Nepal Hit Hard in Post-Quota Era

25 May 2006

COLOMBO, Sri Lanka, 25 May – Nepal has been among the hardest-hit countries since the end of textile and clothing quotas in early 2005, with the value and volume of Nepalese textile and clothing exports plummeting by 22 percent and 28 percent respectively, the United Nations Development Programme has found.

Losses in the U.S. market were more severe than in the European Union, Nepal’s other big textile and clothing customer. Among knitted ready-made garments from Nepal, the value of U.S. imports plunged by more than half – some 55 percent – with woven garments losing 30 percent. Together, the two markets represent the destinations of nearly all of Nepal’s textile and clothing exports.

The new figures are contained the latest quarterly tracking report on the impact of the lifting of quotas, prepared by the UNDP Regional Centre in Colombo. “Sewing Thoughts: How to Realise Human Development Gains in the Post-Quota World” examines the effects on trade flows in 12 selected Asia-Pacific countries during the first full year of the post-quota regime. The full report can be accessed at http://www.undprcc.lk/publications.asp#trade.

“Nepal remains extremely vulnerable and locked into the export of a narrow range of items,” the report stated. It recommended major investments in training and human resource development. Overall, Asia-Pacific’s share of the U.S. and EU markets for textiles and clothing increased without quotas, “impressive growth … [that] is testimony to the huge potential the region holds in this sector,” according to the report. However, more competitive countries are “pushing smaller players to the brink of collapse,” it warned.

In value, Asia-Pacific’s share in the United States rose from 41 to 49 percent, while it increased from 47 to 53 percent in the EU. In contrast, regions such as Africa and the Caribbean that have trade agreements with the United States have lost shares of textile and clothing products, despite their preferential market access.

Data show that China and India have been clear winners by expanding their market shares in both the United States and European Union. On the other hand, landlocked countries such as Nepal and Mongolia, along with small island economies such as Fiji and Maldives, have been devastated by the elimination of quotas; these countries’ textile and clothing exports fell sharply in 2005. Moreover, further safeguards imposed on Chinese exports of textile and clothing products will be lifted in 2008, which poses a threat even to those countries that have been able to hold onto past gains so far.

Increasing price competition, closures of factories, job losses and deterioration of workers’ conditions have been reported in countries that lost export orders as well as in countries that managed to keep their export volume.

For its part, Nepal “urgently needs to diversify its exportable products as well as markets,” the report said. Carpets represent the top Nepalese export commodity in both the United States and European Union. But three out of Nepal’s top five commodities are those that face more competition after the elimination of quotas and that also are produced by other countries in the region.

“With this kind of competition, a small country like Nepal is pushed out of competition at the initial stage,” the report’s authors declared.

Competitiveness is affected by several factors, including low level of skills and productivity of workers; absence of opportunities for upgrading technology; limited linkages to the local economy as well as the global supply chain; poor quality of infrastructure; cumbersome trade procedure and documentation requirements; lack of information on market opportunities; and lack of finance.

The report focused on how human development gains could be achieved by increasing and sustaining employment opportunities, particularly for the poor and vulnerable, in the textile and clothing sector. Among other measures, it called for stronger investment in health, education and skills development; reduced trade transaction costs; adoption of innovative strategies for sourcing inputs; and strategic management of export processing zones to enhance efficiency and attract foreign investment. The report further advised that exporters be granted enhanced access to credit; public-private partnerships be pursued;and developing countries extend their cooperation for development of the sector.