A WORLD UNRAVELS
Clothes Will Cost Less, but Some Nations Pay
Jan 16, 2005
By Tyler Marshall, Evelyn Iritani and Marla Dickerson, Times Staff
Consumers gain when textile quotas end
and jobs move to China and India. Poor countries lose out.
As a poor nation struggling to compete in an increasingly
globalized economy, Cambodia has little to offer factory owner Leon Hsu.
Electricity is erratic. Traffic along the road to the port of
Sihanoukville includes the occasional elephant. If a truckload of men's
shirts doesn't reach the port on time, it may be days before another
vessel departs for Singapore, where goods are transferred to a larger
ship for the voyage to the United States.
None of that much mattered over the years, because international
quotas guaranteed Cambodia the chance to sell clothing and textiles to
retailers in rich, developed nations. Designed to protect manufacturers
in North America and Europe from foreign competition, the import quotas
ended up working as a global version of Head Start, an affirmative
action program for countries that had large, unskilled workforces and
not much else.
The last provisions of the 30-year quota system disappeared at
the beginning of the month, leaving Hsu few reasons to stay in
Cambodia. Beckoning him are far more efficient venues — chief among
them China — with modern factories, highways and ports, prolific
workers and all the fabric, thread and buttons he could want.
Miss a shipping date out of southern China, and another vessel
is leaving soon, often within 24 hours. And it's a direct shot to Los
Angeles or Rotterdam, Netherlands.
"I'll be happy to go," Hsu said.
When he does, he won't be alone. The end of the quotas has
triggered what trade experts believe could be one of the largest
migrations of production in history, jeopardizing Cambodia's 220,000
apparel jobs. Hundreds of thousands more are threatened in Bangladesh,
El Salvador, Lesotho and other countries that prospered under the quota
The massive manufacturing shift will be a windfall for billions
of people, bringing huge savings to consumers and accelerating the
transfer of jobs to engines of low-cost production in China and India.
But it could cripple economies across Latin America, Africa and Asia.
Relative newcomers to the international commerce club risk
losing their claim to an industry that lets them play in the big
leagues. Millions of people whose jobs sewing knit shirts or jeans have
meant schooling for their children or roofs over their heads could
slide further into poverty.
In Africa, where manufacturers supply employees with condoms and
healthcare, the battle against AIDS could be weakened. Illegal
immigration from Latin America to North America may rise. Efforts to
improve the economic position of women in predominantly Muslim
countries are threatened.
The quota system "has been an extremely cost-effective method of
bringing social and political stability to a very needy part of the
world," said Peter Craig, a Washington-based trade commissioner for the
Indian Ocean island nation of Mauritius, which has lost 20,000 apparel
jobs since 2003. When the full effects of its end are felt, "it'll be
Already, the unleashing of free-market forces has begun to shake
the foundation of a trading scheme that brought undreamed-of prosperity
to millions and helped create the corporations that dominate
international commerce. Now that the rules have changed, those
corporations are likely to become even more powerful, and some of the
poorest will see their short-lived gains slip away.
"Very few people understand, or they're just starting to
understand, what this means," said Mark Levinson, a U.S. apparel union
economist who estimates that as much as $40 billion of production will
be transferred to China from the developing world. "It's going to be
chaos in the global economy."
Advocates of free trade see it all very differently. They argue
that the quotas' demise should be celebrated. In their view,
governments no longer protected by quotas will be forced to get rid of
the corruption and inefficiencies that, in fact, have held them back.
"This isn't punishment for those countries" that are losing
factories and jobs, said Dean Spinanger, a senior researcher at the
Kiel Institute for World Economics in Germany and an expert on the
quota system. Instead, "it will make them aware that they have to shape
Supporters also point out that the full effect of the phaseout
isn't likely to be felt immediately, because Washington has the right,
under World Trade Organization rules, to reimpose restrictions on
Beijing through 2008 if the United States is swamped with too many
China has responded to the global angst. Last month, officials
in Beijing said they were going to try to control their growth by
imposing a small tax on apparel and textile exports and monitoring
their factories' output.
