The Philippines department of trade and industry is finalizing a roadmap to revive the textile and garment industry.  

The latest draft of the Textile-Garment Industry Roadmap 2020-2029 – which has yet to be formally released – lays out the path for an integrated textile-garment industry, strong links between industry, government and the private sector, as well as a dedicated trade office.  Devised by the government’s Board of Investment, the roadmap includes a request that the government combats unfair competition for local suppliers through smuggling and so-called ‘ukay-ukay’ stores. These typically involve selling secondhand apparel imported from North America and Europe for charity distribution but illegally diverted from the ports to these grey market retailers. The items are then sold at 10% to 20% of the original retail price, undermining legitimate retailers and brands.  The roadmap also calls for the provision of capital and land to increase clothing and textile production across the Philippines archipelago, encouraging the purchase of new equipment, as well as highlighting the need for fiscal incentives through reduced value-added tax and reduced power rates.  For the textile sector, other strategies proposed within the roadmap include investing in R&D for product development and marketing, incorporating loom weaving into the curriculum to create awareness, and establishing regional/localised ecosystems of backwardly linked supply chains.  As regards the garment industry, short-term strategies include enhancing access to export markets by taking advantage of free trade agreements and negotiating for more liberal rules of origin requirements with the Philippines’ trading partners. 

Restricted development 

Industry observers speaking to just-style point out that high power costs within the country, a poor record in paying workers well, and reducing their impact on the environment have restricted the development of the country’s garment exporting business.  Marisa D Nallana, president of the Philippine Exhibitions and Trade Corp (PETCO), says the country remains one of the more expensive countries in the world in terms of electricity rates.   According to research from Digital Energy Asia, an Indonesia-based energy service, commercial and industrial electricity rates in the Philippines were higher than in Indonesia, Malaysia, Thailand and Vietnam.  “High power rates are a problem, and feedback from most foreign companies who have plants and offices here is that we have a high cost of electricity,” Nallana says.  Robert Young, trustee for the textile, yarn and fabric sector of the Philippine Exporters Confederation (Philexport), and president of the Foreign Buyers Association of the Philippines (FOBAP), believes more Filipino manufacturers and exporters should make their operations socially compliant on pay, conditions and sustainability – which is important as they expand in local and international markets. 

Uphill battle 

The EU’s High Representative for Foreign Affairs and Security Policy in a report to the European Council and European Parliament on 10 February noted that challenges remain in tackling anti-union discrimination and violence within the Philippines. It said the country needs to do more to reduce the reliance on short-term contracts and combating child labour.  “Foreign buyers want their brand and their reputation as a company to be associated only with positive, healthy, clean, safe and quality,” Young told just-style.  “Those importers with a designated buyer representative office may have in-house auditors as well as their own due diligence practice in qualifying deserving factories, an effort to protect the reputation of the company/brand they represent,” he adds.  Illustrating that the Philippines is fighting an uphill battle in terms of boosting its reputation as an outsourcing centre, the country’s exports of apparel and clothing accessories in 2019 dropped by 7% year-on-year, to US$906m. Exports of yarns and fabrics performed even worse in the same period, dropping by 8% year-on-year, to US$197m.  The country is one of the few that has not seen a boost in garment export orders as a result of the US-China trade war – despite government plans to boost local manufacturing capacity.

Cambodia’s garment factories are preparing for the arrival of raw materials from China, just a week after it was thought production in the Kingdom might slow due to shortages linked to the coronavirus (Covid-19) outbreak. Seven container ships are expected to arrive with raw materials for the factories by today (10 March), with five docking at Cambodia’s Sihanoukville Autonomous Port (PAS), and two at Ho Chi Minh seaport, due to its proximity to the Svay Rieng Special Economic Zone, according to the Phnom Penh Post.  “This is good news for garment workers,” Prime Minister Hun Sen reportedly said at the inauguration of National Road 55. “Production will continue. Workers will continue to work. Factories now have enough raw materials. Do not be afraid. I thank the Chinese government for making this possible.”  Last week, Cambodian officials warned production would slow at 200 garment factories due to a lack of raw materials. About ten factories with 3,000 workers had notified the government that they would partially halt operations.  The Cambodian government had reportedly promised tax breaks to garment factories hit by supply chain disruptions from the coronavirus epidemic, as well as the EU’s partial removal of preferential trade access.  PAS director-general Lou Kim Chhun told The Post yesterday that the container ships were scheduled to arrive before the end of the day.  “China has restored the supply of raw materials for the garment and footwear industries in Cambodia. I am optimistic this supply will continue to increase.”

Vietnam’s minister of industry and trade Tran Tuan Anh recently issued an urgent directive on measures to bolster exports and imports in light of major economic impact of the coronavirus outbreak. He ordered departments to work with industry associations to learn about local firms’ material supply capacity and propose measures to look for alternative sources. Several industries in the country like automobile, garment, footwear and electronics, are facing raw material shortage due to the outbreak in China and other countries. The directive also asked the concerned agencies to facilitate enterprises to take advantage of the European Union-Vietnam Free Trade Agreement while calling for an assessment of the export growth potential of Vietnamese goods to offset falling exports resulting from the virus outbreak. The Vietnam Trade Promotion Agency has been asked to step up its efforts to look for new markets for the country’s agricultural produce and seafood, whose exports have been hit by the epidemic, according to a Vietnamese newspaper report. Vietnamese trade missions abroad are also required to support local enterprises to connect with foreign partners that can supply medical equipment and materials.

