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Impact of Quota Elimination from 2005

The Hong Kong Trade Development Council and the Organisation for Economic Cooperation and Development (OECD) have released two research reports on the impacts of WTO members abolishing textile and clothing (T&C) quotas.

In a seminar held this morning (26 Jan) TDC's chief economist Edward Leung and Dr Dean Spinanger, one of the writers of the OECD report, shared their views with representatives from the T&C industries, government officials and academics.

According to the TDC research paper, the removal of quotas has enabled importers and retailers to only source from those locations offering the best products and services, leading to a reduction in sourcing locations.

A typical importer, for instance, may reduce the number of sourcing locations from over 30 to around 10 after quota elimination, said Mr Leung. He added that the move would help importers to lower administrative costs.

"Before quota abolition, some 40% of an importer's time and effort was spent on the allocation of orders to a large number of sources,'' explained Mr Leung.

Mr Leung said that the quota free environment would benefit some exporters, increasing their competitiveness with lower labour costs, while others would excel in craftsmanship and design.

"In light of these changes, China will likely be the preferred source for many T&C articles,'' he said.

The research report pointed out that the biggest beneficiary of quota removal would undoubtedly be consumers, who would gain from the elimination of quota premiums and from lower prices stemming from intensified competition.

"It is estimated that the removal of quotas, as well as import tariffs, would save US$13 billion in prices paid by US consumers,'' Mr Edward Leung.

Although quotas have been removed as scheduled, protectionist undercurrent prevails in overseas markets, particularly with regard to US T&C industries.

"Imposition of safeguard quotas on China will likely divert orders to other alternative sources including the smaller T&C producing countries,'' said Mr Leung. But he warned that such remedy measures against imports from China were not likely to create jobs in US's domestic clothing production.

He said the move would only create uncertainties for global T&C industries and hurt the interest of customers globally.

Hong Kong's T&C exporters are advised to keep a close eye on developments, and take appropriate action. They may avoid quantitative restrictions on imports from the mainland imposed by China's trading partners through outward processing arrangement (OPA) in the short run. They are also advised to consider maintaining production and sourcing in a global setting in the medium term. Over the longer term, Hong Kong manufacturers have to move towards more sophisticated and high value-added processes, while strengthening relationships with overseas buyers.

The OECD has also issued a report outlining various recommendations for industrialised and developing countries to adjust to the quota-free environment.

T&C producers are advised to shift industrial clusters of expertise from manufacturing to the higher value-added segments of the supply chain, by placing greater emphasis on education and training of services-related skills, such as design, material sourcing, quality control, logistics and retail distribution.

T&C exporting countries are urged to improve the regulatory environment for essential business services such as improving transport infrastructure and boosting power supply and telecommunication capacity.

"The bottom line is basically improving access to and from production locations - that means reducing time in transit. Everyday on the road means a 0.7% increase in FOB landed price," said Dr. Spinanger.

The report also recommended export countries to stimulate collaborative innovation processes in the fields of dissemination and technology transfer.


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Content provided by Hong Kong Trade Development Council