SOUTH AFRICA: NO SAFEGUARD PROTECTION

UNCLAS SECTION 01 OF 02 PRETORIA 004752

SIPDIS

DEPT FOR EB/TPP/ABT/EHEARTNEY, AF/EPS, AF/S
COMMERCE FOR ITA/OTEXA/MARIA D'ANDREA COMMERCE
ALSO FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
DEPT PASS USTR FOR PCOLEMAN AND AHEYLIGER

E.O. 12958: N/A
TAGS: ECON ETRD KTEX SF
SUBJECT: SOUTH AFRICA: NO SAFEGUARD PROTECTION
FOR THE TEXTILES AND APPAREL INDUSTRIES

REF: (A) PRETORIA 3823 (B) PRETORIA 2238 (C)
PRETORIA 1365


1. (U) Summary. While the South African textile
and clothing industries complained about cheap
imports from China, the South African government
announced that it was not prepared to employ
safeguards for an extended period to limit
imports from China. Government officials
criticized industry for a lack of creativity,
vision, and entrepreneurship, as well as failing
to adjust to the demands of a changing global
competitive environment. Notwithstanding this
hard line, the Minister of Trade and Industry
indicated that he would take the matter up with
the Chinese, work to stiffen customs inspection
to keep out illicit imports, and support
extending the duty credit scheme . End summary.

Chinese Imports
--------------


2. (U) According to representatives of the
textiles and clothing industries, cheap Chinese
imports are the single most vexing problem that
the industry faces in South Africa. Helena
Claasens, Economist at the Textile Federation of
South Africa (Texfed),claims that Chinese
clothing imports have grown by over 400% since
2001, contributing to numerous factory closings
and job losses. Texfed supplied the following
supporting data on South African apparel and
textile imports from China for the period
January 2005 to August 2005.
% of
total
imports
Apparel:
Volume: 239 million units 86%
Value: $R2.3 billion* 76%

Household textile:
Volume: 19,586 ton 60%
Value: $R110 million* 49%

Industrial textiles:
Volume: 26,993 ton 42%
Value: $697 million* 40%

*Note: using rand/dollar exchange rate of 6.5.

The U.S. Market
--------------


3. (U) South African clothing manufacturers are
also taking it on the chin when it comes to
exports to the United States - even with AGOA
trade preferences. According to the latest
United States Department of Commerce data, the
total value of South African apparel and textile
exports to the United States fell by 49%
(apparel) and 5% (textiles) during the first
nine months of 2005 compared to the same period
in 2004. United States imports of South African
apparel exports totaled $108.6 million in the
first nine months of 2004, but declined to $55.3
million for the same period in 2005. AGOA
apparel also decreased from $92.1 million to
$54.6 million during this period, representing a
decrease of 40%.

Government's View
--------------


4. (U) Although both the textiles and clothing
industries in South Africa have applied for
safeguard protection in recent months, Minister
of Trade and Industry Mandisi Mpahlwa said his
department did not plan to invoke safeguard
measures to limit cheap imports from China.
Despite huge pressure from industry and labor,
the government was not convinced that safeguards
by themselves could save the industry. Mpahlwa
stressed that it was the responsibility of
industry to save itself by adapting to global
competition. Nevertheless, Mpahlwa said that he
would raise the surge in imports from China in
government-to-government talks with that
country. He added that customs inspection
should be stiffened to prevent illegal or
underinvoiced imports, and also that his
department had recommended that the duty credit
scheme be extended. The duty credit certificate
scheme is an export-incentive programme,
providing duty credit certificates to firms
according to proven exports.


5. (U) At a recent parliamentary hearing,
Department of Trade and Industry (DTI) Deputy
Director General Iqbal Sharma stated that the
South African government wanted to foster a
strategic and long-term relationship with China
based on economic cooperation and common
approaches to broader global and geopolitical
issues. The South African government's
strategic long-term trade and political
relationship with China would not be sacrificed
for a textile and clothing industry that had
failed to meet global competition. Sharma
blamed industry for having made little use of
existing safeguards that provided what he termed
"extensive protection and time" to restructure
before international quotas were removed on
January 1, 2005. He further criticized the
"alarming lack of creativity, entrepreneurship,
vision, and leadership" in the clothing and
textile industry.

Government Assistance
--------------


6. (U) Apart from the proposed government-
to-government talks with China, the Department
of Trade and Industry recommended extending the
duty credit scheme and the development of a
customized sector program to assist industry.
Mpahlwa also proposed improving customs
inspection to reduce illegal or underinvoiced
imports from China and elsewhere. Meanwhile,
the clothing industry is lobbying for the review
of import tariffs on textiles, with an eye to
reducing costs for local manufacturers.

Industry Reaction
--------------


7. (U) Igsaan Salie, President of Texfed, was
surprised to learn that the government's view
towards safeguards seemed to have undergone an
about-face. Keith Robson, Director of South
African Clothing Industries, saw Sharma's
remarks as "most unfortunate" in light of the
need for a cooperative relationship between
business and government to tackle the issue.
The Clothing Trade Council of South Africa
(CLOTRADE) welcomed Mpahlwa's statement on talks
with China, and a possible solution to the surge
of cheap Chinese imports. Texfed's Claasens
warned against a possible negative result from a
review of textile import tariffs, pointing out
that South Africa's applied rates were either
equal or very close to their bound rates. A
review could conceivably lead to some tariffs
being lowered.

Comment
--------------


8. (U) Although the change in the South African
government's view towards safeguards could be
interpreted by industry as a kick in the teeth,
bilateral talks with China might bring the first
real relief to an industry in distress.

TEITELBAUM