Regional trade and production blocs in a global industry: towards a comparative framework for research

Transcription

1 Environment and Planning A 2006, volume 38, pages 2233 ^ 2252 DOI: /a38260 Regional trade and production blocs in a global industry: towards a comparative framework for research Jennifer Bair Department of Sociology, Yale University, PO Box , 104 Williams Hall, 80 Sachem Street, New Haven, CT , USA; jennifer.bair@yale.edu Received 6 July 2005; in revised form 23 January 2006 Abstract. While apparel manufacturing is often considered the quintessential global industry, the regional dimension of trade and production in the textile and clothing sector is less widely noted. In this paper I discuss two macroregional production blocs: North America (defined as the United States, Mexico, and the Caribbean Basin countries) and Greater Europe [which includes the European Union (EU), Central and Eastern Europe, Turkey, and North Africa]. Analyzing what opportunities regionalization might provide is particularly relevant given China's increasing dominance of both the EU and US import markets in the post-multifibre Arrangement period. Drawing on the global commodity chains literature, I discuss three dimensions around which cross-regional comparative research on the European and North American apparel sectors can be organized: (1) production model; (2) institutional context; and (3) development outcomes. Several similarities between these production blocs are noted, particularly with regard to the intraregional division of labor expressed by networks connecting firms in higher-wage and lower-wage countries and the coexistence of assembly subcontracting and full-package manufacturing in both regions, but differences include the existence in Europe of a stronger textile base and a more expansive regionalization strategy (as suggested by the Euro ^ Mediterranean Partnership), which may strengthen the competitiveness of the Greater European bloc vis-a -vis its North American counterpart. Introduction The apparel trade has long figured prominently in discussions of globalization, given the well-deserved reputation of garment manufacturing as one of the most geographically dispersed industries; virtually all countries in the world have some domestic fabric and clothing production, and many also export these products to the world market. In this paper I focus on a less frequently noted aspect of this quintessentially global industry: its regional organization. What insights into the organization of today's global garment industry can a comparative regional perspective provide? I discuss two macroregional production blocs: North America (defined as the United States, Mexico, and the Caribbean Basin countries) and Greater Europe [which includes the European Union (EU), Central and Eastern Europe, Turkey, and North Africa]. Both of these blocs are characterized by an intraregional division of labor through which apparel exporters in the lower wage countries are linked via a variety of production and sourcing networks to the `core' markets. (1) In light of China's increasing dominance of the EU and US import markets in the post-multifibre Arrangement (MFA) period, it is important to analyze what opportunities this kind of regionalization might provide for increasing the competitiveness of high-wage and low-wage countries in both macroregions and for enhancing the industrial upgrading prospects of the latter. Deindustrialization has characterized the textile and apparel sector in high-wage countries for several decades, reflecting various factors: high relative labor costs; (1) In discussing the EU as a market for apparel imports, I am referring to the `EU15'öthe countries of Western Europe that constituted the membership of the union prior to the accession of ten additional countries from Central and Eastern Europe in 2004.

2 2234 JBair multlateral trade liberalization; special regulatory regimes encouraging the relocation of garment assembly to nearby, lower wage countries; and technological innovation, which has increased the productivity of domestic manufacturing while facilitating the globalization of production (for example, by enabling retailers and designers in New York or London to transmit information to factories in Honduras or Romania). The pace of job loss accelerated sharply after 1990 in the United States and Western Europe. In the United States, apparel employment peaked in 1974 at 1.4 million. The magnitude of job loss since is aptly summarized by a single statistic: in December 2005 the total combined textile and apparel employment in the United States stood at workers ( in textiles and in apparel) (Bureau of Labor Statistics, 2005). Although there are still well over 2.5 million people employed in the sector across the twenty-five countries of the EU, more than jobs were lost between 1990 and 2000 (Hanzl-Weiss, 2004). In tandem with declining domestic employment, the EU and US textile and apparel industries have confronted dramatic growth in imports. (2) Imports now account for 90% of the US clothing market by value, and import penetration technically exceeds 100% in some EU country markets (Palpacuer et al, 2005). Over two thirds of clothing exports come from developing countries, and among these suppliers to the global market none has provoked as much discussion (and, in some quarters, consternation) as China. China is the leading exporter to the EU, United States, and Japanörespectively, the world's largest, second-largest, and third-largest markets for clothing. China claimed 19.2% of the EU import market and 16.7% of the US import market for clothing in In fact, all five of the countries which appear in table 1 as leading Table 1. Leading apparel exporters to regional markets, 2003 [source: trade data from Eurostat (EU) and US Department of Commerce (USA)]. Top-ten apparel exporters rank to the EU market to the US market country market share (%) country market share (%) 1 China 19.2 China Turkey 14.2 Mexico Romania 7.2 Hong Kong Bangladesh 6.1 Honduras Tunisia 5.4 Vietnam Morocco 4.9 Indonesia India 4.6 India Hong Kong 4.0 Thailand Poland 2.9 Dominican Republic Indonesia 2.6 Bangladesh 2.9 Subtotal Rest (2) Although Canada is technically part of the North American textile and apparel complex, I exclude it from this discussion because, unlike the EU and United States, it does not have strong ties to low-wage apparel suppliers in the region. China's share of the Canadian import market for apparel is 35.6%, with hemispheric suppliers such as Mexico lagging far behind. However, Canada shares with most other high-wage countries an experience of declining employment and increasing import penetration in this sector. In early 2004 the Canadian textile industry employed people, with another employed in apparel factories. That year import penetration of the domestic textile and apparel markets reached 64% and 63%, respectively.

