Identifier
Created
Classification
Origin
05BANGKOK6016
2005-09-20 09:29:00
UNCLASSIFIED
Embassy Bangkok
Cable title:  

THAI TEXTILES AND APPAREL: COPING WITH A

Tags:  KTEX ECON ETRD ELAB 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 03 BANGKOK 006016 

SIPDIS

PASS TO USTR FOR ABIOLA HEYLIGER
STATE FOR EB/TPP/ABT - EDWARD HEARTNEY
COMMERCE FOR ITA/OTEXA - MARIA D'ANDREA

E.O. 12958: N/A
TAGS: KTEX ECON ETRD ELAB
SUBJECT: THAI TEXTILES AND APPAREL: COPING WITH A
POST-QUOTA WORLD

REF: STATE 146213

UNCLAS SECTION 01 OF 03 BANGKOK 006016

SIPDIS

PASS TO USTR FOR ABIOLA HEYLIGER
STATE FOR EB/TPP/ABT - EDWARD HEARTNEY
COMMERCE FOR ITA/OTEXA - MARIA D'ANDREA

E.O. 12958: N/A
TAGS: KTEX ECON ETRD ELAB
SUBJECT: THAI TEXTILES AND APPAREL: COPING WITH A
POST-QUOTA WORLD

REF: STATE 146213


1. Summary: Thailand's textiles and apparel exports continue
to grow following the expiration of the global quota system,
albeit at a more moderate pace than during the banner year of

2004. The overall sector has seen exports rise by a solid
5.8 percent in the first half of 2005, defying the most
pessimistic predictions that forecast a shrinkage in
Thailand's export markets due to increased competition from
China. In fact, the Thai government is reporting that
exports to the U.S., Thailand's largest export market,
increased by 10.3 percent through June of this year.
Thailand's textiles and apparel producers attribute this
performance to their increased emphasis on higher-value,
higher quality products, as well as improvements in supply
chain systems coordinated with large Western buyer firms.
Producers also believe Thailand's infrastructure and
higher-skilled labor have induced foreign factory owners to
resist moving to China en masse, although some factory
closures have been reported. End Summary.


TEXTILE AND APPAREL EXPORTS GROW, BUT SLOWER THAN IN 2004
-------------- --------------


2. Thai exports of textiles and apparel in 2005 have
experienced surprisingly solid growth despite the lifting of
global quotas on January 1 and the subsequent increase of
Chinese exports to the U.S. The Thailand Textile Institute
(TTI) reports that total textiles and apparel exports grew
5.8 percent in value during the first half of 2005
(January-June). While exceeding some expectations, the rate
of growth is a sharp drop-off from the 17.1 growth rate
experienced in 2004. Exports to the U.S., Thailand's largest
export market, have grown 10.3 percent in 2005 through June,
with the bulk of the increase being in cotton fabrics and
clothing, which rose almost 19.6 percent in value.


3. In interviews with the Embassy, a wide range of Thai
textile manufacturers attributed Thailand's continuing
competitiveness to a stronger focus on higher-value and
higher-quality garments, and sharp improvements in logistics
and supply chain systems that were coordinated with U.S.
buyers in recent years. Concurrent with the Thai

government's effort to develop Bangkok into a "global fashion
hub," Thai garment producers are developing niche markets for
products of their own design and incorporating Thailand's
traditional high quality fabrics, such as silk, for
quality-conscious Western consumers. According to the Thai
Garment Manufacturers Association (TGMA),Thai exporters are
also increasing their direct marketing to U.S. buyers,
providing more of their own shipping and insurance services
and bypassing middlemen, compared to 2003 and prior years.


4. Exporters associated with the TGMA and TTI said they have
seen little dramatic change in the number of foreign-owned
factories, Asian or otherwise, since the end of the quota
system this year. They admitted that some low-cost factories
have moved to China to take advantage of economies of scale
and labor costs that are estimated to be 40 to 60 percent
lower than those in Thailand (for comparison, Thai labor
costs are estimated to be roughly 17 to 22 percent of those
in Hong Kong, South Korea and Taiwan). In the Northeast, the
Sakon Nakon Chamber of Commerce did report this week that
they've lost almost half of their low-cost garment production
due to Chinese competition. Other exporters report, however,
that a number of factory operators have been disappointed
with the lower-quality output from Chinese factories, and
have moved back to Thailand. Thai producers say Thailand
retains a competitive advantage in worker skills,
infrastructure, and less bureaucratic interference, which has
allowed them to reap larger orders from larger buyers who are
less concerned about achieving the maximum savings on labor
costs. Thai producers also do not see the rise of China and
India as a one-way street. According to a Thailand Textile
Institute (TTI) executive, "China and India may cause our
lowest-cost and most old-fashioned factories to go under, but
our fabric exports to China have risen 23 percent this year."
"We are still in a precarious industry," he added, "and we
hope that the U.S. and other governments take a strong look
at China's subsidies to its textile industry. But, so far,
we are surviving in the post-quota world quite well."


