The General Secretary of the SACC has sent the following memorandum to the International Trade Administration Commission (ITAC) as a supporting appendix to a letter calling for the imposition of quotas on textile imports from China.

MEMORANDUM ON PROPOSED QUOTA ALLOCATION CRITERIA FOR TEXTILES AND CLOTHING ORIGINATING FROM THE PEOPLE'S REPUBLIC OF CHINA (NOTICE 1285 OF 2006, GOVERNMENT GAZETTE 29187)

On 5 July 2005, the Southern African Clothing and Textile Workers' Union - supported by a number of industry associations - submitted an application for safeguard measures on certain clothing and textile imports from China, in terms of China's Protocol of Accession to the World Trade Organisation. The application followed several years of a dramatic surge in imports from China, which resulted in serious injury to the South African fashion manufacturing industry, resulting in large numbers of job losses through factory closures and large-scale retrenchments. This resulted in severe social hardship for tens of thousands of workers and their families - with the impact concentrated in some of the poorest areas and the most vulnerable families and communities.

The application submitted by SACTWU covered only those product categories where there was sufficient local manufacturing capacity to warrant protection, the import surge was particularly severe and where the jobs impact of the injury was greatest. The application listed 38 products, covering clothing, textiles and footwear. As required by the applicable trade agreements, the Department of Trade and Industry initiated consultations with the government of the People's Republic of China with a view to voluntary measures to temporarily limit exports to South Africa these product categories. Following lengthy negotiations, and further consultation with local stakeholders, a Memorandum of Understanding was concluded and initiated on behalf of the governments of South Africa and China in the presence of President Thabo Mbeki and the Chinese Premier, Wen Jiabao on 21 June 2006. The agreement set quantitative targets for imports of 31 products for a fixed period and, for clothing, covers 24 of 73 products in the South African tariff book. The number of textile products covered is negligible when compared to those not covered.

If implemented in conjunction with a comprehensive strategy to rehabilitate and position for the future the South African clothing and textile manufacturing industries, the measures pursuant to the MoU will substantially contribute to the prevention of further employment and capacity loss, and in fact the creation of up to 55 000 new jobs. In the context of pervasive poverty and unemployment, and socio-economic challenges like HIV/AIDS, the speedy implementation of this agreement is imperative. The immediate implementation is particularly critical given the importance of the Christmas shopping season to the local fashion manufacturing industry.

Background

As mentioned above, a sharp, severe and sustained surge in imports of clothing, textile and footwear products from China, especially since 2003, has resulted in serious injury to the South African industry, manifesting in the closure and liquidation of factories and the large-scale retrenchment of workers. Since the beginning of 2003 alone, almost 67 000 jobs have been lost. These job losses are continuing at a rate of around 1 000 per month in 2006. The social impact of these job losses is devastating - resulting in poverty and hardship for the families and communities of the retrenched workers. The number of individuals directly affected run into the hundreds of thousands and, in some areas, whole communities are indirectly affected. Some of the worst-affected areas, such as Dimbaza in the Eastern Cape have been turned into industrial ghost towns by the collapse of the clothing and textile manufacturing industries there. The impact is disproportional on women (who make up the majority of workers in the sector) and on the poorest communities; it exacerbates the effects of other social challenges such as HIV/AIDS.

To provide a sense of the continuing scale of the crisis, the table below sets out the employment figures for the industry (clothing, textile and footwear) as collected by Statistics SA for March 2003 (before the surge of imports started) and March 2006:

Employment: CTF industry

This is confirmed by the job losses for the period 2003 to July 2006 as recorded by the SA Labour Research Institute (SALRI):

Job losses: CTF industry

That these job losses are to a large extent attributable directly to imports from China is clear from their correlation with trade figures for the period. Imports of clothing products from China increased by 480% between 2002 and 2005 (in US Dollar value) and of textile products by 218%. As can be seen from the year-on-year increases, included in the summary table below, the import surge accelerated in 2003, with further massive increases between 2003 and 2004. The surge continued in 2005.

Imports: Chinese clothing and textiles

It is notable that during this same period the major clothing retailers realised record profits, indicating that a small number of companies are benefiting at the expense of employment in the local manufacturing industry. The five largest retailers (Edcon, Mr Price, Foschini, Truworths and Woolworths) made a combined pre-tax profit of more than R18.1 billion over the same period that 67 000 jobs were lost in the fashion manufacturing industry. Profits increased significantly every year since 2001.

