Abolition of quota - A Zero Sum Game for the South Asia Textile Industry ? We all know the rise and fall of the garment industry in South Asia. This is a presentation regarding a case of the situation Before and After Quota was introduced.

1. Abolition of Quota
A Zero Sum Game for the South
Asian Textile and Garment Industry ?
-Presented By:
Rohan Manandhar
Akriti Acharya
Annapurna Sthapit
Sodhan Manandhar

2. Jargon we’ll Be Using
• Multi Fibre Agreement ( MFA )
• Quota
• Zero Sum Game

3. Multi Fibre Agreement
• International trade agreement
• Canada, the US, and the European Union (EU)
setting the limits on fibre import from any
specific producing country.
• To protect domestic industries in Europe and
US.
• From 1974, applied to 73 countries, mostly in
Asia.

4. Contd.
• Against the norms of free trade of WTO
• Completely terminated in 1st Jan 2005,
through 4 stages.

5. What is Quota ?
Source: Google Images

6. What is Quota ?
(In the context of the global economy)
• A government-imposed trade restriction
• Imposed on specific good to increase
domestic production
• In theory, this helps protect domestic
production by restricting foreign competition.
• Quotas are protective measures imposed by
governments to try to control trade between
countries.

7. Zero Sum Game
In game theory and economic theory, a zero-sum game is a mathematical
representation of a situation in which a participant's gain (or loss) of utility
is exactly balanced by the losses (or gains) of the utility of the other participants

8. Textile Industry in South Asia
• Employed 1.5 Million people Directly & 10-15
million people indirectly
• Total Garment & Textile Exports in 2004:
• 26% of India's total merchandise export.
• 73% Pakistan
• 61% Sri-Lanka
• 94% Bangladesh
• South Asian Market share in the US Garment &
Textile Industry increased from 4% in 1984 to
11% in 2001.

9. Cheap labor in South Asia
Country
USD / Hr
Mexico
2.45
South Africa
2.17
Thailand
1.24
China
0.69
Kenya
0.62
Indonesia
0.5
Sri-Lanka
0.48
China ( Interior )
0.41
Pakistan
0.41
Bangladesh
0.39
India
0.38

10. Specializations in South Asia
• Pakistan : Cotton Textile, Intermediate goods,
Exporter of yarn & fabrics ( 45% exports)
• Bangladesh: Export oriented apparel producers,
imports 70% raw materials,
• Sri-Lanka: Export oriented apparel producers,
imports 80% raw materials.
• India: Has entire supply and production chain, 3rd
largest producer of Cotton
• Firms were independent privately owned &
medium size.

11. A Paradigm Shift – The post quota
world
• Countries whose competitive advantage was
quota driven would face problems because:
• Reason:
• Demand for a quick responses and full
package supply capability
• Many countries in South Asia could not
improve their situation during the last years of
quota.

12. Challenges faced by South Asia
• Preferential treatment to competitors by
importers due to agreements such as
NAFTA
( North American Free Trade Agreement )
• BIGGEST THREAT: China’s accession to WTO

13. Competitive Advantages of China
•
•
•
•
Strong Infrastructure and further investment in it.
Low cost and productive labor
Huge domestic market
After joining WTO, Textile and Garment industry
was opened for private investment.
( Dupont, Itochu, BSF, Toray etc- )
• Hong Kong’s expertise in merchandising also
helped China in precise procurement and delivery
of goods.

14. Competitive Advantage in Logistics
• Sophisticated Highways and Ports
• Lead time to US within 18 days.
• This contrasts sharply with Sri-Lanka’s Lead
time of 90-150 days.

15. Market share (percent) of China in the United States
textile imports
2001
China 12.7
2002
2003
2004
15.57 19.64 21.13
Market share (percent) of China in the United States
Garment exports
2001
China 13.88
2002
2003
2004
14.97
16.66
17.42

16. India – Post Quota
• A Burgeoning middle class resulted in strong
demand in the domestic market.
• Value and production chain was well
developed.
• Exports grew by 19% to reach US$17 billion
in2005-06.
• In 2007-08 textile exports are $20 billion.
Against the target of $25 billion. Registering
a growth of 9.45 against exports in 2006-07
• The textile exports are expected to reach
$50 billion by 2012.
• in 2004, Indian textile and garment industry
was estimated to be worth $30 billion ($16
billion domestic industry and $ 14 billion
exports industry).
• International cotton mill federation
expected the Indian textile industry to grow
18% a year to reach $40 billion by 2010.

