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Smoothing a bumpy road
Published in Al-Ahram Weekly on 16 - 12 - 2004

If several vital issues were resolved, the Egyptian textiles and clothing industry would have a much better chance of competing in a changing global market. Mona El-Fiqi reports
Although Egypt's textiles sector will be forced to compete with international players when quotas are removed in 2005, the industry has enough potential to survive the bumpy road ahead. That is the prognosis delivered by an American Chamber of Commerce (AmCham) study that looks at the sector in light of the industry's integration into the World Trade Organisation (WTO) by 2005.
The WTO aims to regulate the liberalisation of international trade by reducing tariff and non-tariff barriers in order to ensure equal treatment for all trading countries, and avoid discrimination in the terms and conditions of access to markets.
Trade in textiles and clothing has always been exempted from the WTO's rules, since members recognised its sensitivity and importance to importing and exporting countries.
But according to the Multi-Fibre Agreement (MFA) and the Agreement on Textiles and Clothing (ATC), 2005 will finally mark the end of nearly 50 years of restrictions on the textiles and clothing trade.
The disappearance of quotas is expected to highlight numerous tariff and non-tariff barriers. According to the AmCham study, there is likely to be a rise in anti-dumping and countervailing duty cases, which will pose a real threat to exports from developing countries. Textiles manufacturers will also be subject to more random checks by customs officials to ensure that trans-shipment activities are not taking place. If a company cannot provide the required information, customs will automatically ban this company from exporting to the US or EU. "There is a concern that access to developed markets will be significantly reduced due to consumer boycotts and non- labelled goods," the study said.
The market will mainly be open to those relatively large, more efficient suppliers who have exceeded their quotas or are close to fulfilling them. Removal of quotas on cotton yarns, for instance, will expose Mediterranean exports to increased competition from countries with efficient yarn industries and large export capacities, which have fully utilised their quotas. China, for instance, could capture 50 per cent of the global textile and clothing market in 2005, the study said.
For Egypt, the EU and the US have been the major source of textiles quotas. Together, the US and the EU consume approximately half of Egypt's textile exports, and over 90 per cent of its clothing exports. The removal of quotas will force Egyptian textiles products into fierce competition with global players like China and Turkey which were previously constrained by binding quotas. "In 2005, the textile and clothing business in Egypt will face tougher competition in both the local and international markets," the study said
Moreover, mounting regional competition will crowd out local and foreign investment, if not offset by preferential trade agreements.
While some of the constraints being faced by the Egyptian textiles industry are more general, since they influence export growth across all sectors, others are more specific to textiles. One of the foremost obstacles to the enhancement of the Egyptian textiles industry, according to the study, is the government's cotton pricing policy and the high level of taxation that discourages farmers from growing cotton. The study argued that government intervention in the cultivation and distribution of cotton has made the government a cotton market monopolist.
Another serious obstacle is the bureaucratic nature of customs procedures and the exorbitant government fees that represent a real financial burden for the industry, and restrain its competitiveness. Other barriers mentioned in the study are high customs charges on air transportation, insurance costs, overwrought security measures, outdated technology and old machinery, as well as poor maintenance in the public sector companies, all of which tend to restrain productivity.
At the same time, Egypt has tremendous potential to compete in international textiles markets. The Egypt-EU Association Agreement and Qualified Industrial Zone (QIZ) deals, for instance, provide amazing opportunities for Egypt to export textiles to Europe and the US, respectively.
Another advantage highlighted by the study is that Egyptian wage levels are among the lowest in the world, with the average wage of an Egyptian textile worker -- at $110 per month -- representing just 19 per cent of what their Turkish counterparts make, 35 per cent of wages in Tunisia, and eight per cent of those in Israel.
The Egyptian government is currently in the midst of an extensive reform scheme meant to improve investment, taxation and customs procedures, which should subsequently reduce the cost of doing business. Recent cuts in tariff duties on raw materials, capital goods and inputs to the textiles industry should also provide incentives for the local industry.
The government's decision to cancel tariffs on imported machinery and equipment should also accelerate technology transfer. The devaluation of the Egyptian pound has also improved the price competitiveness of local production versus foreign production.
Another prospect for developing the textiles industry is Egypt's privatisation policy. The study explained that although a small number of public textiles companies have been privatised, the government is considering restructuring the non-privatised companies. The Industry Modernisation Programme (IMP) also plays an important role in restructuring the spinning and weaving sector.
The study recommended the acceleration of macroeconomic reform policies and the forming of alliances with European textiles companies to attract investment into the country. Recommendations also included enhancing productivity, monitoring labour efficiency and strengthening infrastructure.
The textiles industry is currently one of the Egyptian economy's most important sectors. Its strategic nature is derived from its large size in terms of investment, employment, credit and export earnings. It accounts for 27 per cent of total industrial production, making it second only to the processed food industry. It contributes to 11 per cent of manufacturing GDP, representing 3 per cent of total GDP. It is also an important foreign exchange earner.
The textiles industry derives its social importance from being a large employment absorber and income generator, with 25 per cent of industrial labour working in textiles, which represents seven per cent of Egyptian labour as a whole -- all of which means that not realising its potential would be very drastic indeed.

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