The table below indicates the pre-tax profit made by the five largest retailers since 2003, as well as the year-on-year increases:

Retailers: annual pre-tax profits

A comprehensive plan to reposition the clothing and textile sector

Trade measures with respect to China to which the Memorandum of Understanding gives effect form but one, albeit indispensable, element of a comprehensive strategy to reposition the clothing and textile sector for future competitiveness and growth. Over the last number of years the crisis caused by the surge in imports has resulted in manufacturers being almost exclusively focussed on short-term survival, resulting in a neglect of strategies to ensure longer-term competitiveness. The implementation of the trade measures will allow critical breathing space, which is necessary to effect the changes necessary in this regard. Without this breathing space the opportunity is likely to be lost, resulting in the irretrievable loss of manufacturing capacity and employment.

This comprehensive plan to reposition the industry has three main elements:

1. temporary trade measures with respect to China;
2. a competitiveness package for the local industry; and
3. an active 'buy local' campaign to leverage consumer choice.

Agreement has been reached by all stakeholders, including government, labour, manufacturers and retailers on a sector development strategy known as the Customised Sector Programme (CSP) for clothing and textiles. The CSP identifies six strategic themes and 15 projects with clear interventions and outcomes. The strategic themes are:

• domestic market development
• exports
• competitiveness
• sustainable human resource policies
• empowerment and
• a partnership for the sector.

It is estimated that the full implementation of the trade measures and the interventions identified in the CSP will result in the reversal of the trend of decline and the creation of 50 000 to 60 000 new jobs in the fashion manufacturing industry.

Capacity of the local industry

The South African fashion manufacturing industry has traditionally provided the vast majority of the items sold in South African retailers. However, the capacity of the industry to supply appropriate products in the requisite quantities has increasingly been eroded by the market disruption and injury caused by the rapid surge in imports, especially from China. Unless the trade measures envisaged in the Memorandum of Understanding are implemented without delay, the continued ability of the industry to manufacture at the requisite quantities cannot be guaranteed. In the interests of the future viability of the fashion industry as a whole - manufacturing and retail - it is therefore imperative that these measures, together with the comprehensive plan for the development of the industry is implemented without delay.

It is particularly important that these measures, together with others such as the major 'buy local' campaign being prepared by the Proudly South African initiative be implemented in time for the Christmas 2006 holiday shopping season. This is the most important period of the year for the retail and manufacturing industries and this year's holiday season is critical for the retention of manufacturing capacity in South Africa.

Following the notice in the Government Gazette, 1285 of 2006, SACTWU contacted certain clothing companies to ascertain their capacity to produce in the 24 affected product categories. Within 24 hours of a request made to companies to indicate whether they have spare production capacity, 70 factories have advised that they have additional capacity that may be tapped into with immediate effect.

Proposed criteria

The surge in imports from China has occurred in a wide range of products since especially 2003. In order to address this adequately, a greater number of products would have needed to be included in the measures and the quotas and increases calculated based on the 2002 levels. However, given the urgency of the matter, and in view of the very serious injury already suffered, we support the introduction of the quotas on the 31 products listed on the SARS website, as contained in the Memorandum of Understanding between South Africa and China.

Notice 1285 of 2006 sets out a proposed quota allocation criteria to give effect to the Memorandum of Understanding. The basis for the criteria is the historic import levels accorded per importer. It is recognised that this criteria rewards companies that have imported more than their competitors and this is a distinct disadvantage. However, on balance, we believe the benefits of the proposed criteria outweigh the disadvantages. The proposed system is objective, based on verifiable information and easier to administer than, say, a system based on application and motivation by each actual or potential importer.

We believe that the proposed criteria is the best way in which the damage to South African manufacturers may be limited under the circumstances, and that any delay in its implementation is likely to cause serious injury and catastrophic loss of employment to the sector.

Concluding comment

The SACC through participation in the Save Jobs Coalition submits this memorandum in full support for the submissions of COSATU and SACTWU. Further, we urge government to monitor the employment impact of the mechanism agreement, and in the event that the impact is not as positive as expected, that the agreement with China be reviewed, particularly with a view to including a greater number of products under the measures and/or extending the period of the quotas.