For his part, David Spooner, the U.S. trade official in charge
of textile policy, believes that the elimination of quotas will be far
less disruptive than many predict. A small nation, he said, might be
able to develop a niche market and flourish. In any event, he added, a
lot of the anxiety is unnecessary, because not all the big buyers of
cut-rate T-shirts and jeans will abandon their longtime suppliers and
rush to China.
Wal-Mart Stores Inc., for one, says it isn't planning any
dramatic moves. But of course Wal-Mart already is the leading U.S.
importer of goods from China; it's expected to bring in $18 billion of
goods this year. Spokesman William Wertz said the company expect to
remain a major player in other countries such as Bangladesh, at least
"until we see how things sort out."
The chief purchasing executive for J.C. Penney Co., Peter
McGrath, said he couldn't imagine the giant retailer's supplier base
falling below a dozen countries, in large part because it doesn't want
to be too dependent on any one region.
On the other hand, J.C. Penney has in the last three years
slimmed down its supply network from 5,000 manufacturing plants in 51
countries to about 1,800 in 23, which McGrath reckons will reduce
import costs as much as 18%.
J.C. Penney's purchasing freedom had been curbed by a 1974 trade
pact called the Multifiber Arrangement, or MFA. Its members — the
United States, Canada and 13 countries in Europe — used quotas to
regulate access to their clothing and textile markets.
The quota system was a bureaucratic headache. Every year, the
United States and others in the MFA parceled out their quota
allocations to various governments around the world, and those rights
were distributed to companies that wanted to produce the goods covered
by a particular quota. Manufacturing work was spread all over the world.
The MFA's network of quotas began to be phased out in 1995, and
now buyers can shop wherever they like.
Oddly enough, many of the countries fretting about the
consequences, such as Mexico and Egypt, were the very ones that
pressured the WTO to do away with all the restrictions on trade in
textiles and clothing.
Armed with huge pools of cheap labor, these countries figured
they could grab even bigger shares of the North American and European
markets if the J.C. Penneys of the world were not constrained.
What many failed to foresee was that the dynamics of global
competitiveness would be turned upside-down with the emergence of China
and India as economic powerhouses.
Within their vast borders, the two countries — the most populous
in the world — can offer the low wages of poor nations along with the
efficiencies of modern economies. The advantages are perhaps most
evident in the textile and apparel industry, which requires large pools
of unskilled laborers but also depends on fast delivery and the ability
to change production specs on a dime.
What's more, global trade has come to be dominated by huge
multinationals such as Wal-Mart or Carrefour of France that can make or
break entire economies with their orders.
Wal-Mart, for example, buys as much as one-third of the clothes
made in Bangladesh, a major producer of men's dress shirts and khaki
pants. In Cambodia, making clothes for Gap Inc. and other leading U.S.
and European retailers accounted for one-third of gross national
product in 2003.
Big retailers have always been able to leverage their huge
orders into lower prices for raw materials, production and shipping.
But now that they aren't bound by import quotas, it's far easier to
funnel orders to the factories that produce the most, the fastest and
Yves Robert Lamusse, director of Palmar International Ltd., a
struggling apparel factory in Mauritius, said it was impossible for a
remote island nation to compete now that a "dictatorship of retailers"
was pushing prices lower and lower.
"My generation, I don't know what war is," said the fifth-
generation Mauritian, who recently invested in two factories in
Mozambique because labor costs there are 15% lower than in his native
land. "My kid's generation, they don't know what war is. But we are in
The case of Cambodia illustrates how hard it can be to compete
for clothing contracts against the likes of China, where the apparel
and textile industry employs at least 15 million people and entire
towns are devoted to the production of socks or neckties.
During the murderous reign of Khmer Rouge leader Pol Pot in the
late 1970s, Cambodia lost its business and intellectual elite, along
with a generation of potential managers and entrepreneurs, when more
than 1 million people were slaughtered.
Foreign investors have been reluctant to put money into a
country plagued by political unrest and illiteracy. The cash-strapped
government can't afford to build new highways, upgrade the energy grid
or modernize the Sihanoukville port, where inspectors tracking
container traffic use pens and stacks of paper layered with carbon
paper in a flashback to pre-photocopier, let alone pre-computer, days.
Cambodia certainly doesn't boast the multilane freeways and
high-speed telecommunications lines prevalent in the exporting zones of
China. That infrastructure was paid for, in part, by the $52 billion in
direct foreign investment China received in 2003 — compared with
Cambodia's $251 million.