Vietnam expects India to turn an alternative source of raw materials for its textile, garment and other industries following the coronavirus outbreak, according to deputy prime minister Vuong Dinh Hue, who recently addressed a reception in Hanoi hosted for Indian Ambassador to Vietnam Pranay Verma. The two sides discussed the possibility of cooperation. Hue said Hanoi has been accelerating innovation to improve productivity and support start-ups and wants to learn from India’s experience in this area. He also expected India to import textiles and garments from Hanoi. Verma too agreed that the two sides should reinforce ties. He hoped to see more investors from Hanoi and Vietnam opening businesses in India in the future, according to a report in a Vietnamese newspaper.

Cambodia’s General Department of Customs and Excise (GDCE) last week issued guidance to help the ailing shipping and garment sectors with raw material supply from China drying up. Officers were instructed to facilitate shipments for firms complying with rules and those in special economic zones (SEZs), and the green lane customs clearance system has been extended as well. The measures follow Prime Minister Hun Sen’s announcement that the government has drafted a plan to support businesses in the garment and tourism sectors as they grapple with the consequences of the European Union’s partial withdrawal of the Everything But Arms (EBA) scheme and the novel coronavirus outbreak in China. GDCE asked officers to work more efficiently, act with professionalism and cooperate closely with SEZs, ports and airports authorities and transportation companies, according to report in a Cambodian newspaper. “We ask all customs officers to be more efficient in their work and speed up paperwork for the importation of raw material for garment factories. All the customs officers must follow the new guidelines with immediate effect,” GDCE said. The Chinese embassy in Cambodia said about 60 per cent of raw materials used in local garment and footwear factories come from China. Ten factories in Cambodia have already run out of raw materials as suppliers in China close due to the virus outbreak, the government announced recently. In March, the country could see as many as 200 factories and enterprises running out of raw materials, affecting around 160,000 workers.

Indonesia plans to ease licensing procedures to import raw materials as its manufacturing sector is witnessing the impact of supply chain disruption from China caused by the coronavirus outbreak. Simplifying import procedures for raw materials would be one of the strategic measures to cope with the impact, finance minister Sri Mulyani Indrawati said recently. Five hundred companies were being considered to receive special permits to allow them to import raw materials from sources other than China, the minister said. The raw materials imported by the 500 companies account for two-fifths of the country’s total raw material imports, according to a news agency report. The disruption to the supply of raw materials from China, especially for plastic, textile, footwear, steel and chemical products, has severely hurt the domestic industry, Indrawati added.

A recent study by UK consultancy firm Retail Economics and global law firm Squire Patton Boggs shows more than half of retailers surveyed have experienced supply chain issues resulting from the novel coronavirus outbreak. Almost a quarter– ranging from food, fashion and health and beauty businesses–say the disruption is significantly affecting their business. Yet only 7 per cent of the retailers have flexible enough supply chains to be able to switch suppliers, according to a press release from UK-based Retail Economics. If the virus persists, 24 per cent of them believe it could lead to a permanent change in their business, including switching suppliers, investing more into online operations, reviewing contracts, and risk mitigation. But above supply issues, retailers are most concerned about the damage the virus could have on consumer confidence. Forty five per cent of retailer respondents have already seen a negative impact on sales, while three quarters of them expect a negative impact on sales if the virus persists. A separate survey among UK households revealed that over a third (39 per cent) of consumers are worried about product shortages as a result of the outbreak, which has led to almost one in ten consumers (9 per cent) to stockpile. More than a third (36 per cent) now consider the virus a high threat, up from less than a quarter (23 per cent) in a previous survey conducted. There is now a greater willingness to sacrifice holiday plans. Over a quarter (28 per cent) of people are currently avoiding travel abroad, which could rise to nearly half (45 per cent) of consumers if the virus persists. Given that UK households spend just around £2,200 on holidays abroad per year, this could put £25 billion at risk of not being spent on travel overseas. Fifteen per cent UK residents are currently avoiding public transport, 23 per cent are avoiding contact with other people, and 9 per cent are avoiding restaurants and entertainment destinations. If the virus persists, 34 per cent of consumers would consider avoiding public travel, while 29 per cent would avoid restaurants and entertainment destinations, and a quarter would avoid shopping destinations. Resultantly, online retail could benefit. Half of the shoppers surveyed would consider buying more online to avoid physical shops if the virus persists, although one in two would try to avoid buying online from international sellers that ship products directly from China.

The European Union (EU) has approved Pakistan for another generalised scheme of preferences plus (GSP+) status till 2022, which implies the latter can export goods to Europe without application of regular duties. Adviser to prime minister for commerce, industry and investment Abdul Razak Dawood announced the development in a tweet last week. The decision had been under consideration since the third biennial assessment of GSP+ was published on February 10. Pakistan first received the GSP+ status in 2014. “This would strengthen our resolve to continue to improve the social and economic conditions of our people. I urge the business community to diversify their exports to capitalise on this opportunity to the optimum,” Dawood wrote. The assessment underscores 27 conventions for international trade, including steps about climate change and improved vigilance against crime and narcotics. Compliance with these steps ensures that countries enjoy the GSP+ benefits. According to the EU report, Pakistan did well on the 27 international conventions. Since 2014, Pakistan’s exports to the EU have soared by 65 per cent, from €4.538 billion in 2013 to €7.492 billion in 2019. The sectors to avail the most benefit out of the tariff concessions were textile and garments. For Pakistan, the EU’s GSP+ status means full removal of tariffs on over 66 per cent of product categories for exports to the EU.