Application by SACTWU 5 JUL Clothing Items (25 categories) Fabric & Household Items (10 categories) Footwear Items (2 categories) Safeguard Applications by Texfed Bed linen 21 Sep 2005 Curtains 5 Oct 2005

8. 8 State of the Textile Industry Current State Employment history Imports/Exports Sales/Production Import Penetration

9. 9 Current State of Industry 2004 Turnover Fibre Consumption Fabric Production Spindles Looms Knitting Machines Employment Imports Exports R 11.0 billion* 251 000 tons 508 million m 2 420 000 3 000 2 000 51 400 R6.5 billion R3.2 billion * Estimate excluding CFL

10. 10 Textile Industry Employment

11. 11 Turnover per Employee

12. 12 Total Textile Imports

13. 13 Fabric Imports

14. 14 Clothing Imports

15. 15 Made up Textile Imports

16. 16 Total Textile Exports

17. 17 Textile Sales Only combined TCFL stats produced in 2004

18. 18 Yarn Production Only combined TCFL stats produced in 2004

19. 19 Woven Fabric Production Only combined TCFL stats produced in 2004

20. 20 Knitted Fabric Production Only combined TCFL stats produced in 2004

21. 21 Import penetration 199920002001200220032004 Yarns11%12%16%18%23%25% Fabrics39%46%48%49%55%58% Blankets17%22%26%24%34% Imports I/(I+(T-E))=P

22. 22 Changed Global Environment Currency (R,$,Yuan) Accession of China to WTO Termination of the ATC & MFA Quotas Trade agreements (Agoa/FTA’s/PTA’s, Mercosur, USA, India, China, Other??) Massive growth in undervalued/”illegal” imports of clothing & textiles

23. 23 Currency Exchange Rate

24. 24 Accession of China to WTO China acceded to the WTO in Mar 2003 MFN status Accession Protocol Growth strategy Phenomenal growth domestically & in exports

25. 25 Termination of ATC & MFA Quotas ATC provided for phase out of quotas MFA finally eliminated 31 Dec 2004

26. 26 Trade Agreements(1) SA/EU TDCA Tariff preferences finally reached SADC FTA Preferences not yet reciprocal EFTA FTA Preferences to be phased in SACU/Mercosur PTA As yet no prefernces for SA textile exports Textile preferences were given to Mercosur

27. 27 Trade Agreements(2) AGOA Textiles excluded AGOA IV amendment SACU/USA FTA Delays in initiating negotiations SACU/China FTA SA persists in exporting unbeneficiated product And sacrificing its manufacturing sector SACU/India PTA

28. 28 Undervaluation of Imports R/kg Cotton fibre7.10 Synthetic fibre11.70 Yarns13.55 Fabrics34.31 Blankets15.40 Bed linen16.04 Curtains10.28 Import prices Jul 2005

29. 29 Undervaluation of Imports R/kg Curtains knitted2.30 Curtains woven6.11 Bed linen knitted5.41 Bed linen woven14.94 Table linen knitted1.58 Table linen woven5.71 Socks & pantyhose9.36 Import Prices from China Jul 2005

30. 30 Undervaluation of Imports Imported Fabric Prices (R/kg)

31. 31 Undervaluation of Imports Imported Made up Textile Prices (R/kg)

32. 32 Plan of Action Short term (immediate) SARS engagement WTO Valuation Code Illegal imports ITAC Safeguards Anti-dumping Cotton fibre duty free DTI Interim Clothing & Textile Dev Program (DCC’s) Country of Origin Labelling Sector Strategy(CSP) Finalisation/Implementation

33. 33 Plan of Action Medium term (6 months) Upgrading investment support Labour Market flexibility Innovation

34. 34 Plan of Action Longer term (6-12 months) World class manufacturing standards Access to Technology Higher skills development Workforce empowerment BBBEE Charter

35. 35 Conclusion Critical Stage for textiles No simple solution Immediate Actions: Undervaluation of imports Safeguards/Antidumping