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25 Feb 2005

Industry

Thailand Braces for Competition and Protectionism: Post-Textile Quotas

คะแนนเฉลี่ย

Full liberalization in textile quotas under World Trade Organization (WTO) commitments that came into effect January 1, 2005, has caused tougher competition between WTO member states in global textile markets. This is particularly true of developing countries where the textile industry is vital to creating jobs and earning export-related income. On one front, they have to compete head-on with other developing countries whose labor costs may be lower, and have other low-cost production potential and raw materials readily available domestically, like in China and India. On another front, exporting countries are also confronted with protectionism adopted by developed countries like the US and European Union (EU) where rules, regulations and conditions are used as trade criteria that automatically raises production costs.

Kasikorn Research Center (KRC) takes the view that liberalization in textile quotas under the WTO initiative will lead to stiffer competition in the textile and garment industry. Under quota systems, exports of textiles and garments were secure in both predetermined export markets and export volume. However, with full liberalization, more competitive WTO member states are being allowed to export their textiles and garments more freely without any export volume cap. Against this backdrop, Thailand's textile industry at each stage of production must be readied for future rivalry. To be specific:
  • Thailand's primary and intermediary industries, including synthetic filaments and yarns, thread spinning, fabric weaving and knitting industries that are not so labor-intensive as end-production garment processes will remain quite competitive and still benefit from the fact that Asian countries are able to export a greater volume of garments and are also more in need of the intermediate products. Asian countries, particularly China, still need these raw materials for garment manufacturing.

In addition, Thailand's entry into FTAs with China and India also eradicates tariff barriers on exports of textile fibers and woven fabrics to these two countries, enabling Thai exports to better compete, because these two countries have high demand for synthetic fibers and fabrics for their garment manufacturing. Moreover, Thailand may focus on developing these materials for greater added value and selling them to garment manufacturing countries that are moving toward becoming major exporting countries, such as China, India, Pakistan and Bangladesh.
  • Down-line industries, i.e., garment and finished cloth industries that are quite labor intensive, are likely to be impacted by textile liberalization more than other production in the textile industry, because they must face export competition with countries that have lower labor costs, e.g., China and India. Such SMEs in Thailand will be most impacted by the increased competition. The export market share of Thai garments and finished cloth has dropped over the last 10 years and been lost to countries that have lower labor costs. However, after liberalization in textile quotas, it is expected that the world's major textile importers like the US and the E.U. will not have to depend on imports of garments and finished cloth from only a few particular countries, especially China, with which the US has a drastic trade deficit. Therefore, Thailand is likely to be able to maintain its market share of the world's garment and finished cloth market.

Therefore, overall, the Thai textile industry should still be able to compete, even though it has to face competition from all directions. Thailand should adjust itself by turning to production of fashion apparel, developing its own brand names, or transfer manufacturing bases to countries that have lower labor costs in order to increase competitiveness. We also need to develop manufacturing processes in the Thai textile industry to link to each other more effectively, and enhance production quality to penetrate the medium- and upper-level export markets with higher purchasing power. ? KRC

Industry

Textile