A Stitch in Time, Part II. -- Change in apparel industry around the corner.

In a 08-14-04 post entitled "Reading this I learned that on Dec. 31 there will be some celebrating other than just at Times Square," I wrote about how big apparel companies have been restricted in where they manufacture clothes, something that is to change on January 1, 2005.

The post noted that there is a "major transformation in clothing production now under way as the industry prepares for the end of international apparel quotas on Dec. 31. The 30-year-old quota system was designed to put limits on the amount of textiles developing nations could export to industrialized countries. Because it prevented any one country from dominating the textile trade, it allowed fledgling apparel industries in nations such as Bangladesh and Saipan to flourish. When the agreement expires on Jan. 1, textile production is expected to consolidate into the few countries that can produce the best quality at the lowest cost.

"No longer restricted in where they manufacture clothes, many big apparel companies are now preparing to consolidate operations, cutting down the time and expense of producing in various parts of the world. The liberalization of trade is expected to shutter small textile industries in countries like Mauritius, and result in a massive migration of jobs to low-cost, high-efficiency centers like China. It is also expected to lead to accelerated deflation in the industry, and cheaper garment prices."

This post details changes being implemented, jobs affected and savings expected that designer Liz Claiborne and clothes producer Luen Thai anticipate given the end of the quota system. (Prior to reading the article reviewed in this post, I had no idea of the complexity of the process involving designers, suppliers and actual apparel factories. My appreciation curve went up.)
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Today on the wsj online there is another article discussing this important development in the liberalization of trade. It follows:

The global textile and clothing industry will see a major shift in money and jobs after Jan. 1, 2005, when a decades-old quota system that controls access to the huge U.S. apparel sector will come to an end. China, whose soaring economy has transformed it into a manufacturing juggernaut, stands to be the main beneficiary.

The system, known as the Multi-Fiber Agreement, has restricted access to the $77 billion U.S. apparel market since the early 1960s in an effort to protect the U.S. garment industry from foreign competition. But in 1994, the U.S. agreed in a global trade pact to gradually lift the quotas, with complete elimination set for the end of this year in major categories such as dresses, T-shirts, underwear and jeans.

Some U.S. companies also stand to gain after the quota expiration.

Increased competition by Chinese manufacturers could drive the price of material and apparel lower, creating savings that U.S. clothing buyers may pass on to consumers. The U.S. Association of Importers of Textiles and
Apparel, which represents retailers such as J.C. Penney, The Gap, and Liz Claiborne, estimates that prices will fall between 5% and 20% as a result of the quota expiration. But some sectors, such as sock manufacturers, say the price declines threaten to drive U.S. companies out of business.

Ten years ago, China hardly registered as a threat, and developing countries thought a quota-free environment would help them gain access to the coveted U.S. market. but China has grown into a formidable competitor. In addition to hurting the remaining U.S. manufacturers, the removal now of trade restrictions could devastate countries heavily dependent on textile exports, such as Honduras and Bangladesh.

U.S. manufacturers and lawmakers argue that China's currency is pegged at an artificially low rate against the dollar, giving Chinese exporters an unfair advantage. They also say that the use of government subsidies and tax incentives benefits Chinese manufacturers. Grant Aldonas, an undersecretary for trade at the Commerce Department, said many of the apparel products are made in stateowned factories, which are in turn heavily subsidized, largely through loans that are never repaid.