3 Regional trade and production blocs in a global industry 2235 suppliers to both the EU and US markets are located in Asia, underscoring the export dynamism of producers in the region. However, table 1 also points to the importance of a group of regional suppliers in Eastern Europe ^ North Africa and in Latin America whose exports are focused on either the EU or US market, respectively. Five of the largest exporters to the EU (Turkey, Romania, Tunisia, Morocco, and Poland), and three to the United States (Mexico, Honduras, and the Dominican Republic), fit this description. Although table 1 shows where EU and US clothing imports are coming from, the trade data provide little insight into how garment manufacturers in the exporting countries are linked to these markets, what institutional and regulatory factors shape those linkages, and how they impact local firms and workers. I will address these issues through a review of the relevant literature, with an eye towards developing a framework comparing North America and Greater Europe as macroregional trade and production blocs. Although differences between and within these macroregions are many and important, they nevertheless share several characteristics which make their comparison instructive. Domestic textile and apparel manufacturers in these regions face heightened competition stemming from trade liberalization and the globalization of production. The phasing out of the MFA under the Agreement on Textiles and Clothing (ATC) and the inauguration of ostensibly quota-free trade in garments on 1 January 2005 intensifies this pressure. Firms in both regions are worried about a booming Chinese industry, but the growth in China's exports is just one (abeit dramatic) manifestation of more general consolidation in worldwide textile and apparel production in the post- MFA period (UNCTAD, 2005). While this rationalization of the global supply base will negatively impact some regional exporters, the best hope for sustaining the competitiveness of the textile and apparel industries in Europe and North America may lie in the development of regionally integrated production blocs. The textile and apparel sector as a buyer-driven commodity chain Over the last quarter century, the textile and apparel commodity chain has undergone a transformation. As recently as 1970, firms in this industry ``were linked through their role in the sequence of production: relationships between firms reflected arms-length transactions between near-equals. The organisation of the industry was market-based: firms purchased their inputs from one set of firms and sold their output to others. Most production clearly demarcated manufacturing and retailing'' (Webber and Weller, 2001, page 384). Essentially, retailers bought whatever clothing manufacturers had to sell. By the end of that decade, the `denationalization' of apparel production was well underway in many higher wage economies, which were receiving a steadily increasing flow of imports from developing countries. A perhaps less obvious but related change was the growing power of retailers and branded clothing companies vis-a -vis other firms in the chain, reflecting developments which were simultaneously economic, organizational, and cultural (for example, consolidation in the clothing retail sector, the rise of branded marketers such as Liz Claiborne, and the construction and marketing of global brands) (Bonacich and Appelbaum, 2000; Featherstone, 1990). The result is a transformed textile and apparel industry that was first described by Gereffi (1994) as a buyer-driven commodity chain. Many studies have employed the buyer-driven commodity chain construct to describe and analyze these changes in the global apparel industry (Appelbaum and Gereffi, 1994; Gereffi, 1999; Kessler, 1999). However, most have examined the sector from the vantage point of the United States, focusing on the organizational strategies of that country's largest retailers and branded manufacturers (Gereffi, 1994), the implications of those decisions for other actors in the industry (Bair and Gereffi, 2002), and/or their impact

