Development of an integrated model for analysing global patterns of textile and clothing trade

Abstract

The elimination of quantitative restrictions on textile and clothing (T&C) trade on January 1st, 2005 under the Agreement on Textiles and Clothing (ATC) has created a dynamic and intense competitive world market for global T&C exporters. However, the impacts of world trade liberalisation vary among exporting countries. Some countries have the capability of further boosting their T&C exports, thus gaining an edge in the volatile and competitive global market, while other countries would suffer a decline in exports as a result of the keen competition resulting from trade liberalisation. Therefore, it is desirable to study the dynamics of global T&C trading scenarios by assessing the likely impacts of T&C trade with the prevalence of liberalisation policies in the post-ATC era. Economy-wide trade policies and company choices of global sourcing locations have a great influence on T&C trade patterns. Trade models examined in earlier literature mainly to be founded from a macro point of view, as they only focused on past trade figures and multilateral trade policies. However, the importance of industry decisions at micro-level view in developing a comprehensive trade model has rarely been examined. To address this research gap, the present research aims to develop an integrated model to better understand global T&C trade patterns in the post-ATC era. The proposed integrated model is developed by analysing both 'country' and 'firm' levels consideration, in an attempt to provide a conceptual framework to better understand T&C dynamic trade patterns. Shifts in global T&C trade are accomplished with economy-wide multilateral trade liberalisation policies. The quantitative assessments of T&C liberalisation trade regimes were conducted by computable general equilibrium (CGE) modelling. The CGE model provides a consistent framework, based on neo-classical economic theory, for assessing the effects of policy and structural changes on resource allocation to identify 'who gains and who loses'. The comparative static Global Trade Analysis Project (GTAP) model was adopted to quantify the likely impacts of T&C trade liberalisation polices in the post-ATC era in a multi-country and multi-sector general equilibrium framework. The results pointed to the fact that most MFA-restricted exporters gain as a result of trade liberalisation in the post-ATC era, both in terms of welfare and in trade values. China was the major beneficiary among the MFA exporters. T&C export sales from China to the EU and U.S. markets showed strong increases, which can be attributed to a significant drop in market prices resulting from trade liberalisation policies. On the other hand, non-ATC suppliers, including Mexico, Africa, Central and Eastern Europe and the Mediterranean countries, would lose ground in the trade liberalisation process, due to a dramatic erosion in their competitive positions. In addition to examining multilateral liberalisation trade policies, global T&C trade patterns in the post-ATC era are also influenced by sourcing location decisions. Since global sourcing is the most common business strategy that foreign T&C enterprises have pursued, the determination of sourcing locations would therefore exert a significant influence on international T&C trade patterns. This study applies the analytic hierarchy process (AHP) approach to evaluate the relative importance of global sourcing decision factors in the post-ATC era, and hence to determine the preferences of the selected sourcing location alternatives. Empirical results were obtained by conducting in-office questionnaire-based interviews with a total of 48 T&C companies. The data were analysed and the results indicated the priority rankings of the following three criteria: 'material cost', 'technological development and innovation' and 'transportation time to suppliers/raw material'. These constituted the three top criteria in terms of global T&C sourcing decisions in the post-ATC era. In addition, the results also indicated the preferences of sourcing location alternatives according to management perceptions. China was seen as the most preferred T&C sourcing destination in the post-ATC era, followed by Hong Kong and India. The findings from this study offer valuable insights to academic practitioners, T&C management and policy decision-makers. First, this study is a major step forward in better understanding post-ATC trade flows in a comprehensive way, i.e. it integrates both macro-level trade policies and micro-level company views on global sourcing decisions. Next, by contributing a thorough understanding of the criteria and concerns of global sourcing location decisions in the post-ATC era, it provides guidelines or references for both T&C management and policy-makers to improve the sourcing competitiveness of their firms so as to enhance exports and trade in the global arena. Finally, through the quantitative assessments of various trade liberalisation policies on major T&C supplying countries, this study provides indications to policy-makers in various countries on how different policy instruments will affect the T&C trading, as well as other sectors, after 2005.