Falling Off a Cliff
Millions of garment workers worldwide stand to lose their jobs with this year's changes in global textile trade rules.
This article is from the September/October 2005 issue of Dollars and Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org/archives/2005/0905yearman.html
This article is from the September/October 2005 issue of Dollars & Sense magazine.
at a discount.
January 1, 2005, was just another New Years' Day for most Americans, but for millions of garment workers in developing countries around the globe, from Lesotho to Bangladesh to Jamaica, the date symbolizes cataclysm. On that day, a 30-year-old international trade arrangement known as the Multifiber Agreement (MFA) was officially ended. Under the MFA's quotas, which guaranteed them a share of the world clothing market, and with the encouragement of international financial institutions, dozens of poor countries had developed apparel industries. Now, stores in Europe and the United States are likely to be deluged with clothing made in China and India, and millions of garment workers elsewhere are likely to be unceremoniously dumped into the ranks of the unemployed. The sweatshop jobs may have paid little, and the apparel industries may have contributed little to nations' genuine economic development. Nonetheless, you can hardly blame Bangladeshi or Salvadoran workers for feeling jerked around by shifts in global trade policy over which they have virtually no say.
Okay, We'll Export Garments
Though most people have probably never heard of the MFA, to see its impact one only has to open the bedroom closet. The MFA imposed a global quota system for textile and apparel production, limiting the output of manufacturing giants such as China while allowing substantial clothing industries to develop in small countries which would not have been able to compete otherwise.
Nearly 50 nations were given market access to the United States and Europe under the MFA. For example, "Cambodia … this year can export to the U.S. 1,721,232 cotton pillowcases, 72 silk dresses, and 37,896 playsuits—in all, $1.4 billion worth of clothing and textiles," BusinessWeek reported in 2003. The agreement was not originally aimed at boosting Third World economies. In the 1960s, the Kennedy administration implemented a quota system to protect domestic cotton producers. This was expanded in the 1974 MFA to include textiles and clothing of all materials (hence a "multifiber" agreement). "The original idea of the quotas was to afford some protection to the declining textile industries of the developed countries. The reality was different. With quotas effectively guaranteeing market access, manufacturing sprang up in such unlikely places as Jamaica and Sri Lanka, which before the quotas had no significant textile industry," notes BusinessWeek.
The MFA guaranteed market access for these nations, and the neoliberal policies imposed on them by international institutions such as the IMF helped too. For example, the elimination of agricultural price-stabilization programs and the removal of tariffs and quotas on food imports in many countries over the past 20 years has forced countless farmers off their lands and into the urban economy, where a formal garment factory job, however low-paid and tedious, can look a lot better than eking out a living in the informal sector. Under the structural adjustment programs many nations adopted as a condition of refinancing their foreign loans, governments privatized public-sector enterprises, often resulting in mass layoffs and further softening labor markets.
Large supplies of desperate workers, cheap financing for factory construction (for example, from the U.S. Agency for International Development), and guaranteed market access led many nations to become dependent on their textile exports for jobs and revenues. In 2001 clothing and textiles accounted for nearly 80% of Bangladesh's total exports, up from 39% in 1990. Other countries that have become deeply dependent on clothing exports include Cambodia (72.5%), El Salvador (60.2%), Mauritius (56.6%), the Dominican Republic (50.9%), Sri Lanka (49.8%), and Honduras (41.3%).
Then The Rules Change
Now that they've followed the neoliberal prescription to switch from an economic development model that emphasizes production for domestic markets ("import substitution") to one that focuses on building up export industries like apparel, these countries are about to have the ground ripped out from under them. In the United States, textile and garment manufacturing has continued its long-term decline even under the MFA; it's now small enough to provide little incentive for continued quotas. So the United States has gone along with a decade-long phase-out of the MFA, which had been attacked all along by the business press, by many economists, and by clothing retailers as "nonsense" and a barrier to free trade.
Ironically, in the 1990s smaller nations sought removal of the quota system. After all, the MFA's original purpose had been to protect textile manufacturing in the rich countries from growing Third World exports, and many of these countries believed they would gain even more market share once the quotas were dropped. At the time the phase-out plan was signed in 1994, China was not a member of the World Trade Organization or its predecessor, the GATT, and was thus not allotted a quota. But once China joined the WTO in 2001, it stood to dominate the world textile trade. So instead of shifting opportunity in the textile industry from rich nations to poor ones as advertised, the elimination of quotas is likely only to shift production out of lots of developing countries and into just a few: India and particularly China.
It seems implausible that smaller nations would not have realized the threat China posed. Plans for bringing China into the world trading system had been afoot for years. As early as July 1994, for example, German Chancellor Helmut Kohl announced he would give China "full support" in its attempt to join the new WTO. China had already come to dominate production of many manufactured goods. And the country spent the years leading up to the MFA's expiration building textile factories. "Hundreds of new textile mills are now sprouting up in Changzhou and Guangdong provinces, alongside megafactories that will dwarf anything found in Latin America," the Wall Street Journal reported in 2004. China also has a massive base of cheap labor to staff these megafactories. China's textile wages are not the lowest in the world, but its relatively low wages, in combination with factors such as a strong infrastructure and the domestic technical expertise the country has built up under its proactive industrial policy, give it an insuperable edge over most other developing countries.
Quota removal, which smaller nations once welcomed, now poses a grave danger. The predictions for the post-quota world are quite literally of disaster: projections suggest as many as 30 million jobs will be lost worldwide.
