Are LDCs losing in post-quota world?
Published: The Himalyan Times, 16 June 2006
By: Shyamal Krishna Shrestha


Competition in the textiles and clothing (T&C) sector has intensified since the expiry of the Agreement in Textiles and Clothing (ATC) more than a year ago. While some Asian economies have either improved or maintained their competitiveness in this sector, others have been marginalised.

The UNDP's recent publication "Sewing thoughts: How to realise human development gains in the post-quota world" tracks the performance of Bangladesh, Cambodia, China, Fiji, India, Indonesia, Laos, Maldives, Mongolia, Nepal, Pakistan, Philippines, Sri Lanka, Thailand and Vietnam in the T&C sector. The report assesses the human development ramifications mainly due to competition and increasing unemployment in some least developed countries (LDCs).

The 15 Asian economies accounted for 41.8 per cent of US T&C imports in 2004, which increased to 42.1 per cent in 2005. As for the EU, the Asian exporters were able to increase their market share from 47.2 per cent in 2004 to 53.2 per cent in 2005. T&C is the mainstay of manufacturing employment in Bangladesh, Maldives and Nepal. Failure to compete has resulted in the closure of many firms in these nations. In others, the need to maintain competitiveness implies employing high-skilled workers and clustering, both of which are biased against low-skilled personnel and small firms.
The adverse performers blame preferential trade agreements as the prime cause of dislocation while neglecting the domestic factors. The countries in question have not been able to convert 'market access' into 'market entry'. This underlies the importance of addressing supply-side factors with regard to export growth.

As long as LDCs depend on cheap and unskilled labour as a source of comparative advantage, they can neither experience sustained industrialisation nor benefit from trade. Sociologist Gary Gereffi notes: "Low cost labour is an unstable source of comparative advantage". This clearly underscores the need to invest in training and human resource.

Also, technological upgrading is necessary to increase workers' skills as well as to bridge the 'technology gap. Besides price and quality, speedy delivery constitutes the 'inseparable triad' that ensure the products reach markets duly. Trade facilitation has become imperative to overcome trade transaction costs. The 'aid for trade' package was promised to facilitate the integration of developing countries into the multilateral trading system.
The report recommends investment in human capital, upgrading technology, speeding delivery, establishing and operating export processing zones, improving trade facilitation and optimising benefits of 'aid for trade'.

Diversification alone may not ensure the recovery of the declining T&C sector due to the presence of tariff peaks, tariff escalation and non-tariff barriers in importing countries. However, the report provides an opportunity to address long-standing weaknesses as part of an overall industrialisation strategy.