Europe and Global Value Chains

1. Europe and Global Value Chains Gary Gereffi, Duke University Global Apparel/Clothing Europe Conference at the University of North Carolina, Chapel Hill October 15-16, 2004

2. 4 Themes • Apparel Value Chains: Dispersion and Consolidation • The Emergence of Central and Eastern Europe • The Impact of Quota Phase Out in 2005 • What Is Europe’s Future Role in Global Apparel Sourcing?

3. Apparel Value Chains: Dispersion and Consolidation

4. Apparel Value Chain: Dispersion • 1970s - Global buyers source from East Asia • Retailers –JC Penney, Kmart, The Limited, Gap • Brands – Liz Claiborne, Nike, Polo, Calvin Klein • 1980s – U.S. buyers use East Asian firms to source from new locations under quota system • 1990s – Central and Eastern Europe expand OPT with EU • Mid-1990s – Post-NAFTA: Mexico shifts from assembly (maquilas) to full-package production for USA • 2000 – AGOA grants tariff preferences to sub-Saharan Africa • 2005 – Quota phase out … and globalconsolidation!

5. Apparel Value Chain: Consolidation • Buyers -Wal-mart is largest U.S. apparel retailer and buys 14% of all Bangladesh garment exports • Suppliers • Li & Fung (Hong Kong trading company) has offices in 56 countries and 400 factory relationships • Supply chain rationalization: fewer, larger factories • Countries • Apparel exports from China account for 20% of world total ($41.2 B in 2001)

6. Global Consolidation: China and Wal-Mart

7. Figure 1: Northeast Asia's Apparel Exports to the World (SITC 84), 1985-2001 Source: World Trade Analyzer, based on United Nations data for SITC 84 (“Articles of apparel and clothing accessories”).

8. Figure 2: Shifts in the Regional Structure ofUS Apparel Imports from 1990 to 20031 North America Central America and the Caribbean 5 4 Canada Northeast Asia South Korea Dominican Republic 3 Macau Guatemala ElSalvador 2 Hong Kong Honduras Costa Rica Taiwan 1 Mexico China Singapore Malaysia Philippines Turkey Indonesia Thailand Italy Vietnam Cambodia Europe Southeast Asia Bangladesh The rings indicate the share of total U.S. imports in U.S. dollars by partner country: 1. 10% +2. 6.0% - 9.9%3. 4.0% - 5.9%4. 2.0% - 3.9%5. 1.0% - 1.9% Total value of U.S. clothing imports was $25.0 billion in 1990 and $68.1 billion in 2003. Sri Lanka India Coming on Strong Jordan Peru Colombia Russia Lesotho Pakistan South Asia 1The 2003 position corresponds to the ring where the country’s name is located; the 1990 position, if different, is indicated by a small circle. The arrows represent the magnitude and direction of change over time. Source: Compiled from official statistics of the U.S. Department of Commerce, U.S. imports for consumption, customs value.

9. The Emergence of Central and Eastern Europe

10. Table 1

11. Table 2

12. Table 3

13. Other Europe Switzerland Northeast Asia Eastern Europe and ex-USSR Taiwan 5 Lithuania South Korea 4 Poland 3 Hungary Malaysia Turkey China Czech Republic Romania H Kong Indonesia 2 Singapore Vietnam 1 Bulgaria Bangladesh Thailand India Morocco Tunisia Sri Lanka USA Pakistan South Asia North America Mauritius Africa Figure 3: Shifts in the Regional Structure of EU 15Apparel Imports from 1990 to 2001 Southeast Asia The rings indicate the share of total European imports in U.S. dollars by partner country: 1. 10% +2. 6.0% - 9.9%3. 4.0% - 5.9%4. 2.0% - 3.9%5. 1.0% - 1.9% Total value of extra-regional European clothing imports was $22.8 billion in 1990 and $51.3 billion in 2001. 1This chart excludes intra-European trade among the 15 member states of the EU (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom). Total apparel imports are for the EU countries. Source: World Trade Analyzer, based on United Nations data for SITC 84 (“Article of apparel and clothing accessories”).

14. Table 4Top 10 Suppliers of Apparel to the European Union -- 1989, 1994, 2000(% of total EU apparel imports)

15. Table 5Major Apparel Trading Partners in East-Central Europe and the European Union, 2000(% of total apparel exports to EU)

16. The Impact of Quota Phase Out in 2005

17. Figure 4: Shifts in the Regional Structure of Japanese Apparel Imports from 1990 to 2001 5 Taiwan Europe Northeast Asia France 4 3 United Kingdom Italy 2 Hong Kong South Korea 1 China Indonesia Thailand USA North America Vietnam The rings indicate the share of total Japanese imports in U.S. dollars by partner country: 1. 25% +2. 10.0% - 24.9%3. 4.0% - 9.9%4. 2.0% - 3.9%5. 1.0% - 1.9% Total value of Japanese clothing imports was $8.6 billion in 1990 and $19.9 billion in 2001. Southeast Asia N.B.: From 1990 to 2001, South Korea’s share of Japan’s apparel imports fell from 29 percent to 4.3 percent, while China’s import share of the Japanese apparel market grew from 19.3 percent to 66.6 percent.Source: World Trade Analyzer, based on United Nations data for SITC 84 (“Articles of apparel and clothing accessories”).

18. In 2005, Multi-Fiber Agreement Ends Quota Abolition from 2005 MFA (1974 – 1994) ATC (1995 – 2004) Jan. 1, 1998 Another 17% Integration Jan. 1, 2002 Another 18% Integration Jan. 1, 2005 100% Integration Jan. 1, 1995 16% Integration Source: World Trade Organization.

19. U.S. Integration Schedule Established by CITA(Committee for the Implementation of Textile Agreements)

20. Table 6 Source: Financial Times, July 19, 2004, p. 11.

21. Table 7 Source: Financial Times, July 19, 2004, p. 11.

22. MAJOR TRENDS IN THE POST-QUOTA WORLD China will benefit most from end of MFA Consolidation is likely to accelerate • More mega-factories will emerge post-2005 • Retailers will cut down on the number of sourcing countries Remaining factories will have to provide higher level services (logistics, customs clearance, and product design) Time to market considerations will allow regional producers to maintain a role in apparel sourcing Pressures for “ethical sourcing,” corporate codes of conduct, independent monitoring and labor standards will grow

23. What Is Europe’s Future Role in Global Apparel Sourcing?

24. Research Questions • What are the distinctive features of full-package production in Eastern and Central Europe? • Does full-package apparel production constitute upgrading or downgrading for ECE economies? • How extensive are the benefits to local workers and firms of OPT and full-package production within the ECE region?

25. Policy Issues • How will the major apparel exporting countries adjust to quota phase outs? • What can governments and EU authorities do to promote upgrading within the apparel value chain of Eastern & Central Europe? • What policies and institutional conditions foster industrial diversification and inter-chain upgrading beyond textiles & apparel?