Post-MFA: Lessons from China
Monzur Hossain
It is now a growing concern of businessmen, policy makers, and researchers as to whether the success story of Bangladeshi ready made garments (RMG) industry will continue in the post-MFA regime. Within the last two decades, the number of RMG enterprises has increased to over 3000, and around 2 million workforce, mostly poor women are engaged in this industry. On top of this, Bangladeshi women find this sector as one of the most suitable forms of employment.Ê Export income of these industries jumped to more than $3 billion from less than $1 billion in 1991, registering a high annual growth rate. In fact, this is an exceptional growth rate for any industry anywhere in the world. This has happened because of quota-restricted entry into the market of the United States under the Multi-Fiber Arrangement (MFA) and completely unrestricted entry into the markets of the European Union countries under the Generalised System of Preferences (GSP) as well as the fact that the industry requires simple level of technology and small premises for operation. The RMG industry now contributes about 30-40 percent to the manufacturing value addition in the country and earns the lion's share of the nation's total export income. However, the removal of the Multi-Fiber Arrangement quotas at the end of 2004 under the Uruguay Round Agreement on Textiles and Clothing might result in Bangladesh losing its preferential access in these markets. While Bangladeshi exporters have started competing effectively in global markets, the phasing out of preferential access and the abolition of quotas will require them to increase their efficiency, improve product quality and ensure that their products are competitively priced. After phasing out of MFA, the main threat will come from China, as the Chinese products are capturing the world market rapidly after her integration into WTO in December, 2001. The Chinese issue is not only worrying for Bangladesh, but for other developing and emerging economies too. It gives rise to fear that China might wipe other developing countries out of the world market for labour-intensive manufactures. It is widely thought that China is becoming a world price setter for labour-intensive manufactured goods, and that it may create global deflation. Another view is that China will become an increasingly important export market as it opens up further after WTO accession. China made wide range of commitments to liberalise its markets through reducing tariffs and gradual removing of quantitative restrictions in compliance with WTO rules. Therefore it might bring some opportunities too. China's textile and clothing exports will be subject to a special safeguard mechanism until the end of 2008, although MFA for other countries will be phased out by the beginning of 2005. These transitional safeguards for China can be deemed as discriminatory and market disrupting. Anyway, against this backdrop, should we compete or collaborate with China? What can Bangladesh do in this situation? With the existing expertise, I do believe that Bangladeshi garment and textile exporters can survive well in the world competition if they handle the situation professionally and innovatively. I am not in favour of any protection for this sector, either from government or other organisations. They have to compete in the existing market as well as they have to explore new markets. Price must be set competitive with Chinese and other products which may lower their profit, but they could sustain for longer period. They have to be well informed about the demand of the market and diversify their products. Accordingly they need to try to find out the weaknesses of their competitors. This sector already has gained handsome maturity and experience to penetrate the world developed markets like USA, Canada, and EU. We have to make best use of this experience which most countries do not have. Since China is becoming the focus of the post-MFA, our garments exporters can invest jointly in China to be in line with Chinese trade dynamics. Another way to put it, they can invite Chinese manufacturers to invest in our RMG sector to share the existing garments export facility of Bangladesh. Hopefully they would be interested in doing so. In this way, it is possible to link with Chinese success. Our exporters can explore the Chinese market too for export since it's quite a big market. What is the secret of the competitiveness of the Chinese product? So far, they have abundant cheap labour supply, highly qualified technicians and engineers, and backward linkage facility; above all they know how to maintain standard and quality as well as how to find market. They don't run only for profit. We have many things to learn from them. It is inevitable that phasing out of MFA would bring some pain for the economy. Some industries will be closed by losing competitiveness and some workers will be jobless. This will be a transition period of this sector, and it is true that transitions are always painful. If the sector can compete well, the situation will be rosier in future. Therefore, it is extremely important that some remedial measures should be taken for the effective support of the industry and to achieve the targets set by the government for 2005 to meet the post-MFA challenges. The value addition could obviously be boosted if appropriate backward linkages were established in the textile industry. Bangladesh's low labour cost, favorable policy diffusion, an expanding market opportunity, and favourable conversion cost can be used to turn the challenges of the quota-free market into a scope of opportunity. Moreover, without thinking how to tackle China, collaborating with China would bring more opportunity to get access into the world developed market like Japan, Korea, U.S., Canada, EU, as well as East Asian and Central Asian emerging markets. The author is a Pd.D candidate at National Graduate Institute for Policy Studies, Tokyo.
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