17. Indian Garment and Textile Exports

18. Pakistan – An Overview
• Not much impact after abolition of Quota
• MCkinsey report suggested that Pakistan’s exports would
increase by 6% per year to reach $4 billion in the fourth
year of post quota era
• Potential for improving the productivity of the textile
industry in Pakistan
• Large cotton producing country
• It was independent in terms of input sourcing
• From 2002 to 2004,Investment of $4 billion in the textiles
and garments sector to develop infrastructures.
• Room for improvement since the capital equipment was
nearly 11 years old.

19. The age of capital equipment, distribution and median
Pakistan:
Age of capital< years
Apparel % Textiles%
14
22
Age of capital 5-10 years
28
23
Age of capital 10-20 years
35
42
Age of capital >20 years
23
13
Median(years)
12
11
Comparison of input sourcing in the apparel and
textile industries
Pakistan:
Apparel %
Textiles %
Domestic
Imported
59
41
97
3

20. Bangladesh – An Overview
• Garment and textile industry
became a major source of
economic growth.
• Directly employed 1.8 million.
• Originally launched by foreign
investors.
• Korea and HongKong took
advantage of export quotas and
abundance of cheap labor.
• Produced at the low end of the
market where profit margins were
low.
• Highly dependent on US and EU for
exports.
• Accounted for 94% of total
garment and textile exports.

21. Bangladesh: Growth of Garment &
Textile Sector
Year
Export
Share in total Emplo
(US $ Million) Export (%) yment
No. of
factories
1985-86
1990-91
1995-96
1999-2000
131
867
2547
4583
16
50.5
65.6
76.6
0.2
0.4
1.3
1.6
594
834
2353
3200
2001-2002
4349
75.6
1.8
3618

22. After Abolition of Quota
Market share (percent) of Bangladesh in the
United States textile imports
Country
Bangladesh
2001
0.76
2002
0.73
2003
0.64
2004
0.71
Market share (percent) of Bangladesh in the United
States Garment exports
Country
2001
2002
2003
2004
Bangladesh
3.29
2.96
2.72
2.67

23. After Abolition of Quota
• Decrease in market share due to increasing
competition.
• Chinese dominance
Speculation:
• 40% of the factories may go out of business
• Bangladesh will loose 50% of the US market
and 35% of the EU market

24. Challenges faced by Bangladesh
• Will need to move to better quality garments
where margins are higher
• Requires producing better lead times
• Should decrease reliance on input sourcing.
• Investment in backward linkage required.

25. Sri-Lanka – An Overview
Sri Lanka – An Overview
• Stable market for a Quota
based economy because:
• Low labor costs
• Liberal Economic & Trade
Policies
• Tax Benefits
• Concessions granted by the
Govt.
• Due to this it attained 1.2%
market share in the US
garment sector.

26. Garment Industry in Sri-Lank during
Quota
• Complacency
• Low productivity due to lack of proper training
• High cost of electricity compared to other Asian
Countries
• There wasn’t adequate state of the art
technology.
• Sri Lanka had higher labor costs compared to
other South Asian countries.
• Lead time: 90-150 Days
• Internationally Accepted Time: 90 Days

27. Economies of Scale could not be
achieved due to small size of factories
60
50
40
Small
30
Medium
Large
Extra Large
20
10
0
India
Pakistan
Sri Lanka
Bangladesh

28. A Zero Sum Game ?
• Yes, Since China’s Gain resulted in South Asia’s
decreased exports in the garment and textile
industry.
• In a quota free-regime, the market would be
driven by cost and convenience.
• Modern plants, efficient operations and
responsiveness to the market would be the
key ingredients for success

29. Thank You