(Published in L'express under ARTon)
Recently there has been some bragging that the EPZ sector was bequeathed “un riche bilan”
of 518 firms with a total employment of 90,682 workers. Let us examine this legacy of the previous
regime. Since 1974 world trade in textiles and garments has been governed by the MultiFibre
Arrangement. This provided the basis on which industrialized countries have been able to restrict
imports from developing countries. Every year countries agree on quotas - the quantities of specified
items which can be traded between them.
The exporting country then allocates licenses to firms to
export a certain proportion of each quota. The conclusion of the Uruguay Round of General
Agreement for Trade and Tariff (GATT), on April 15, 1994 delivered the most significant decisions in
the recent history of the international, pervasive regime-the abolition of the MFA over a ten-year
period commenced from January 1, 1995. As a result, the quota system that has provided some
security for those in the textile sector, will be completely abolished by the beginning of 2005 and the
sector will be fully integrated into WTO rules. In addition to the integration process, there was a
programme for liberalising the restrictions carried over from the MFA by increasing the size of the
quotas as follows: 6.9 per cent in years 1995, 1996 and 1997; then 8.7 per cent in years 1998, 1999,
2000 and 2001 and 11.05 per cent in years 2002, 2003 and 2004.
Stages I and II of the liberalization process has had little impact since they applied mainly to
products whose imports were below quota levels. Given that sensitive items have been backloaded for
the third and last stages, which entails the elimination of the remaining 49% of quotas in January
2005, it is having a strong impact on the exports of smaller developing countries that are witnessing
the contraction of their textile and apparel sector, loss of income and employment. US for example has
lifted quotas on only 20% of trade that was restrained in 1994 leaving 80% for the last two stages, for
the EU, the comparable figures are 32% and 68%. By the lifting of most of the quotas at the year end
of the 10-year adjustment period, the third and last stages represent the most serious threat to the
smaller developing countries. It is thus not surprising that many leading Textile and Clothing
producing countries have been affected. The problems presently being faced by EPZ sector is not
specific to Mauritius. In Dubai, there has been a drastic fall in orders, with buyers canceling previous
commitments. In 2002, Thailand registered a decline in its exports by 2.1%, Mexico by 5% and
Indonesia by 9%. There have been massive closures in Sri Lanka, Taiwan, Bangladesh, Indonesia,
India, Argentina, Mexico, and Colombia. The last stages liberalization has indeed been disastrous and
brutal for many economies, especially the small suppliers.
This backloading of the lifting of the quotas has had the perverse effect of not only delaying
adjustment in Mauritius but encouraging us to continue taking advantage of the guaranteed quotas and
special preferences. Between 1995 to 2000, 11 additional firms were registered, on a net basis, in the
textile and apparel sub-sector and this sub-sector continued to be intensively labour-based adding
some 11,000 workers over the period. There was no effort to restructure and move up the export
value chain or diversify into promising products like electronics, jewelry, plastic, light and precision
engineering, IT, pharmaceuticals, wood and paper products, optical goods and printing and publishing.
The “Other manufacturing” sub-sector did not experience any consistent upward growth trend. This
was in total opposition to the recommendation of “The Country Economic Memorandum :
Sharpening the competitive edge( 1994) ”of the World Bank recommending a new macroeconomic
path for the economy “which would require far-reaching reform and innovation to transform the
economy from a cheap, labor-based system to one that is technology based.” Moreover the EPZ sector
was continuously doped by the continuous depreciation of the rupee that averaged a high annual rate
of 9% vis-à-vis the dollar and 4% to the Euro.
As a result of the increasing labour costs, the EPZ had eroded its cost competitiveness. Indeed,
wage increases in the EPZ were not matched by similar labour productivity gains, with the result that
the unit labour cost had increased by 63% between 1990 and 1999. On an annual basis, during the
period 1995-1999, average salaries, wages and other benefits of employees in the EPZ increased by
7.5% while labour productivity grew by 3.5% only. Unit labour cost increased by 3.9% annually,
leading to a sustained erosion in the cost competitiveness of our exports. Thus, depreciation was the
easy way out to mitigate to a certain extent the loss of international competitiveness.
The EPZ sector was made to rely on these short-term palliatives and the need to address the
real issues relating to restructuring, good management, training and re-skilling of EPZ employees and
productivity improvement were postponed indefinitely. Even some friendly cautions, well back in
1998, from well-meaning economic specialists including Mr Michael Sarris, the then country director
of the World Bank, were not well digested by our local policymakers. Mr Sarris was unceremoniously
forced to leave after he had critically admonished us for our failure to proactively address the existing
weaknesses and deficiencies.-“ Mauritius must find and develop new products and new geographical
markets and markets with greater value-added which do not rely on a complex web of economic distortions.” But unfortunately these advice were blatantly ignored and the new government inherited
a fragile and unprepared EPZ sector to face the new hostile environment characterized by the abolition
of quotas and the emergence of China, the Asian powerhouse, which joined the WTO in 2001 and had
since and only since progressed from being the 4th largest exporter of textile products to the US to the
largest exporter while others are all facing a drastic downturn in their textile sectors. We had to wait
for a new regime to put in place a “ Strategic Plan for the Textile & Clothing Sector, 2002-2005.”
to which a World Bank Mission, headed by Mr G.Rasagam ,visiting Mauritius in December 2003
noted “The GOM has recognized the challenges facing the industry and has taken a pro-active
approach in identifying solutions.” And we need not add the TESS, CDRC, National Equity Fund,
Gemba-Kaizen, intervention by Kurt Salomon & associates etc.
