Garment industries struggling in South Asia

Gar­ment indus­tries in South and parts of East Asia are fac­ing sim­i­lar prob­lems to those of “Lesotho”: Although, for many, the expiry of cur­rent orders is still six weeks or so away (mid March), pro­duc­tion is already being shut down. For exam­ple, there are news ser­vice reports that more than 20 tex­tile fac­to­ries have already closed in Cam­bo­dia and that the clo­sures have led to demon­stra­tions demand­ing Cam­bo­di­an gov­ern­ment action to pro­tect work­ers’ enti­tle­ments. I’ve recent­ly heard from friends in Laos that the indus­try there is in even worse straits; in land-locked Laos they face an expen­sive logis­tics task to export their garments—throught Ho Chi Minh city in Vietnam—that knocks their price com­pet­i­tive­ness vis a vis Viet­nam or Chi­na or India. But for oth­er indus­tries, accord­ing to news reports, there may be some hope still that GSP pref­er­ences will help to secure com­pet­i­tive access to the Euro­pean mar­ket.
Nepalese man­u­fac­tur­ers will report­ed­ly be per­mit­ted to cumu­late con­tent from SAARC, ASEAN and ACP sources to meet EU GSP orig­i­nat­ing con­tent rules. Sri Lan­ka, too, may be a ben­e­fi­cia­ry of the two-year exten­sion of the EU pref­er­ence arrange­ments. What advan­tage real­is­ti­cal­ly do these pref­er­ences offer? Even with appar­ent­ly gen­er­ous cumu­la­tion rules in place, pref­er­ences are fre­quent­ly an illu­so­ry oppor­tu­ni­ty. Low cost pro­duc­ers may be com­pet­i­tive on price but they may also find that their low labor costs reduce the pro­por­tion of total val­ue-added in a prod­uct that is attrib­ut­able to their ‘cut, make, trim’ (CMT) oper­a­tions. This can leave them short of the pro­por­tion of local val­ue-added that they need to meet the Rule of Ori­gin for the pref­er­ence, even if they can cumu­late region­al tex­tile inputs. Of course, if they are suf­fi­cient­ly com­pet­i­tive due to low wages, they might not need the pref­er­ence to gain marke share. But many low-cost pro­duc­ers have low labor cost for a rea­son: their work­ers have low pro­duc­tiv­i­ty. They find them­selves stuck in a cleft between need­ing the pref­er­ence to allow them to com­pete with more pro­duc­tive firms and not hav­ing the local val­ue-added to secure the pref­er­ence. One region­al indus­try has begun active­ly to seek improve­ments in mar­ket access terms in the USA. From Bangladesh, the Dai­ly Star reports on an indus­try-led ini­tia­tive to improve access to the US mar­ket. The Pres­i­dent of the Bangladesh Gar­ment Man­u­fac­tur­ers and Exporters Asso­ci­a­tion (BGMEA) has revealed the lob­by­ing that BGMEA has under­tak­en in the USA in sup­port of a pro­posed ‘Least Devel­oped Economies Eco­nom­ic Devel­op­ment Act’ in the Unit­ed States Con­gress. The pur­pose of the Act would be to grant duty and quo­ta-free access for least devel­oped economies to the US mar­ket. Accord­ing to the Dai­ly Star

“Apart from Bangladesh, the coun­tries in the LDEED group are Afghanistan, Bhutan, Cam­bo­dia, Kiri­bati, Laos, Mal­dives, Nepal, Samoa, Solomon Islands, East Tim­or, Tuvalu, Van­u­atu and Yemen. Of these coun­tries, only Bangladesh, Cam­bo­dia, Laos and Nepal have an appar­el-man­u­fac­tur­ing base.”

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