Trading Down

Trading Down

In less than five years, the garment industry in poor, war-ravaged Cambodia has more than doubled into a $1.5 billion industry employing 200,000 workers and generating nearly three-fourths of the


In less than five years, the garment industry in poor, war-ravaged Cambodia has more than doubled into a $1.5 billion industry employing 200,000 workers and generating nearly three-fourths of the country’s exports. This rapid growth was stimulated by an unusual 1999 bilateral trade agreement that increased Cambodia’s share of the US market as the government made progress protecting labor rights. The agreement–monitored by the International Labor Organization–gave unions freedom to organize one-fourth of the garment industry into independent unions, whose strikes in 2000 boosted industry wages by about 25 percent. Now the small yet tangible progress workers have made, and many of their jobs as well, are in jeopardy.

Ironically, the threat to poor countries like Cambodia comes from a change in international trade regulations they championed for years. Many of them are having second thoughts.

Since 1974 garment and textile exports to the United States have been governed by the Multi-Fiber Agreement (MFA), which gave developing countries quotas for specific products exported to the United States and Europe. Designed to protect garment and textile industries in rich countries as they adjusted to growing imports, it spread apparel production to a larger number of poor countries. When the World Trade Organization was established ten years ago, the rich countries–in exchange for new rules protecting intellectual property and investment rights–agreed to phase out the MFA, which has cost developing countries potential jobs.

On December 31 the last of the quotas ends. But contrary to the expectations of a decade ago, many poor countries will actually lose millions of jobs when the quotas expire. China, the new low-wage industrial superpower, is expected to quickly capture the lion’s share of the global apparel and textile industry. China will not simply take jobs from North Carolina and Los Angeles; over the past four years the United States has lost 350,000 garment and textile jobs, and probably more than half the remaining 700,000 are at risk. Even more devastating, China is likely to displace large parts of the apparel industry that is crucial for many developing countries, like Bangladesh (forecast to lose 1 million out of its 1.8 million apparel jobs), Mexico (where 90 percent of export jobs are at high risk) and poor African countries like Mauritius and Lesotho (84 percent at high risk).

Within a few years, the World Bank and WTO estimate, China will capture half of world clothing exports–double its current share–and make 50 percent of all clothing exported to the United States, up from 16 percent. But recent experience in markets without quotas suggests that China could quickly take 70 percent of the US market. Although some high-end, quick-turnaround apparel and textile work will stay in the advanced countries and nearby lower-wage suppliers, like Mexico and Eastern Europe, China will dominate overwhelmingly.

China has enormous advantages. It has a huge untapped labor force and extremely low, if not always the world’s lowest, wages–averaging from 15 to 86 cents an hour in the garment industry, by various estimates. It also has raw materials; its own textile industry; a massive influx of capital, modern technology and management expertise (much from Hong Kong and Taiwan); a well-developed infrastructure in coastal industrial zones; and the ability to provide comprehensive manufacturing packages to the huge retailers that dominate the global industry. Those companies want to get products from a few countries, not dozens. China’s currency, linked to the rapidly weakening dollar, is said to be undervalued by at least 40 percent, making its exports artificially cheaper.

China also suppresses independent unions and maintains an internal passport system that deprives migrant workers, who form the bulk of the export-manufacturing workforce, of many basic rights. According to an AFL-CIO trade petition prepared by Columbia University law professor Mark Barenberg, “repression of workers’ rights lowers Chinese wages by 47 to 86 percent.”

After years of demanding an end to the MFA, now the apparel and textile industries, labor unions and governments of many developing countries are deeply worried. Some want continued quotas or at least WTO monitoring of their adjustment difficulties, but China–supported by India, which hopes to be a post-quota winner, too–is fighting any revisions. The US industry wants temporary “safeguards” against surges in Chinese imports; the Bush Administration has approved some safeguards–for bras and socks, for example–and is considering others. Free-trade enthusiasts decry such protection but rarely demand meaningful income support, retraining and community redevelopment for workers who lose. In any case, the Administration is not likely to restrict China much, since it is more aligned with Wal-Mart than with manufacturers and depends heavily on China to finance US budget deficits (and thus Bush’s tax cuts).

Recently China announced it would impose its own export tariffs, which it hopes will head off European and US restrictions, push its own industry toward high value-added products and mollify poor countries. It’s a smart move, but the tariffs are unlikely to be high enough to alter the basic forecast.

The MFA debacle demonstrates dramatically why linking labor rights to trade would, ironically, help poor countries even more than the rich, since the poor have fewer alternatives in the race to the bottom. If workers could freely organize in China, garment workers in Cambodia and Mexico would be less vulnerable, and spending by Chinese workers with higher wages could support both Chinese and global growth. But developing countries have been pushed into a development model of repressing labor and exporting, mainly to the United States. Now with the United States suffering record trade and budget deficits, overextended consumer credit, stagnant wages and sluggish job growth, relying on the American market is even less sustainable. With so much American manufacturing already gone, it will be harder even for a weaker dollar to reverse the trade deficit by expanding exports, and there is no domestic alternative to many imports.

The coming massive shift of garment and textile production also shows vividly why “free trade” by itself is not the path to development. With a huge supply of cheap labor for a global industry dominated by companies like Wal-Mart that intensify pressures to cut costs, there are two ways to distribute global production. “One is the way we’re heading–no rules, let the price mechanism do it. That will lead to the most brutal competition imaginable,” says Mark Levinson, trade economist for UNITE HERE, which represents US garment and textile workers. But there could be rules that reward countries and companies that respect worker rights and raise living standards, both crucial to comprehensive development. This was the neglected path for trade and development initially laid out after World War II for the proposed International Trade Organization.

For the moment, there is little hope for comprehensive new rules. Likewise, despite waves of strikes in China in recent years and even stirrings at the government-controlled All-China Federation of Trade Unions, there are no immediate prospects for gains by Chinese workers. Cambodia hopes companies now contracting there–like Gap, Liz Claiborne and Nike–will calculate that sourcing from a country trying, however imperfectly, to protect labor rights is worth the extra cost. That strategy also depends on the success of pressures on those firms from consumers and activists not to run to China. Although minuscule, a few companies hope to carve out a “clean clothes” niche market and set an example for the industry. For example, after a Taiwanese owner closed his El Salvador factory because workers formed a union, an international campaign helped the workers reopen as Just Garments, which is partly worker-owned. At the retail end, No Sweat Apparel, a fledgling firm and also a Just Garments client, sells sneakers and clothes made only in unionized shops in developing countries.

But the prospect of the China threat is already taking its toll with plant closings and erosion of worker rights. Governments in the Philippines and Bangladesh recently reduced labor standards to compete, and in Cambodia two prominent union leaders were assassinated earlier this year. That is just the beginning of the grisly toll facing some of the world’s most vulnerable workers and poorest countries in the years to come.

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