Cablegate: South African Apparel Industry -- Struggling

This record is a partial extract of the original cable. The full text of the original cable is not available.




E.O. 12958: N/A


1. Summary. The South African apparel industry is struggling
because of increased imports, mostly from China, and a
decrease in exports. The attractiveness of low-priced quality
merchandise from China combined with the effects of the
stronger rand is hurting its ability to compete. Total
imports into the United States of South African apparel
declined by 43.6% and textiles by 5.7% during the first seven
months of 2004 compared to the same period in 2003. The
subtotal of AGOA textiles and apparel imports has also started
to decrease. Industry expects that the expiration of apparel
quotas will make the situation even more difficult. Labour
unions and industry are calling on the South African
government for help. End summary.

2. A leading representative of South African clothing
exporters told econ officers on October 7 about the industry's
difficulties in remaining competitive in both local and
foreign markets. He said SA Statistics indicated apparel
imports from China had increased from 123 million garments in
2002 to 235 million garments in 2003. He could not be sure
that all of this increase was actually staying in South Africa
or going to other countries in the region, but there was no
question that the increase in Chinese apparel imports was
huge. He acknowledged that most of the competition from China
was legitimate in the sense that that country was producing
good quality clothing at low prices. He also cited the strong
rand as having a major negative impact on the SA apparel
industry's competitiveness.

3. According to the United States International Trade
Commission data, the total value of South African apparel and
textiles exports to the United States fell by 43.6% (apparel)
and 5.7% (textiles) during the first seven months of 2004
compared to the same period in 2003. U.S. imports of South
African apparel exports amounted to $142.9 million in the
first seven months of 2003 but declined to only $80.7 million
for the same period in 2004. AGOA apparel also decreased from
$69 million to $63.9 million during this period, representing
a decrease of 7%. Textile exports amounted to $19.8 in the
first seven months of 2004, down from $21 million for the same
period in 2003.

4. The Textile Federation of South Africa regards the
strength of the local currency as the main reason for the
decline in apparel export values to the US. The rand
appreciated by 29% against the dollar between January 2003 and
July 2004. It traded on average at R8.68 to the dollar in
January 2003 but appreciated to R6.13/$1 in July 2004. The
president of the Textile Federation of South Africa lamented
that no textile or clothing firm in the world can compete in
an environment where a currency appreciated by such an extent
against the dollar.

5. The strength of the rand has reduced earnings from exports
as well as the industry's ability to price its products
competitively in world markets. This has resulted in a loss of
market share to other exporting countries. Both industry and
labor argue that the rand should trade between R9 and R10 to
the dollar in order to ensure the competitiveness of the local
industry in international markets.

6. The South African Textile Federation also bemoan the strong
rand as largely responsible for the increased apparel imports,
especially from Asian countries. It said that China has
increased its share in clothing imports into South Africa from
27% in 1996 to 86% so far in 2004. The South African textile
industry complains that the low production costs in China and
other Asian countries makes it difficult for domestic
companies to compete. It further charges that manufacturers
in Asia get such enormous support from their governments that
the only real cost they experience is labor, which is about
one-tenth of the South African textile industry average. The
reduction of import protection and inflow of illegal clothing
imports exacerbates the negative effect of cheap imports. As
a result, many local manufacturers have had to prune their
operations, incurring closure and retrenchment costs.
7. The Textile Federation of South Africa predicts that the
expiration of textiles and apparel quotas under the World trade
Organization's (WTO) Agreement on Textiles and Clothing (ATC) on
January 1, 2005 will result in a substantial increase in the world
market share for Asian countries, and worsen the already
depressing situation. Both the trade union movement and the
apparel industry have expressed fears that importers in Canada,
the United States and the EU will move to import cheaper goods
from China rather than from South Africa. China's textile
industry is enormous compared to the South African industry. In
terms of world-installed capacities for spinning and weaving,
South Africa represents only 1% of that of China.

8. Labor unions are lobbying the government to intervene and
postpone the scrapping of China's export quotas, but also to
support the depreciation of the rand. The domestic industry is
trying to rescue itself by implementing measures such as the
"Buy South African" campaign, which encourages manufacturers
to source 50% of products locally. Industry is also putting
increasing pressure on retail chains to sell locally produced
clothing. The industry and trade unions have formed a task
team to advise government on the impact of tariffs and quotas
on the textile and clothing industry. They may recommend that
the government consider such measures as voluntary restraint
and various co-operative safeguard mechanisms in order to
protect local industries from Chinese and other competitors.

9. According to South African industry sources, the South
African government has told them it will not push for a re-
negotiation of the demise of the ACT in Geneva because "a deal
is a deal."


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