Identifier
Created
Classification
Origin
05PRETORIA2238
2005-06-09 04:58:00
UNCLASSIFIED
Embassy Pretoria
Cable title:  

LABOR UNIONS TURN TO RETAILERS TO SAVE THE

Tags:  KTEX ECON ETRD SF USTR 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 PRETORIA 002238 

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: KTEX ECON ETRD SF USTR
SUBJECT: LABOR UNIONS TURN TO RETAILERS TO SAVE THE
SOUTH AFRICAN APPAREL AND TEXTILE INDUSTRY

REF: (A) PRETORIA 1365; (B) PRETORIA 448

UNCLAS SECTION 01 OF 02 PRETORIA 002238

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: KTEX ECON ETRD SF USTR
SUBJECT: LABOR UNIONS TURN TO RETAILERS TO SAVE THE
SOUTH AFRICAN APPAREL AND TEXTILE INDUSTRY

REF: (A) PRETORIA 1365; (B) PRETORIA 448


1. Summary. According to South African industry
representatives, China currently holds 86% of the apparel
market for imports in South Africa. Unions blamed increased
imports for contributing to job losses of up to 40 000 in
the apparel and textile industry. The Congress of South
African Trade Unions (Cosatu) has called on South African
retailers to sign a code of conduct, with the labor union,
to set a target of 75% local content for clothing products
on shelves. Retailers rejected this gross interference in
the competitive dynamics of the supply chain and have blamed
the strength of the rand, illegal import activity, and the
inability of industry to cope with modern consumer demands
for the industry falling behind international competitors.
South African apparel and textile exports to the United
States declined by 30% during the first quarter of 2005.
End Summary.


2. According to the clothing and textile industry, cheap
Chinese imports remain one of the biggest problems facing
the apparel and textile industry in South Africa. Helena
Claasen, economist at the Textile Federation, said Chinese
clothing imports grew by 394% since 2001 and China currently
holds 86% of the clothing market for imports in South
Africa. According to the Congress of South African Trade
Unions (Cosatu),this has contributed to job losses of up to
40 000 in the South African clothing and textile industry
from January 2003 to March 2005. Industry complains that
retailers pressure local manufacturers to reduce prices and
frequently use examples of offers of cheaper imports to
exert further downward pressure.


3. Industry representatives assert that unlike in the
United States and the European Union, the South African
clothing and textile industry has not, up to now, made use
of any of the WTO measures available for protection.
According to Jack Kipling, president of CloTrade and
chairman of the Export Council for the Clothing Industry in
South Africa, safeguard measures under the China protocol

would be the most suitable of all WTO measures available to
the industry. He noted, however, that, because the surge in
imports already commenced in earnest in 2001,and the
controls are based on the average of imports over the past
three years plus a 7% per annum normal growth, the base is
already too high for these measures to be effective.
Industry regards the safeguards and anti-dumping application
process to be too complex, time consuming and costly to
bring any speedily relief to the industry. Alec Erwin,
Minister of Public Enterprises, indicated that the South
African government does not intend taking measures to curb
cheap Chinese apparel and textile imports.


4. In an effort to save the industry from shedding more
jobs, the labor union, Cosatu, called on South African
retailers to sign a code of conduct with the labor union, to
set a target of 75% local content for clothing products on
shelves. Zwelinzima Vazi, Cosatu's general-secretary has
threatened mass action to enforce the proposed code of
conduct, which could include pickets of retailers and
shopping malls, human chains, sit-ins, boycotts of foreign
goods and mass attendance of annual general meetings of all
retailers. The National Economic Development and Labor
Council (NEDLAC) has given COSATU the go-ahead to give
clothing retailers a 14-day notice, to indicate the start of
a programme of mass action. In addition, COSATU has called
on the government to take safeguards measures against
imports. Another complaint is that the Sector Education and
Training Authority (SETA) for the textiles sector is not
providing adequate training for workers, and consequently
the higher quality textiles with greater value-added cannot
be produced here.


5. South Africa's major clothing retailers, Foschini,
Truworths, Woolworths and Edgars Consolidated Stores, issued
a statement on May 16, 2005 rejecting calls by the labor
union to sign a code committing them to prescribed local
procurement targets. They regard it as a gross interference
in the competitive dynamics of the supply chain, which would
have a negative effect on consumers, retail business, and
the South African economy. They feel that the local South
African clothing industry does not have the capacity to meet
75% of all local retail requirements when it comes to the
variety, volumes and prices as currently demanded by the
South African consumers. South African retailers said,
however, said that they were still committed to the local
industry, and would continue to source locally, but would
not commit to local procurement quotas.


6. Retailers highlighted the following issues as the main
reasons for the industry falling behind their international
competitors. First, the strength of the rand over the past
three years. Second, illegal import activity and import
under valuation. Third, the inability to cope with modern
consumer demands.

Illegal imports
--------------


7. In an effort to reduce and eliminate illegal imports and
transshipment, the Minister of Trade and Industry published
regulations that prohibit the importation into or the sale
of textiles, clothing, shoes and leather goods in South
Africa, unless it is labeled in such a way that it is clear
in which country the goods were produced. These regulations
came into force on May 23, 2005. South Africa now also
complies with a national control system to monitor
compliance to country of origin rules. Retailers indicated
they welcomed the country of origin labeling scheme and
fully supported it.

Rand strength
--------------


8. There is increased support for the idea that government
should act to weaken the rand. Ian Plenderleith, Deputy
Governor of the Reserve Bank, stated that the rand's gains
against the dollar in the past 6 months were unwelcome and
hurting exporters. The African National Congress (ANC) also
called for a more competitive exchange rate to support the
apparel and textile industry. The rand has, since these
remarks were made, lost value to the US Dollar and traded at
R6.63/$ on May 30, down on the R6.34/$ two weeks earlier.
Marisa Fassler, economist at JP Morgan said that attempts by
policy-makers over the past two years to jawbone the
currency weaker have largely been futile. She said that the
recent calls for a more competitive exchange rate coincided
with a sharp rally in the dollar and that the movements in
the currency markets should remain the dominant driver for
the value of the rand. Trevor Manuel, South African Minister
of Finance, raised serious concern about adopting an
official policy to defend a particular level of the rand
exchange rate. Lionel October, deputy director-general at
the Department of Trade and Industry, said that from an
industrial policy point of view, a competitive exchange rate
is important, but should not be the basis for a competitive
strategy, rather there should be focus on finding niche
markets for South African products.


9. The latest United States International Trade Commission
(USITC) statistics indicate that South African apparel and
textile exports to the United States declined by 30% during
the first quarter of 2005. Jack Kipling acknowledged in an
article for Business report that the situation in which the
clothing industry in South Africa finds itself can be
attributed directly to the effects of globalization and
trade liberalization. He explained that the clothing
industry is the most global of all manufacturing sectors,
extremely competitive and price sensitive and therefore the
first sector to feel the effects of globalization.

FRAZER