The crisis happened because importers, perhaps to beat an anticipated garments quota agreement between Europe and China, ordered more than they did the previous year and had the orders delivered quickly. But Europe and China signed the quota agreement before the orders made it to European ports. By the time the shipments arrived, it was determined that the newly agreed quotas were breached in several categories, from men’s trousers to ladies’ undergarments.
The new garments quota agreement was resorted to because some European countries felt that the lifting of quotas enabled China to dramatically increase its exports to Europe to the detriment of its own garment manufacturing industry. Located mostly in France, Spain, Italy and Portugal, European garment makers could not compete with China’s lower manufacturing costs. The Northern countries, Germany, Denmark, Sweden didn’t mind the Chinese onslaught and were even glad to give their consumers a break in terms of lower prices.
But Europe had to take a unified stand and China didn’t want to antagonize the Europeans at this point, so the new quota agreement was reached fairly quickly. They did not, however, realize the administrative nightmare that would be created by the "midnight importations". A sense of urgency developed on the need to resolve the issue quickly because, as The Economist puts it, "dire threats of bankrupt stores and topless consumers" were made.
A new agreement to cover the problem at hand had to be re-negotiated and last week, it was signed in Beijing and ratified a few days later by all EU member nations. All shipments caught in European ports would be released, half of those charged to next year’s quota. Everyone appears happy with the outcome. The department store shelves would have their supply of vital undergarments and European women won’t have to go bra-less this winter, unless they want to.
So, where do we come in? I was just thinking that perhaps, if our trade officials are quick enough, the quota restrictions being imposed on "made in China" garments should open a window of opportunity for our garment manufacturers to diversify their market beyond the United States.
Of course India and Pakistan are better organized to fill in the gap left open by China, and they are probably more efficient which translates to lower costs. But the "bra wars" would probably encourage European importers to hedge better by ordering from a wider selection of countries. Why shouldn’t we be one of those they could order from?
This is an opportunity we shouldn’t miss. India and Pakistan, due to the size of their garments industry, could find themselves in the same situation China found itself this year. This is where we can come in.
Gordon Brown wants European countries to work harder to become globally competitive. He is effectively blaming some EU members for being so uncompetitive in something so low in the value chain as garments, to make protectionism necessary. Mr. Brown suggests the adoption of a new social and economic model instead.
"That is why success in the global economy depends on a new social and economic model. First, because comparative advantage lies in the technology driven and high value added sectors, we need a highly skilled workforce. Second, because occupations will become redundant quicker than ever before and because employment is the most effective means of tackling poverty, we need labor market reform that matches flexibiliy and fairness. Third, greater competition and less regulation are needed in order to enable companies better to compete. Fourth, because global trade and investment are central to future prosperity, we need greater external openness."
It is funny but Mr. Brown’s prescription to his fellow Europeans is also applicable to us in the developing world. "The new protectionism we are seeing, however well intentioned, is a wake up call because it is the last stand from those who believe we can stop the clock, postpone or prevent inevitable change." Unfortunately, politicians, whether they are Europeans, Americans or even Filipinos, cater to what is popular in the here and now, without looking out into where trends are taking us into the future. Nothing is easier than to put up protectionist walls. It is tougher to take the necessary steps to improve competitiveness for the long term.
As Mr. Brown pointed out, nations today ought to make large investments on people, educating them to enable them to get the skills needed to take on jobs in the higher value added sectors of the economy. Effort must be made to equip people for the future, investing in new skills.
He disputed common accusations that with China’s lower labor costs, it is a race to the bottom. Rather, he warned today’s trading environment is a race to the top as both China and India are investing in technology, innovation, science and skills as they produce four million extra graduates every year.
It is strange that Europeans are being protectionist on "a relatively low-tech business in which profit margins are cruel and labor costs can make the difference between success and failure." They must have problems! And the "bra wars" certainly exposed them.
From a macro economic perspective, putting cash directly in the hands of the jobless masa, which they would immediately spend to buy necessities, gets the economy moving, a form of pump priming. But it also shows the failure of government to spur the economy to generate more productive jobs to absorb our army of unemployed/unemployables.
I also wonder if that number of poor actually worked or went through the motions of seeming to work. I wonder if politicians merely listed fictitious names in payrolls and collected the fairly large available public funds for themselves. In this case, there is no benefit to the economy. It is even possible that these politicians converted the money to foreign exchange for their foreign excursions or more likely, they might have bought imported luxury products that benefit other economies.
I know I did not see that many people on our roads. Did you?
It takes two things to be a highly paid consultant – gray hair and hemorrhoids.
The gray hair makes you look distinguished and the hemorrhoids make you look concerned.
Boo Chanco’s e-mail address is bchanco@gmail.com