Global and local policy framework

Clothing factory in South Africa

Multilateral agreements

Multi-Fibre Agreement (MFA): On December 31, 2004 the MFA came to an end and with it the termination of all quotas on textiles and clothing trade between WTO member states. This is likely to significantly affect the apparel industries in southern Europe, as well as those developing economies’ apparel and textiles industries that have grown as a result of access to quotas, rather than genuine competitiveness. One of the major concerns is how China will behave after the removal of quotas. There is consensus that China is the nation that is most likely to benefit, with its clothing exports having already increased significantly since it joined the WTO in 2001, whilst it has the ability to produce a growing range of items, and has improved its capacity to meet international quality standards. In a quota-free world, experts predict that China’s share of world clothing exports may double in less than five years. Along with India, China is therefore expected to dominate global production, with preliminary evidence from early 2005 confirming their threat. India’s overall clothing and textiles exports increased 33% in January 2005, when compared against January 2004 figures, whilst China experienced an even more astounding 546% increase.

African Growth and Opportunities Act (AGOA): This is a US programme that allows certain non-reciprocal tariff preferences to 37 Sub-Saharan African (SSA) countries covering 6,000 product lines to 2015. Clothing is governed by a separate set of conditions and rules of origin. These rules stipulate that clothing has to be made from US fabric, yarn and thread, or from fabric, yarn and thread that is produced in an AGOA-beneficiary SSA country. However, a special rule applies to LDCs, allowing these countries duty-free access for apparel made from fabric originating anywhere in the world until September 2007. With the single exception of South Africa (and Mauritius until mid 2004), all 19 AGOA-beneficiary SSA countries that qualify for the clothing provision also qualify for this rule. Therefore, while clothing exports to the US from South Africa require triple-stage transformation to qualify for AGOA, all other eligible countries are only subject to a single-stage transformation 12 . This places South Africa in a disadvantaged position. Rules of origin tie the domestic textiles industry into the clothing production process and therefore any weaknesses in the textiles sector have a marked impact on the success of clothing exports.

National government policy

Duty Credit Certificate Scheme (DCCS): This is an export-incentive programme for the textiles and clothing industries that ostensibly ended on the 31 st of March 2005, to be replaced by an Interim Clothing and Textiles Scheme to run until the 30 th of September 2006. The DCCS was designed to encourage the outward orientation of the clothing and textiles industries by allowing firms to claim a remission of duty for proven exports 13 .

Alternatively the rebates earned could be sold to any other importer of garments or textiles. This resulted in the majority of credits being sold to retailers who paid as much as a 30-40% discount, which they then used to import garments, thus reducing demand for domestically produced apparel and ultimately hurting domestically oriented clothing firms. Despite DCCS benefits, the appreciation of the Rand through 2003 placed enormous pressure on clothing manufacturers, resulting in most firms being uncompetitive in their principle export markets by 2004. Additional pressure was also placed on the local market due to the surge in garment imports – facilitated in small part by the access of retailers to DCCS benefits. Prior to the expiration of the DCCS on the 31 st of March 2005 the clothing and textiles industries submitted a joint proposal requesting that the dti put in place a two-year Interim Development Programme for the two industries, with this programme retaining the core elements of the DCCS. The response thus far has been confusing, with verbal agreement given on the introduction of an Interim Clothing and Textiles Scheme that replaces the DCCS and terminates on the 30 th September 2006. To date, however, no official confirmation has been given to the two industries, creating widespread uncertainty as to whether it will, in fact be implemented, and what particular form it will take.