Garment industries struggling in South Asia

Garment industries in South and parts of East Asia are facing similar problems to those of “Lesotho”:http://www.petergallagher.com.au/article/393/lesotho-textile-industry-shuts-down. 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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