PROTECTION SOUGHT FOR THE SOUTH AFRICAN

UNCLAS SECTION 01 OF 02 PRETORIA 001365

SIPDIS

DEPT FOR AF/S; AF/EPS; EB/TPP/MTA
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
COMMERCE ALSO FOR HVINEYARD
TREASURY FOR BRESNICK
DEPT PASS USTR FOR PCOLEMAN

E.O. 12958: N/A
TAGS: ECON ETRD KTEX SF USTR
SUBJECT: PROTECTION SOUGHT FOR THE SOUTH AFRICAN
APPAREL AND TEXTILE INDUSTRY

REF: (A) PRETORIA 448

(B) 2004 PRETORIA 4527
(C) 2004 PRETORIA 4428


1. Summary. While Chinese and Indian apparel and textile
exports to the United States continued to surge in the first
month after the ending of the multi-Fiber arrangement, South
African exports of these products (section 11) to the United
States showed a 17% decline. A DTI official said the flood
of cheap Chinese imports into South Africa had devastated
the local industry and openly declared support for the
introduction of safeguards to protect the South African
clothing, textile and footwear industry. South African
textile industry officials outlined their case for using
various options for protection, namely higher tariffs,
safeguards, anti-dumping duties, and an indicative pricing
system for import valuation. End summary.


2. As expected, the January 1 lifting of import quotas
with the ending of the 1974 Multi-Fiber Arrangement produced
a sharp increase in textile exports from China and India at
the expense of smaller producers in developing countries.
According to the United States International Trade
Commission the total value of Chinese and Indian apparel and
textiles exports (section 11) to the United States increased
respectively by 31% and 8% in January 2005. At the same
time South African apparel and textile exports (section 11)
to the United States declined by 17%. Apart from the
lifting of quotas, the strength of the South African rand
against the dollar contributed to the state of affairs.
Adding to the pressure, South African imports of Chinese
apparel and textiles products increased respectively by 76%
and 35% in 2004.


3. Mr. Lionel October, deputy director-general of the
Department of Trade and Industry (DTI),said on March 10,
2005 that the South African government would support the
introduction of safeguards to protect the South African
clothing, textile and footwear industry from the flood of
cheap Chinese imports that have devastated the industry over
the past four years. He said that the report of the
Technical Task Team, consisting of representatives of
government, industry and labor to investigate and find
solutions to the crisis, was being finalized. The Textile
Federation of South Africa (Texfed) expects the findings of
the task team and a possible introduction of safeguards to
be discussed at the next Technical Task Team meeting,
scheduled for April 5, 2005.


4. In the past the South African government was of the
opinion that the only lasting solution to the industry's
problems was to find new world market opportunities, to
improve their productivity and become more competitive.
According to Helena Claasens, economist at Texfed, there are
a number of options available to protect the domestic
textile and apparel industry, namely higher tariffs,
safeguards, anti-dumping regulations as well as the adoption
of an indicative pricing system for import valuation.

Tariffs
--------------


5. Helena Claasens of Texfed feels that the DTI does not
have too much room to maneuver in terms of an increase in
customs duties, as South Africa's import duties on textiles
and apparel are very close to the bound rate. The bound
rate is the maximum tariff rate a country may apply without
breaching WTO obligations.
SA Applied rate Bound rate
-------------- --------------
Apparel 45 40
Household textiles 30 30
Fabrics 25 22
Yarns 17.5 15
Some Fibers 10 7.5

Safeguards
--------------


6. Although the DTI has now openly declared itself in
favor of the introduction of safeguards to protect the local
industry, a formal complaint will still have to be lodged by
the industry, where they would have to supply evidence to
prove serious injury to the South African textile and
apparel industry. Texfed is confident it could prove the
following:

- A surge in Imports. This can easily be proven given that
Chinese apparel and textile imports to South Africa grew by
51% in 2002, 34% in 2003 and 61% in 2004.
- Unforeseen circumstances. Industry perceives the
appreciation of the local currency as unforeseen.
- Material injury. The closure of 24 factories since July
2002 and the loss of 30,000 job opportunities during the
past two years should be enough prove of material injury.
China, on the other hand, has cautioned countries against
any hasty implementation of safeguards to restrict textile
exports. According to Sun Huaibin, spokesperson for the
China National Textile council, quotas were removed on
January 1 so that trade can be freer, and any restriction on
trade would therefore run counter to free trade principles.
Anti-dumping
--------------


7. Texfed is optimistically looking at anti-dumping as a
protection option, especially in the case of ready-made
products like clothing, curtains and duvets. In the case of
anti-dumping, industry would have to prove that Chinese
producers export their products to South Africa at a price
lower than their normal value (domestic selling price),
thereby causing material injury to the South African
industry. According to Texfed there is enough evidence to
prove dumping. First, Chinese textile and apparel are
exported at a much lower price to South Africa than to the
United States. Second, yarn and fabrics are imported at
higher prices than the ready-made products. To support the
previous statement Texfed supplied the following import
prices as examples to embassy's economic specialist.

Product Import price (fob) from China (R/KG)
-------------- --------------
Ready-made knitted curtains 2.25
Ready-made woven curtains 3.51
Nylon fibers 14.60
Polyester fibers 4.44
Yarns 15.64
Knitted fabrics 24.51
Woven fabrics 23.51

Towels (of terry fabrics) 13.73
Cotton fibers 10.00
Cotton yarn 16.82
Terry fabrics 25.61

Indicative Pricing System
--------------


8. Industry also wants the South African government to
adopt an indicative pricing system for import valuation,
instead of the World Customs Organization's valuation code
that South Africa adopted. The code sets global standards
for charging duties on declared imports. Using an
indicative pricing system means that if, for example, the
indicative price for a particular garment is R40, and an
invoice says that particular garment is worth R5, meaning
the garment's price does not conform with the indicative
price, such a garment would be prevented from entering the
country. At the moment it does not seem that the South
African Revenue Service (SARS) is very eager to change to an
indicative pricing system. By using the import valuation
procedures, SARS complies with World Customs Organization
(WCO) rules.

FRAZER