PRODUCTION AND EXPORT DATA
--------------


5. The following figures were requested in reftel para 4:


Total Manufacturing Production 2004:
-- USD 57.4 billion

Total Textiles and Apparel Production 2004:
-- USD 11.1 billion

Textiles-Apparel Share in Imports 2004:
-- 3.00 percent

Textiles-Apparel Share in Exports 2004:
-- 6.6 percent

Textiles-Apparel Share in Imports 2005 (Jan-Jul):
-- 2.66 percent

Textiles-Apparel Share in Exports 2005 (Jan-Jul):
-- 6.1 percent

Total Employment in Manufacturing:
-- 5,597,000

Total Employment in Textiles and Apparel:
-- 1,084,130

Note: no reliable figures for Total Industrial Production are
available.


LITTLE IMPACT FROM SAFEGUARDS
--------------


6. Textile and apparel manufacturers told the Embassy that
they expect only marginal gains from efforts by the European
Union (EU) and the U.S. to place safeguard restrictions on
the influx of textiles from China. The Thai Garment
Development Foundation (TGDF) said that U.S. buyers who
normally import from China are likely to place more orders
from other countries with similarly low labor costs, such as
Sri Lanka, Bangladesh, India and Pakistan. The TGDF said
Thai producers were less competitive than these countries in
low-labor cost products such as bras, sweaters, gowns and
pants. The TGMA also said that Thai textile and apparel
factories were already operating near full capacity and would
not be able to take on a significant amount of new orders,
partly due to a persistent labor shortage. The apparel
industry lacks qualified industrial engineers, managers and
other staff as the best of Thailand's skilled workers are
increasingly looking to other industries or to working
abroad, in the Middle East or Taiwan for example, to earn
higher wages. The TGMA also said it expected U.S. producers
to assume most of the new orders arising from curbs on
Chinese imports into the U.S.


7. The Thai government has not considered implementing
safeguards to reduce Chinese textile and apparel imports into
Thailand. Thai imports of textiles and apparel (including
leather goods and footwear) are only 2.7 percent of total
imports, and Chinese clothing imports do not compete directly
with locally-produced products.


LABOR SITUATION
--------------


8. The textile and apparel industry comprises over 4,500
factories and employs over one million workers, a number
which has remained steady for the past 7 years. Employment
has remained between 1,000,000 and 1,100,000 since 1998, with
little variation in between, according to the Ministry of
Industry (Thailand's total labor force is around 35 million).
Both employers and labor leaders say that the recent
increase in global competition in textiles and apparel has
not appreciably affected local labor conditions, although
opinions on existing conditions differ sharply. A high-level
representative of the TGMA unsurprisingly told Laboff this
week that Thai factory workers were "treated like kings,"
while a regional labor expert at the International Labor
Organization's Bangkok office says enforcement of labor
standards in Thailand is among the weakest in Southeast Asia.
Any realistic assessment must note that conditions for
laborers vary widely depending on the enterprise involved.
Factories sourced by certain large U.S. apparel firms have
received favorable reviews by independent factory monitoring
groups, while low-cost textile plants in border regions which
source a large number of migrant workers, such as Mae Sot
along the Burmese border, are often poorly monitored and have
very poor labor conditions. Overall, the labor situation in
Thailand's textile and apparel industry has not changed
significantly since the expiration of global quotas in
January, 2005.


HOPING FOR AN FTA - BUT WITH FLEXIBLE RULES OF ORIGIN
-------------- --------------


9. Thai textile and garment producers predictably differed on
the scale of benefits that would accrue to their industries
if a prospective U.S.-Thai Free Trade Agreement, currently
under negotiation, is implemented. Textile producers
associated with the TTI said they stood to gain from
increased textile exports to the U.S. even if a "yarn
forward" rule were included in the FTA, due to Thailand's
large usage of imported U.S. yarn and thread. However, a
producer from the garment-producing TGDF (who is also a
member of the Thai FTA negotiating team for textiles),said
that Thailand's gains would be significantly curbed by
"overly restrictive rules of origin." The producer said that
Thailand wanted the flexibility to use fabric from other
countries, especially other countries who are already U.S.
FTA partners, in garment production. "None of us will lose
from an FTA," he added, "but the benefits will vary widely
depending on the outcome."
ARVIZU