But for a few decades, the textile and apparel quotas let
Cambodia be a contender.
Hsu, a native of Hong Kong, moved to Phnom Penh in the early
1980s and opened four factories. He counted among his customers J.C.
Penney and Wal-Mart.
Because they were forced to order clothing from factories in
more countries than they would have liked, Cambodia benefited. Another
boon was a U.S. initiative that linked expanded import quotas to
improved labor rights.
Then came the phaseout. At the end of 2002, quotas on nightgowns
and baby clothes expired. J.C. Penney, which had bought $600,000 of
baby clothes from Hsu's Cambodian factories in 2001, cut its order by
two-thirds the next year and to zero in 2003.
Wal-Mart, a buyer of women's nightgowns, told Hsu in 2003 that
it wouldn't order from him unless he could lower his price to $5.95 a
gown from $6.20. Hsu said he couldn't afford to say yes.
"I lost 20% of my business right there," he said. "It's all gone
Wertz, the Wal-Mart official, said he couldn't confirm the
details of that transaction. But he said Wal-Mart was still buying
nightgowns and other apparel from Hsu's Cambodian factories.
J.C. Penney spokesman Tim Lyons said his buyers couldn't find
any record of business dealings with Hsu's factories in Cambodia.
Although Hsu sees all the business heading to China, there are
other nations benefiting from the quota elimination. New business is
going to India and Pakistan, for instance, because of their homegrown
cotton supply and reputations for high-quality linens.
China, though, is drawing the bulk of the post-quota work.
Although retailers claim that they won't risk placing all their
eggs in one basket, experts figure that China could capture at least
half of all apparel production — and a far greater share of the U.S.
market — within a few years. India could take much of the rest of the
$681-billion global apparel market.
That could create a dangerous divide within the developing
world, if China and India are seen as flourishing at the expense of
their neighbors, said Auret van Heerden, president of the Fair Labor
Assn., a coalition of leading retailers, nongovernmental organizations
and activists interested in improving working conditions.
"You could end up with hundreds of thousands if not millions of
people who start to question the basis of this new global economy," he
said. And because the United States was a leading architect of the new
trading system, "it would be naive not to anticipate a rise of
For the United States, the quota system was a useful foreign
policy tool. The quota system gave Washington some leeway in divvying
up its market every year, and the government used that — along with
tariff rates — to bolster poor countries or reward those that were
geographically or politically strategic.
By opening the doors wider for Lesotho in 2000, for instance,
the United States sent the apparel industry in that African nation into
overdrive. Since then, exports of clothing to U.S. buyers such as Gap,
Wal-Mart and K-Mart have more than tripled to $400 million from $120
In the 1980s, the Reagan administration had done the same for
countries in Central America and the Caribbean, which today supply
two-thirds of the imported cotton undershirts, briefs, boxers and
panties that Americans put on each day and 80% of the foreign-made
cotton T-shirts cluttering U.S. closets.
But for its part, the Bush administration isn't fretting over
the policy implications of the end of quotas. The White House, and
other supporters of the phaseout, contend that the system simply
exacted too high a price to be maintained, propping up uncompetitive
What's more, it cost Americans $50 billion to $60 billion
annually — an average of $500 per household — in higher clothing
prices, according to the International Trade Commission. Part of the
higher costs came from fees associated with the quota system.
"Quota charges are essentially a tax paid by American consumers
on imported goods," said Skip Kotkins, president of Skyway Luggage Co.
in Seattle, who moved all of his production in Thailand to a giant new
factory complex in southern China when quotas were removed from luggage
in 2002. Kotkins said his costs had been trimmed by as much as 20%.
The costs to the countries that are losing clothing and textile
contracts have only begun to be counted. Many trade specialists see the
post-quota era as every bit as potentially destructive as the
unrestrained capitalism of the late 19th and early 20th centuries that
spawned sweatshop conditions and price-fixing monopolies.
Already, gains in wage levels and working conditions are
starting to unravel. In Lesotho, the government has agreed to give
apparel and textile factory owners an exemption from paying a mandatory
cost-of-living increase. Business leaders in El Salvador want to reduce
the nation's $5.04-a-day maquiladora minimum wage in rural areas to
stay competitive with China and its lower-cost neighbors in Central
Halfway around the world in the Philippines, a panel of business
and government officials has proposed exempting garment makers from
paying the minimum daily wage, which ranges from about $3.75 to $5.