4 2236 JBair on firms or regions that become linked to the chain (Bair and Gereffi, 2001). Recent work has challenged the empirical narrowness of this literature and suggested that, although the buyer-driven concept serves as a useful Weberian ideal type which captures an important dimension of the industry in many parts of the world, even within Western Europe there is enough diversity across countries in the organization and governance of apparel production to make the notion of a European commodity chain, let alone a single global commodity chain, problematic (Palpacuer et al, 2005; Wortmann, 2005). For this reason, a more systematic comparison of similarities and differences across cases is needed. A comparative commodity chain framework that further points to the regional organization of the industry can highlight the networks connecting neighboring or near-by countries at different levels of development and the particular regulatory regimes that encourage this division of laboröfactors that a research design based on individual countries as units of analysis may neglect. A macroregional comparative framework can draw on the global commodity chains approach, which identifies four dimensions with respect to which every commodity chain can be organized: (1) an input ^ output structure, which describes the flow of raw materials and the transformative activities constituting the production process; (2) territoriality (that is, where these activities take place); (3) governance structure, which describes how and by whom these activities are coordinated, and how profits and costs are distributed among the different actors in a chain; and (4) institutional context, including relevant domestic, regional ^ supranational, and/or global regulations and regimes (Gereffi, 1994). In this paper I use somewhat different dimensions to organize my discussion of the industry in comparative regional perspective. First, I describe the production model(s) existing in each macroregion. Specifically, in the next section I examine the first three dimensions of the global commodity chain framework described aboveö the fragmentation and flow of the production process (input ^ output structure) across different locations (territoriality) and the control and coordination of that process by certain actors within the chain (governance structure). Second, I review the relevant institutional contexts shaping the apparel chain, particularly the dialectic between multilateral regimes encouraging liberalization of the global garment trade and a concomitant consolidation of manufacturing in fewer countries, and supranational initiatives to increase the competitiveness of regional production blocs. Third, I address the issue of what implications the first two elements of this framework have for development outcomes of lower wage, apparelexporting countries in each macroregion with regard to industrial upgrading and labor issues. Production model Much of the literature on the North American apparel industry, and especially research oriented by the commodity chains framework, has focused on the types of interfirm networks linking various actors along the chain. These analyses point to a relationship between different types of lead firms in the United States, the way they organize their production networks, and where manufacturing takes place. The maquila model of offshore assembly subcontracting (also known as production sharing) has been used primarily by US apparel manufacturers, often as part of a price-averaging strategy that entails producing in or sourcing from numerous countries, in addition to domestic operations (Gereffi, 1994). With an eye to reducing costs, US manufacturers began using this system in the 1970s when sewing operations were shifted from domestic plants to in-bond factories in Mexico and Central America, and the pace of this process accelerated during the 1980s. Although offshore assembly work was sometimes carried out via subcontracts to local companies, US apparel giants such as

5 Regional trade and production blocs in a global industry 2237 Haggar, Lovables, Maidenform, Phillips-Van Heusen, and Hanes more frequently controlled this production directly through `owned and operated' factories (Mortimore, 2002). Most of the US companies with subsidiaries in Latin America were making basic products such as underwear and men's pants; the relatively large amount of `needle' required to sew foundational garments (for example, bras and girdles) made these items particularly favored candidates for offshore production (Rosen, 2002). In contrast, branded marketers and retailers that became prominent in the 1980s as `manufacturers without factories' have opted for sourcing strategies that involve constructing networks with full-package producers, mostly in East Asia (Appelbaum and Gereffi, 1994; Gereffi, 1994). The full-package model refers to a system in which the manufacturer receiving an order from a buyer is responsible for completing the full range of production tasks, as well as for financing the purchase of whatever materials and supplies (for example, fabric, thread, and trim) are needed to produce the garment. Sometimes the buyer specifies particular materials to be used, but often the fullpackage manufacturer plays a role in locating the right fabric or trim for an order. Likewise, full-package manufacturers occasionally contribute to the development and design of a particular garment, while at other times they are responsible only for translating the buyer's design into the specifications needed for its production (marking and grading a pattern, etc). Although the production-sharing model has long dominated Latin America's export-oriented apparel industry, apparel producers in East Asia acquired full-package capabilities well over three decades ago. In the aftermath of the Second World War, and in the context of growing fears about the communist threat in Asia, the reconstruction of the Japanese textile industry became a foreign-policy priority for the US government (Rosen, 2002). These efforts to resurrect Japanese textile production proved so successful that US textile manufacturers began demanding protection from imports of cotton fabrics from Japan by the mid-1950s. After President Eisenhower's negotiation of voluntary export restraints with Japan in 1957, textile and apparel imports from other East Asian countries began to grow. Hong Kong was the first to join the ranks of exporters to the US market, and by 1970 it was the region's leading supplier. South Korea and Taiwan emerged as exporters in the mid-1960s, and consolidated their position as leading suppliers to the United States by The success of these East Asian exporters was reflected in the so-called Big Three's dominance of the US import market for clothing. Throughout the 1980s, Hong Kong, Taiwan, and South Korea together claimed about 50% of that market, but because of rising labor costs and the quota system depressing further export growth, the Big Three's share declined over the course of the subsequent decade, as exporters in Latin America and new suppliers in South and Southeast Asia gained ground. There are several reasons why the assembly model as opposed to the full-package model came to dominate in Latin America, with the reverse being true in Asia, but one important factor is the regulatory regime encouraging production sharing between the United States and its southern neighbors. US textile companies fought hard to insure that the benefits granted to apparel imports from Mexico and the Caribbean Basin countries, such as very low tariffs and essentially limitless quotas, were extended only to those garments assembled offshore from fabrics formed and cut in the United States. In the absence of such restrictions, they warned, companies from Hong Kong and Taiwan would use Latin America as a production platform for assembling apparel from textiles manufactured in Asia. While provisions limiting preferential treatment to garments sewn from US fabric benefited US textile companies, they also discouraged backward linkages between local garment producers and local fabric manufacturers.

