Changes in Global Trade Rules for Textiles and Apparel Implications for The Dominican Republic

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Changes in Global Trade Rules for Textiles and
ApparelImplications for The Dominican Republic
Research
Prepared with USAID support under contract PCE
I-00-98-00016, Task Order 13 (Support for Trade
Capacity-Building Activities)
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Changing trade environment

• The WTO Agreement on Textiles and Clothing (ATC)
  will eliminate quotas on US imports January 1,
  2005
• Preferential trade agreements are
  expanding--other countries are joining the club
  (e.g., AGOA and ATPDEA)
• US free trade agreements are increasing (e.g.,
  Chile, Singapore, Southern Africa, CAFTA etc.)

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US imports from theDominican Republic
Total US Imports from the Dominican Republic US
4.2 Billion (2002)
Source USITC Dataweb. Apparel is defined as
Standard Industry Trade Classification code 84.
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US Imports of apparel from the Dominican Republic
2002
(Based in Value)
Source US Department of Commerce Office of
Textiles and Apparel (OTEXA). Synthetics are
garment primarily made of man-made fibers such as
polyesters and acetates.
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• Phase-out of Quotas
• A Major Benefit Will
• End in 2004

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Dominican Republic exports will be subject to
more competition
US Imports of Apparel From Dominican Republic 2002
Most Dominican Republic exports are in categories
which Asian countries are quota constrained
The Dominican Republic is not constrained by
quotas
High Risk 85
Unconstrained 99.9
Low Risk 15
Source Data from U.S. Department of Commerce.
Low-risk exports are products in which the
Dominican Republic and other countries are not
constrained by quotas. Dominican exports of
certain wool suits were constrained by quotas in
2002 but amounted to less than 1 of trade.
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Products exposed to a high risk of quota
elimination
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Tariff equivalents of quotas and tariffs on
selected quota constrained countries
Tariff Equivalents of quotas are technically
called export tax equivalents, because the quota
is applied before the duty is charged in the US,
it is not exactly equivalent to a quota.
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Impacts of US quota phase-outassumptions

• Adjustments are long term (1-3 years)
• Buyers can find new sellers
• Unprofitable producers close
• No trade remedies (antidumping or safeguards)
• No major shifts in exchange rates
• Costs such as labor, fabric and transportation
  remain the same

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Impacts of US quota phase-outExports
Decline in Baseline 2002 Exports of 759 Million
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Impact of quota phase-out direct employment
Lose of 41,528 Direct Jobs
Number of Employees
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The importance of China

• China will likely account for up to up to half
  the impacts of quota removal
• The U.S. may apply China specific safeguards to
  counter import surges from China
• China safeguards could provide up to a three year
  window for the Dominican Republic to adjust to
  competition in a quota free world

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• US-CAFTA Scenarios Implications for the
  Dominican Republic
• Answer to a Problem?

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US apparel imports from Dominican Republic and
Central America
Source U.S. Imports of Merchandise Trade 2002.
Shares based in value.
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US applied duties under the Caribbean Trade
Preference Act
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US applied duties under the Caribbean Trade
Preference Act
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Impacts of US-CAFTA and quota phase-out
assumptions

• Adjustments are long term (1-3 years)
• Buyers can find new sellers
• Unprofitable producers close
• No trade remedies (antidumping or safeguards)
• No major shifts in exchange rates
• Materials costs do not change as a result of new
  rule of origin
• Non-preferential trade can be converted to duty
  free

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Impacts of US-CAFTA and quota phase-out exports
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Impacts of US-CAFTA and quota phase-out direct
employment
Number of Employees
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Impacts of US-CAFTA rules of origin determine
material inputs

• Fabric can comprise 50 or more of trousers
  factory gate price
• Regional fabrics (Central American or local)
  could reduce material costs and provide a broader
  input base

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Impacts of US-CAFTA and quota phase-out exports
With Assumed Ten Percent Reduction in Dominican
Republic Trouser Material Cost
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• Adjusting to the New Trade Environment

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The post quota market for apparel

• What will the post quota world look like and how
  can the Dominican Republic prepare for it?

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The post quota market for apparel

• According to a survey by the Department of
  Commerce, U.S. apparel buyers plan to reduce by
  half the number of producers from whom they
  source apparel soon after quotas end
• Buyers are indicating that they require the
  value-added services of large apparel firms such
  as design shops, floor-ready merchandise and
  full-package production

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Adjustment strategies

• Clustering of small and medium sized firms
• Improving knowledge of regional fabric sourcing
• Diversifying products away from categories with
  significant quota protection to products with
  significant tariff protection

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Adjustment strategies

• Insuring new customs regulations are efficiently
  implemented (24 hour rule, Container Shipment
  Initiative, Customs Trade Partnership Against
  Terrorism)
• Engaging in free trade negotiations and ensuring
  that negotiated provisions benefit the Dominican
  Republic

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Adjustment strategies

• Insuring new customs regulations are efficiently
  implemented (24 hour rule, Container Shipment
  Initiative, Customs Trade Partnership Against
  Terrorism)
• Engaging in free trade negotiations and ensuring
  that negotiated provisions benefit the Dominican
  Republic

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US applied duties by fiber and fabrication
US Average Duties on all Apparel Products
The average applied duty on Asian suppliers for
the products exported by the Dominican Republic
is 18.7 percent
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Selected US imports with high duties
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• Dominican Republic Apparel Export Performance
• Answer to a Problem?

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US import market sharescotton trousers
Source US quota categories 347/348. Market
shares in SME. The US imported 730 million from
the Dominican Republic of cotton trousers in 2002.
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US imports of cotton trousers 1997-2002
Square Meter Equivalents
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US imports of cotton trousers 1997-2002
Average Unit Values
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US Import Market Shares Cotton Underwear
Source US quota categories 352. Market shares
in SME.
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US import market shares synthetic trousers
Source US quota categories 647/648. Market
shares in SME.
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US import market shares cotton knit shirts
Source US quota categories 338/339. Market
shares in SME.
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• Effects of Quota Elimination on Support Garments
• Answer to a Problem?

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US Imports of support garments

• Brassieres, girdles and other body support
  garments were integrated into the WTO in 1998, so
  constraining quotas were removed principally from
  South East Asian countries (Thailand, Indonesia,
  Malaysia, and Singapore)
• Quotas remained on China up to January 2002 when
  they were removed

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US imports of support garments 1997-2002
(Million Units)
Quotas on China eliminated
Quotas on South Asian countries eliminated
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US import market sharessupport garments
Source US quota category 649. Market shares in
SME.
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US imports of support garments 1997-2002
(Average Unit Values (US/SME)
Quotas on China eliminated
Quotas on South Asian countries eliminated