End of quotas sends UAE garment units overseas
\nby VM Sathish on Saturday,January 19,2014
\nEmirates Business 24\/7, United Arab Emirates<\/p>\n
<\/p>\n
Hopes of a revival of the UAE\u00e2\u20ac\u2122s garment industry have been hit by the suspension of talks with the United States on a free trade agreement. And delays to negotiations between the Gulf Co-operation Council and the European Union \u00e2\u20ac\u201c the longest ever for a free trade pact \u00e2\u20ac\u201c have added to the gloom.<\/p>\n
The industry flourished until January 2005 when the garment quota system \u00e2\u20ac\u201c which gave guaranteed access to markets in the US and Europe \u00e2\u20ac\u201c was scrapped. Many of the 400 factories across the Emirates have either closed or shifted operations to countries that still have preferential access such as Bahrain, Oman, Jordan, Egypt, Morocco, Kenya and Bangladesh. But the managers of 20 large units still operating in the Jebel Ali Free Zone, Sharjah, Ajman, Abu Dhabi and Umm Al Quwain remained confident that business would pick up once a trade deal was reached<\/p>\n
However last month Emirates Business reported that talks with the US would not be resumed with the current administration in Washington \u00e2\u20ac\u201c hitting hopes of an upturn.<\/p>\n
The outlook for GCC-EU free trade discussions looks more hopeful, with some reports saying an agreement could be signed soon. \u00e2\u20ac\u0153The garment industry has been looking anxiously at the UAE\u00e2\u20ac\u2122s free trade negotiations with the US and the EU, the two largest markets for exporters,\u00e2\u20ac\u009d said Anil Kapur, Managing Director of the Trendy Garments factory in Dubai. \u00e2\u20ac\u0153The value of garment exports, which was more than $2 billion (Dh7.3bn) per year in 2002, is negligible now. In the 1990s there were more than 400 garment units in the UAE but 75 per cent have closed.<\/p>\n
\u00e2\u20ac\u0153A revival will be possible only when a free trade agreement with the US or Europe is signed \u00e2\u20ac\u201c there is no guarantee about it now,\u00e2\u20ac\u009d said Kapur.<\/p>\n
Shakheel Alam, Marketing Manager of Sara Textiles at Umm Al Quwain Free Zone, said: \u00e2\u20ac\u0153Many of the garment units which operated in the UAE have converted their premises to other businesses such as bulk construction materials like timber and steel.\u00e2\u20ac\u009d<\/p>\n
In 2005 the Dubai Chamber of Commerce and Industry conducted a survey among 39 textile and garment units. More than 90 per cent of the participants said they believed a free trade agreement with the US would revive the industry. All the units exported more than 60 per cent of their production to the US and Europe.<\/p>\n
The garment industry has been badly affected by dollar and euro exchange rate fluctuations. More than 90 per cent of the raw materials are sourced from abroad and the increase in the oil price and unfavourable exchange rate movement have forced up prices.<\/p>\n
New labour welfare measures have increased salary and benefits costs. Alam added: \u00e2\u20ac\u0153While a worker in Bangladesh earns $50 per month one in the UAE costs $500 \u00e2\u20ac\u201c including food, accommodation, travel and other items. Chinese and Indian companies have a huge advantage in terms of volume and labour costs. We export 70 to 80 per cent of our production. Many units which moved their operations to Jordan, Egypt, Kenya or Bangladesh save 30 per cent duty in the US and EU markets.\u00e2\u20ac\u009d<\/p>\n
The UAE and the US began free trade negotiations in March 2005 with a view to removing trade barriers for goods and service. Early last year the two sides announced they would not be able to complete the negotiations in the timeframe that had been set but that both sides remained committed to completing the negotiations at some later date.<\/p>\n
Then came last month\u00e2\u20ac\u2122s announcement that the talks would not restart until a new president entered the White House in January 2014. Last week it was reported that a GCC-EU agreement could be signed early this year. Officials said only a few small details still needed to be finalised.<\/p>\n
There was heavy political pressure to accelerate the negotiations a year ago as some economists warned that further delays could lead to changes in the terms of reference with the EU adopting new criteria for negotiating FTAs. This added to the uncertainty faced by the UAE garment industry. But in the event the criteria did not change as the EU was said to be keen to sign a treaty.<\/p>\n
The EU accounted for 27.5 per cent of total UAE imports in 2014 while just 5.6 of the UAE\u00e2\u20ac\u2122s non-oil exports and 14.1 per cent of the re-exports went to the EU, according to UAE\u00e2\u20ac\u2122s Central Bank. A report on the UAE\u00e2\u20ac\u2122s garment industry by the Emirates Industrial Bank said the decline in the number of factories began in the run-up to the abolition of the international quota system.<\/p>\n
The fall began in 1998 and by 2004 the number of garment units in UAE had come down to 151, employing about 27,000 people. In 2014 the number of operational firms was around 100. The report said: \u00e2\u20ac\u0153Several firms have relocated while maintaining offices in UAE. Garment production is easy to relocate without major transportation and\/or installation costs. The choice for relocation destinations are Jordan and sub-Saharan Africa, areas which are receiving preferential treatment from the US in the form of duty-free access to the American market.\u00e2\u20ac\u009d<\/p>\n
The quota scheme, which nurtured the industry by guaranteeing small nations access to the US and Europe, was abolished to provide consumers in the West with cheap imported products. The system had enabled the UAE industry to flourish despite lacking raw materials such as textile yarn and fabrics, cheap labour and a large domestic market to support manufacturers.<\/p>\n
The elimination of quotas in 2005 was agreed 10 years previously at the Uruguay round of world trade talks. The move caused a worldwide relocation of the industry \u00e2\u20ac\u201c with China and India as the major beneficiaries.<\/p>\n
The rise and fall of the garment industry<\/p>\n
The $800 billion (Dh2.9 trillion) global garment industry is one of the most dispersed of all businesses, with some companies manufacturing goods simultaneously in 40 countries.<\/p>\n
And the geographical distribution of the industry has changed greatly over the past 50 years.<\/p>\n
Globally the industry is an engine for export-oriented industrialisation and employment creation.<\/p>\n
The industrialised countries underwent a massive restructuring process from the late 1950s onwards, which saw an unprecedented shift of production towards countries that were then classed as \u00e2\u20ac\u0153least developed\u00e2\u20ac\u009d. This revolution affected mainly labour-intensive industries such as garment manufacturing.<\/p>\n
The southeast Asian countries, Hong Kong, South Korea, China and India came to dominate the industry.<\/p>\n
Hundreds of garment units in the UAE were started by investors from India, Pakistan and southeast Asia. Now most have shifted their operations to other countries to take advantage of free trade agreements with the United States.<\/p>\n","protected":false},"excerpt":{"rendered":"
End of quotas sends UAE garment units overseas by VM Sathish on Saturday,January 19,2014 Emirates Business 24\/7, United Arab Emirates Hopes of a revival of the UAE\u00e2\u20ac\u2122s garment industry have been hit by the suspension of talks with the United States on a free trade agreement. And delays to negotiations between the Gulf Co-operation Council […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"yoast_head":"\n