ITC Reports on Likely Effects of January 1, 2005 WTO Textile and Apparel Quota Elimination on Supplier Countries

This report assesses the textile and apparel industries of certain supplier countries to the U.S. market with respect to their competitiveness and other factors pertinent to their adjustment to the final completion of the phaseout of quotas for World Trade Organization (WTO) member countries on January 1, 2005, as required by the Uruguay Round Agreement on Textile and Clothing (ATC).

The ITC states that this report assesses the textile and apparel industries of (1) significant ATC suppliers to the U.S. market, (2) Mexico, and (3) other supplying countries with preferential market access.

This is Part I of a multipart series of summaries of the ITC's report. This installment focuses on the report's assessment of the likely effects of quota elimination on selected countries. See future issues of ITT for additional installments.

China - The ITC finds that China is likely to be the supplier of choice for most large U.S. apparel companies and retailers; however, uncertainty regarding textile-specific safeguards may temper export growth. Moreover, over the long term, competitiveness may diminish as strong economic growth leads to greater domestic demand for textiles and apparel, and for the labor and capital to make these goods. The ITC states that China showed tremendous growth in export of goods for which it became eligible for quota-free entry in 2002.

Hong Kong and Macau - The ITC states that initially, Hong Kong and Macau may continue to be suppliers of some apparel under outward processing arrangements (OPAs) with China because of uncertainty regarding textile-specific safeguards with China. However, the ITC finds that there are no other compelling reasons to source most apparel from these relatively high-cost suppliers.

Korea and Taiwan - The ITC states that these countries are likely to continue as major suppliers of fabrics to global industry, including China. However, U.S. firms are likely to move sourcing of apparel to lower-cost countries, particularly China; but may continue to source certain garments from these suppliers (e.g. men's dress shirts, dresses, and other fashion apparel).

India - The ITC states that India is likely to remain a competitive supplier to the U.S. when quotas are removed in 2005 and notes that this country is considered by many U.S. firms to be the primary alternative to China. However, the ITC states that over the long term competitiveness may diminish as strong economic growth leads to greater domestic demand for textiles and apparel, and for labor and capital to make these goods.

Pakistan - Pakistan is likely to continue as a supplier to the U.S. market. The ITC states that is also considered by many U.S. firms to be a competitive alternative to China, particularly for men's apparel. The ITC adds that it may continue to be a global supplier of cotton yarns and fabrics.

Bangladesh - According to the ITC, the status of Bangladesh as an overall supplier to the U.S. is uncertain; however, it is considered by some U.S. firms to be a competitive alternative to China for mass-produced, low-end apparel.

Sri Lanka - The ITC states that Sri Lanka is likely to see its share of U.S. apparel imports fall, but it is expected to be a niche supplier for specialty or fashion goods, hosiery, and women's intimate apparel such as bras and underwear.

Indonesia - The ITC explains that the future status of Indonesia as a supplier to the U.S. market is uncertain. The ITC states that while many U.S. firms consider Indonesia to be a competitive supplier, they also indicate its political and social unrest may discourage future sourcing.

Philippines - The ITC states that this country's share of U.S. apparel imports is likely to decline, as has already occurred in goods for which quotas were eliminated (e.g. babies' apparel).

Thailand - According to the ITC, Thailand's share of U.S. imports is likely to decline, as has already occurred in goods for which quotas were eliminated (e.g. babies' apparel and luggage) but notes that it may become a niche supplier of garments having complex construction or detailed sewing requirements.

Malaysia - With respect to Malaysia, the ITC predicts that its share of U.S. apparel imports is likely to decline significantly.

Mexico- The ITC states that Mexico's share of U.S. apparel imports is likely to decline further, even with North American Free Trade Agreement (NAFTA) preferences. The ITC finds that Mexico may continue to be a niche supply for some basic apparel, particularly goods needed on short-turnaround basis. The ITC adds that Mexico has the potential to expand yarn and fabric exports to other countries in the western hemisphere under a proposed Free Trade Area of the Americas (FTAA) or to Central America if the proposed U.S.-Central America FTA (CAFTA) permits the use of Mexican inputs.

Costa Rica - The ITC states that Costa Rica's share of U.S. apparel imports is likely to decline significantly.

Dominican Republic - According to the ITC, the Dominican Republic's share of U.S. apparel imports may decline, but the country is likely to continue to supply apparel for quick-turn orders. The ITC notes that this country is considered among the five most attractive suppliers in the region.

El Salvador, Guatemala, Honduras, and Nicaragua - The ITC states that the future status of these countries as suppliers to the U.S. market is uncertain, pending the outcome of regional or hemispheric free trade negotiations. However, these countries are considered among the five most attractive suppliers in the region.

Haiti and Jamaica - The share of U.S. apparel imports for these two countries is likely to decline significantly.

Colombia - The ITC finds that Colombia is likely to become less cost competitive in the U.S. market with Asian suppliers following quota removal. However, it could still be competitive for garments in which lead times are critical.

Peru - The ITC states that Peru may see its overall share of U.S. apparel imports decline, but is expected to continue to be a niche supplier of high-end knit shirts.

Bolivia and Ecuador - The ITC explains that these countries are very small suppliers of the U.S. market, and could become sources for specialty goods, such as those made of fine hairs from animals indigenous to these countries.

Turkey- The ITC states that Turkey's future status as a supplier to the U.S. market is uncertain. Several firms indicated that Turkey would be an attractive supplier if it had a free trade agreement (FTA) with the U.S. The ITC states that a few firms indicated that they would continue to increase sourcing from Turkey, even without an FTA. The ITC adds that Turkey may continue to be a global supplier of cotton fabrics.

Egypt- According to the ITC, Egypt is likely to decline in importance as a supplier to the U.S. market, though a few industry sources indicated they will continue to source some products from Egypt following the removal of quotas. U.S. firms also indicated Egypt would be an attractive supplier if an FTA were negotiated with the U.S.

Israel and Jordan - The ITC states that Israel may continue to be a niche supplier for intimate apparel and Jordan may continue to be a niche supplier of apparel articles that are subject to high U.S. duty rates, such as MMF garments.

However, the ITC states that sourcing from Jordan may be affected by the outcome of FTA negotiations involving countries in the Western Hemisphere. The ITC predicts that if the proposed CAFTA or FTAA extends unlimited duty-free treatment to U.S. imports of apparel made in the region from third-country fabrics, U.S. firms are likely to shift sourcing to the region from distant sources such as Jordan.

Kenya, Lesotho, Madagascar, Mauritius, and South Africa - For all these countries, the ITC predicts that the share of U.S. apparel imports is likely to decline.

Public Version of ITC's Report (dated January 2004) available at http://63.173.254.11/pub3671/main.html

ITC Press Release on Report (Press Release 04-015, dated 02/09/04) available at http://www.usitc.gov/er/nl2004/ER0209bb1.HTM