ASEAN: Regional Trends in Economic Integration, Export ... - USITC

Project to stimulate intra-ASEAN production as a means to increase the ASEAN region’s
global competitiveness. 5
The removal of global quotas has had a larger influence on the degree of production
integration among the ASEAN countries than the tariff eliminations and reductions
mandated in the Roadmap. 6 The expiration of these quotas under the World Trade
Organization (WTO) Agreement on Textiles and Clothing (ATC) on January 1, 2005,
resulted in significantly increased competition among global suppliers to the U.S. and EU
markets, including among the individual ASEAN countries. 7 Large U.S. and EU retailers
consolidated their supply bases once the quotas were removed.
Further, according to industry representatives, to the extent that there has been ASEAN
integration along the supply chain in the textiles and apparel priority sector, it has largely
been driven by variations in the individual countries’ economic environment. 8 The reason
is that availability and relative cost of labor are driving factors in the textile and
especially apparel industries. 9 For example, there is a trend to locate the more laborintensive
apparel factories in the countries with relatively less developed economies, such
as Vietnam, 10 Cambodia, and Laos, where labor costs are relatively low and there is a
large pool of available labor. 11 The Philippines, with a relatively abundant supply of
labor, has also traditionally been an apparel-producing country, although it has struggled
to remain cost-competitive compared with some of the other ASEAN countries. 12
Production of the more capital-intensive textiles (yarns and fabrics) and higher-quality
apparel is concentrated in the ASEAN countries with higher labor costs—Thailand,
Malaysia, and to a lesser extent, Singapore. 13 Cross-border integration is fostered by
investment from the fabric-producing countries in ASEAN into the lower-cost-apparel
manufacturing countries of Vietnam and Cambodia. 14 Indonesia, which has a vertically
integrated textile and apparel supply chain, also has been able to export its fabrics to
ASEAN countries that are primarily apparel producers. 15
5 Industry representative, interview by USITC staff, Kuala Lumpur, Malaysia, March 10, 2010.
6 Industry representative, interview by USITC staff, Kuala Lumpur, Malaysia, March 10, 2010. Note that
virtually no information was available on Burma’s textile and apparel industry. Also, according to industry
sources, Brunei’s textile and apparel industry has virtually disappeared since the ATC quotas were removed
in 2005. Industry representative, telephone interview by USITC staff, January 28, 2010.
7 Note that after the ATC quotas expired, the EU and the United States maintained safeguard quotas on
selected textile and apparel imports from China, as permitted under the China WTO accession agreement.
However, these safeguards were not as comprehensive as the quotas that were in place under the ATC. The
safeguard quotas expired for the EU at the end of 2007 and for the United States at the end of 2008.
8 Industry representative, interview by USITC staff, Kuala Lumpur, Malaysia, March 10, 2010.
9 For the purposes of this discussion, “cost of labor” means the cost to make one unit of a good.
Differences in actual wage rates may be moderated or intensified by differences in productivity.
10 As of spring 2010, Vietnam had the fastest-growing textile and apparel sector in the ASEAN region.
11 Industry representative, interview by USITC staff, Kuala Lumpur, Malaysia, March 10, 2010.
12 For example, the government of the Philippines is seeking preferential duty-free treatment in the U.S.
market for its apparel exports that are made with U.S. fabric. Galvez, “RP Eyes Duty-Free Deal with US to
Boost Textile Industry,” April 20, 2010.
13 Malaysian apparel factories, for example, tend to be small and produce higher-quality brand-name
apparel in smaller quantities. Industry representative, interview by USITC staff, Kuala Lumpur, Malaysia.
March 10, 2010.
14 Industry representatives, interviews by USITC staff, Jakarta, Indonesia, March 3, 2010, and Ho Chi
Minh City, March 10, 2010.
15 Industry representative, telephone interview by USITC staff, January 28, 2010. As explained below,
another key driver of integrated production of apparel and other textile finished products is the ASEAN-
Japan FTA.
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