The most dire forecasts are for Bangladesh. "At stake are 1.8 [million] jobs in the factories and as many as 15 [million] more in related industries, from button-making to insurance underwriting," notes the Financial Times. Projections are that the country will lose 40% of its total exports and face social upheaval, with a massive number of newly unemployed workers who have no social security, welfare, or unemployment benefits.
The forecast for Mongolia is dim: tens of thousands of jobs are likely to be lost there as a result of the quota expiration. Likewise a number of African and Caribbean countries: "Among the people who will be destroyed by this are the African and Caribbean people who have been building investments based on the special quotas," former U.S. trade negotiator Seth Bodnar told the Miami Herald. Latin America is projected to lose at least half of its 500,000 garment jobs by 2010. And the U.S. colony Saipan, long a major center for textile production, has already seen four plants close in 2005, with nearly 1,600 jobs lost. Saipan's garment sales are projected to drop by 50% in 2005.
There's a technical term for what these nations are facing: falling off a cliff.
Actually, the destruction began even before last January 1, as companies readied for the MFA's termination by shedding hundreds of thousands of jobs around the world. In the months and years prior to the expiration of the quota system, for example, 6,000 Salvadorans and 235,000 Brazilians lost their textile jobs. Sara Lee closed factories in the mainland United States, Puerto Rico, Honduras, and Mexico, and laid off more than 4,000 employees, in what was described in the business press as a quota move.
Chinese-made garments are now flooding markets. To point this out has been derided in the Wall Street Journal as "hysteria," but the facts speak for themselves:
- After quotas on baby clothes ended, China's exports to the United States rose 826%. Soft luggage exports rose fivefold. Production of these items in Mexico, Thailand and Indonesia has dropped by half.
- During the first three months of 2005, exports of Chinese-made cotton knit shirts and blouses to the U.S. rose 1,250%. In January 2004 (under quotas), China shipped 941,000 knit shirts to the United States. In January 2005, it shipped 18.2 million.
- During the first three months of 2005, exports of Chinese-made trousers to the United States increased by 1,500% and exports of underwear by 300%.
- From 2001 to 2003, during the partial phaseout of quotas, China's share of the United States sock market jumped from 2% to 40%.
The World Bank estimates that China's share of the global trade in textiles will grow from 17% to around 45% in just a few years. Over the same period, U.S. clothing importers expect they will go from buying goods in about 50 countries down to less than 10.
A Small Backlash
In the United States, 12,000 textile jobs were lost in January 2005 alone, and projections suggest more than 500,000 jobs will disappear over the next few years. A strong backlash from unions, the textile industry, and Congress has forced the Bush administration to take advantage of a clause in the MFA phase-out agreement that allows countries to reimpose some quotas. The curbs are temporary though, lasting for just a few years, and granting China a yearly quota increase of 7.5%. China may challenge the new quotas, but even if they remain, this essentially amounts to a brief stay of execution. Economist Dean Baker of the Center for Economic and Policy Research believes that there is no chance of reviving an MFA-type quota agreement in the long run. Given that, he says, "the best thing that could be argued is that the proponents of getting rid of the MFA should feel an obligation to provide special assistance to the victims of their policy. This could take the form of debt forgiveness, for example, or relaxing the new WTO rules governing intellectual property."
For investors in clothing retailers and manufacturers, the expiration of the MFA means good times ahead. Thirty million textile workers, on the other hand, have just been shoved off the cliff. The institutions that regulate global trade, the powerful nations that dominate them, and the corporations whose interests they promote are committed to reshaping global trade rules along neoliberal lines, even if the changes cause upheaval for tens of millions of workers worldwide. There's nothing inherently wrong with clothes being manufactured in China or India rather than in Mauritius or Bangladesh. But there is something wrong with a global trade regime that pushes millions of poor workers into one sector then, with little ado, kicks them out of it.
SOURCES Magnusson, P. et al., "Where Free Trade Hurts," BusinessWeek 12/15/03; "A New Silk Road" (editorial), Wall Street Journal, 12/29/04; Buerk, R., "Social Upheaval Feared When End of Import Quotas Hits Bangladesh," Financial Times, 7/24-25/04; Fritsch, Peter, "Looming Trouble," WSJ, 11/20/03; Brooke, James, "Down and Almost Out in Mongolia," New York Times, 12/29/04; Barboza, D. and Becker, E. "Free of Quota, China Textiles Flood the US," NYT, 3/10/05; Brooke, James, "Trade Quotas? Ah, the Good Old Days," NYT, 4/9/05; Bussey, Jane, "Asian Countries Gain Larger Share of Global Clothing Business," Miami Herald, 4/28/03; King Jr., Neil, "Stitch in Time," WSJ, 6/16/04; McGregor, R. and Harney, A., "China Gets Set to Clothe America When Quotas End," FT, 7/20/04; Thompson, Ginger, "Fraying of a Latin Textile Industry," NYT, 3/25/05; Lapper, R., "Garment Companies Fight Back for Share of Market," FT, 7/27/04; Beales, R. and Grant J., "Sara Lee Will Cut 4,000 Jobs in Quota Move," FT, 6/12-13/04; Adamy, Janet, "Sara Lee to Close 5 Clothing Plants and Cut 4,175 Jobs," WSJ, 6/11/04; King Jr., Neil, "U.S. Sock Makers Ask White House to Rein in China," WSJ, 6/29/04; Harney, A., "US Set for Further Curbs on Chinese Imports," FT, 11/15/04; "Protectionist Piffle" (editorial), FT, 4/27/05.