It's clear to Rustam Aksam who the losers will be. "No job
security, no income security," said the Indonesian labor leader, who
figures his country could lose as many as 500,000 jobs.
Critics of the phaseout want world leaders to act now to ensure
that the weakest countries — many of which are fragile democracies —
are given the chance to reap the rewards of global trade, just as the
United States acted to protect consumers in the late 1800s by passing
antitrust laws to deal with the robber barons.
"Americans have short memories," said Stephen Lande, president
of Manchester Trade Ltd., a Washington trade consulting firm. "To just
sit idly by and let these countries take an economic shot and not do
anything about it makes no sense."
Carving out space for the underdog is more complicated than it
was a century ago, when Washington's major worry was that consumers
would be gouged by the monopolists. Today, prices are still viewed as
part of the problem — though not in the same way.
In an unregulated global market, the drive to shave costs places
excessive pressure on employers to keep wages low and to jettison
costly benefits, said Gary Gereffi, a Duke University sociologist who
is an expert in global production systems.
"We need to find creative ways to reestablish the floor below
which things aren't allowed to sink," he said.
The problem: There are no international organizations with the
responsibility or power to regulate manufacturing practices or labor
conditions, let alone the world's new concentrations of industrial and
The Geneva-based WTO is in charge of trade policy but has shied
away from tackling contentious issues such as labor standards or
environmental exploitation. The International Labor Organization, a
United Nations body, has focused its limited resources on ridding the
world of the most egregious abuses, such as child exploitation and
prison labor, but lacks the teeth to have much effect.
"The world is sort of where it was at the end of the 19th
century, when there were robber barons and ruthless competition and
consolidation and then the pendulum swung back at the national level
and governments stepped in to regulate capital," said Richard
Appelbaum, a professor of international studies at UC Santa Barbara.
"Businesses are multinational today. What is the framework for
regulating businesses globally?"
There is no shortage of ideas. Some activists have pushed for
the establishment of a global living wage that would vary from country
to country but would guarantee workers a subsistence salary. Labor
advocates also support the establishment of global standards for
workplace safety, environmental protections and worker rights.
Others would like to see the WTO or another body enact
regulations to prevent large countries or companies from dominating
crucial industrial sectors or key markets within the global economy.
But in addition to opposition from the business community,
resistance also comes from the nations that stand to benefit. Although
governments recognize the threat to their economies and workers, they
are loath to give up their ability to control labor rates, working
conditions or competitive practices.
Poor countries, whose workers are the most vulnerable to
exploitation, have fought efforts to include tougher labor and
environmental standards in trade agreements for fear they would be used
by wealthier countries as protectionist shields.
In any case, clothing factories are increasingly in the control
of Asian conglomerates that operate with fewer restrictions on
operations at home and abroad than their U.S. counterparts.
Multilateral agencies have begun stepping in to help. The World
Bank is providing technical assistance and aid for the modernization of
ports and highways in countries trying to boost exports, and the
International Monetary Fund is helping governments that suffer a
budgetary shortfall because of a sharp shift in trade patterns.
The Bush administration is taking steps to shore up vulnerable
economies in Central America and the Middle East with trade pacts that
provide expanded access for apparel. The United States also faces
pressure to follow Europe's lead and remove tariffs on goods from
struggling Muslim economies and low-income Asian countries such as
Cambodia and Nepal that face tariffs as high as 32% on certain items.
In Cambodia, with U.S. support, the government is working with
the International Labor Organization on a program to improve working
conditions in apparel factories.
The hope is that big name brands will stay put and pay a little
extra to support fair labor standards and reduce the possibility of
becoming ensnared in a sweatshop scandal. That effort has won the
backing of socially conscious U.S. retailers such as Gap.
If that fails, as many experts predict, the outcome for Cambodia
and others in the developing world could be bleak.
"There is nothing else for these people," said Robin Rosenberg,
a Latin American trade expert at the University of Miami. "You take
away the garment industry, and it's going to be a natural disaster like
Marshall reported from Asia, Iritani from Africa and Dickerson from
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