Quotas' end roils global trade


PHNOM PENH, Cambodia -- As a poor nation struggling to compete in an increasingly globalized economy, Cambodia has little to offer factory owner Leon Hsu.

Electricity is erratic. Traffic along the road to the port of Sihanoukville includes the occasional elephant. If a truckload of men's shirts doesn't reach the port on time, it might be days before another vessel departs for Singapore, where goods are transferred to a larger ship for the voyage to the United States.

None of that much mattered over the years because international quotas guaranteed Cambodia the chance to sell clothing and textiles to retailers in rich, developed nations. Meant to protect manufacturers in North America and Europe from foreign competition, the import quotas worked as a global version of Head Start, an affirmative action program for countries with large, unskilled work forces and not much else.

The last provisions of the 30-year quota system disappeared at the beginning of the year, leaving Hsu few reasons to stay in Cambodia. Beckoning him are more efficient places -- chiefly China -- with modern factories, highways and ports; prolific workers; and all the fabric, thread and buttons he could want.

Miss a shipping date out of southern China, and another vessel is leaving soon, often within 24 hours.

"I'll be happy to go," Hsu said.

The end of the quotas has triggered what trade experts think could be one of the largest migrations of production in history, jeopardizing Cambodia's 220,000 apparel jobs.

Hundreds of thousands more are threatened in Bangladesh, El Salvador, Lesotho and other countries that prospered under the quotas.

The manufacturing shift will be a windfall for billions of people, bringing huge savings to consumers and accelerating the transfer of jobs to low-cost China and India. But it could cripple economies across Latin America, Africa and Asia.

Millions of people whose jobs sewing knit shirts or jeans have meant schooling for their children or roofs over their heads could slide further into poverty.

In Africa, where manufacturers supply employees with condoms and health care, the battle against AIDS could be weakened. Illegal immigration from Latin America to North America might rise. Efforts to improve the economic position of women in predominantly Muslim countries are threatened.

The quota system "has been an extremely cost-effective method of bringing social and political stability to a very needy part of the world," said Peter Craig, a Washington-based trade commissioner for the Indian Ocean nation Mauritius, which has lost 20,000 apparel jobs since 2003. When the full effects of its end are felt, "it'll be horrendous," he said.

"Very few people understand, or they're just starting to understand, what this means," said Mark Levinson, a U.S. apparel union economist who estimates that as much as $40 billion of production will be transferred to China from the developing world. "It's going to be chaos in the global economy."

Advocates of free trade argue that the quotas' demise should be celebrated, that governments no longer protected by quotas will be forced to get rid of the corruption and inefficiencies that held them back.

Supporters of the phaseout point out that the full effect isn't likely to be felt immediately because Washington has the right, under World Trade Organization rules, to reimpose restrictions on Beijing through 2008 if the United States is swamped with Chinese imports.

David Spooner, the U.S. trade official in charge of textile policy, thinks that eliminating quotas will be far less disruptive than many predict. A small nation, he said, might develop a niche market and flourish. And not all big buyers of cut-rate T-shirts and jeans will abandon longtime suppliers and rush to China.

Many of the countries fretting about the consequences, such as Mexico and Egypt, are the ones that pressured the WTO to do away with all the restrictions on trade in textiles and clothing.

With huge pools of cheap labor, such countries figured they could grab even bigger shares of the North American and European markets.

What many failed to foresee was that the dynamics of global competitiveness would be turned upside-down with the emergence of China and India as economic powerhouses.

Those countries can offer the low wages of poor nations and the efficiencies of modern economies. The advantages are perhaps most evident in the textile and apparel industry, which requires many unskilled laborers but also depends on fast delivery and the ability to change production specifications on a dime.

Global trade has come to be dominated by huge multinationals, such as Wal-Mart or Carrefour of France, that can make or break entire economies with their orders.

Wal-Mart buys as much as one-third of the clothing made in Bangladesh, a major producer of men's dress shirts and khaki pants. In Cambodia, making clothes for Gap Inc. and other U.S. and European retailers accounted for one-third of the gross national product in 2003.

The case of Cambodia illustrates how hard it can be to compete for clothing contracts against the likes of China, where the apparel and textile industry employs at least 15 million people and entire towns are devoted to producing socks or neckties.

Cambodia lacks the multilane freeways and high-speed telecommunications lines prevalent in the exporting zones of China. That infrastructure was paid for, in part, by the $52 billion in direct foreign investment China received in 2003, compared with Cambodia's $251 million.

But for a few decades, the textile and apparel quotas let Cambodia be a contender.

Hsu, a native of Hong Kong, moved to Phnom Penh in the early 1980s and opened four factories. He counted among his customers J.C. Penney and Wal-Mart.

Then came the phaseout of the quotas. At the end of 2002, quotas on nightgowns and baby clothes expired. J.C. Penney, which had bought $600,000 of baby clothes from Hsu's Cambodian factories in 2001, cut its order by two-thirds in 2002 and eliminated it in 2003.

Wal-Mart, a buyer of women's nightgowns, told Hsu in 2003 that it wouldn't order from him unless he could lower his price to $5.95 per gown from $6.20. Hsu said he couldn't afford to say yes.

"I lost 20 percent of my business right there," he said. "It's all gone to China."

The Los Angeles Times is a Tribune Publishing newspaper.

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