Monday, January 24, 2005

Cotton Underwear

Some new statistics indicate that El Salvador may be one of the victims of liberalization of trade rules around the world. On January 1. 2005, the last elements of a 30 year-old quota system for the global apparel trade were eliminated. The old system had provided quotas for the apparel goods which each country could sell in international trade. An article from the Los Angeles Times describes the working of that system. With quotas in place, many third world countries, including El Salvador, were able to develop apparel industries, because companies in the United States and elsewhere in the North had to purchase from a wide variety of countries. (This does not mean that the jobs created were good jobs -- the abuses of workers' rights in the garment maquiladoras in El Salvador are well-documented). With quotas eliminated, retailing giants like Wal-Mart and J.C.Penney are free to purchase from a much smaller number of countries where the labor is cheap and the factories are efficient, primarily China. As the LA Times article puts it:

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 quota system.

The massive manufacturing shift will be a windfall for billions of people, bringing huge savings to consumers and accelerating the transfer of jobs to engines of low-cost production in China and India.

But it could cripple economies across Latin America, Africa and Asia.

Now there are statistics showing that the movement away from El Salvador may already have started. El Salvador, it turns out, is the largest supplier of cotton underwear to the United States. But according to an article on the Emerging Textiles web site, that market share took a dramatic turn downward at the end of 2004. The article reports the dry statistics from the Commerce Department and comes to this conclusion:
El Salvador could be the first victim of the post-quota era after its apparel exports to the United States dramatically fell in October and November, according to latest US statistics. The tiny country is rapidly losing ground in major category 352 (cotton underwear), due to a fall in the US market added to a surge in imports from Asia.

Although difficulties currently faced by El Salvador are not a surprise, the decrease in sales to the United States is much more significant than expected.

US apparel imports from El Salvador were down nearly 30% in volume terms in November after already sliding 22% in October, compared with the same months of 2003.

The November result is in sharp contrast with an overall increase of 22% in US apparel imports in the same month.

Basing an economy on trying to attract more maquiladora-type manufacturing operations is not a recipe for success. The enormous challenge for El Salvador is to develop an economy which is not so greatly exposed to the whims of the international markets, whether the markets are for coffee or for cotton underwear.

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