6 Table 2. US apparel imports by region and country, 1986 ^ 2004 (source: adapted from Bair and Gereffi, 2002; compiled from official statistics of the US Department of Commerce, US imports for consumption, customs value). Country source 1986 value 1990 value 1994 value 1998 value 2000 value 2002 value 2004 value 2005 value US $ % US $ % US $ % US $ % US $ % US $ % US $ % US $ % million million million million million million million million Northeast Asia China Hong Kong a Taiwan South Korea Macao Total Southeast Asia Indonesia Philippines Thailand Malaysia Singapore Vietnam Total South Asia India Bangladesh Sri Lanka Pakistan Total JBair

7 Table 2 (continued). Country source 1986 value 1990 value 1994 value 1998 value 2000 value 2002 value 2004 value 2005 value US $ % US $ % US $ % US $ % US $ % US $ % US $ % US $ % million million million million million million million million Central America and the Caribbean Dominican Republic Honduras El Salvador Guatemala Costa Rica Jamaica Nicaragua NA Other Total Mexico All other countries Total imports a Under the `one country, two systems' policy, Hong Kong has been a special administrative region of China since Regional trade and production blocs in a global industry 2239

8 2240 JBair The earlier and more successful emergence of full-package production in East Asia as compared with Latin America also reflects the type of lead firms sourcing from the region. Five large apparel manufacturers began placing contracts with firms in Hong Kong, mostly for low-end, women's wear in the late 1950s and early 1960s. These `founding fathers' worked as middlemen, putting other manufacturers and US retailers in touch with East Asian exporters during a period when few US firms had their own sourcing capabilities. By the 1970s large retailers such as The Gap and The Limited were opening their own overseas buying offices, cutting out the intermediaries, and becoming primary importers themselves. However, unlike manufacturers, whose pricing strategy was based from the production angle on the estimated cost of making the garment, retailers calculated what they were willing to pay contractors by working down from the price point at which they wanted to sell the item. This pricing strategy was a boon for local producers, but it was an unwelcome development for US manufacturers and brokers, who became squeezed out of the market and were forced to look elsewhere for cheaper suppliers. Thus, East Asia was left largely to the retailers and brand-name manufacturers or marketers that were placing full-package orders with local firms. Most of this clothing featured locally manufactured textiles (Bonacich and Waller, 1994). After the implementation of the North American Free Trade Agreement (NAFTA) in 1994, Mexico appeared to be positioning itself to become the new full-package sourcing solution in North America, thanks to two developments. First, NAFTA established `North American' rules of origin, which, unlike the earlier productionsharing regime, did not discriminate against the incorporation of local inputs in apparel being produced for the US market. Second, and in response to this change, new investments in Mexico's textile industry looked poised to increase the quantity and quality of domestically manufactured fabrics available to fuel the country's booming garment exports. Thus, observers speculated on Mexico's ability to make the transition beyond the maquila model and compete with Asian manufacturers for full-package orders for the US market (Gereffi and Bair, 1998; Kessler, 1999). Optimism regarding Mexico's post-nafta trajectory was suggested by the arrival of new customers from the United States, as retailers and branded manufacturers or marketers began sourcing large volumes of limited products (mostly blue jeans and other cotton pants) from major export-oriented apparel clusters in Mexicoönamely, Torreo n, Puebla, Aguascalientes, and Yucatan (Bair and Gereffi, 2001). As shown in table 2 Mexico's post-nafta boom propelled it to the head of the pack among apparel exporters in the late 1990s, but its reign at the number one spot was brief. A combination of several factorsöslowdown in the US economy, an overvalued peso, China's entrance into the World Trade Organization (WTO), the growth of large Asia-based transnationals supplying the US market with increasing volumes of apparel, and the reconfiguration of the global garment trade in anticipation of the phasing out of the MFAöhas dampened Mexico's export dynamism (UNCTAD, 2005). Apparel exports have declined more than 27% between 2000 (when the value of US clothing imports from Mexico peaked at $8.7 billion) and 2005 (when China's apparel exports of $19.9 billion more than trebled Mexico's $6.3 billion). Apparel-producing regions heavily dependent on assembly subcontracting, such as the state of Yucatan, have been hit particularly hard (Malone, 2004). But even the most-developed center of full-package production in the countryöthe Torreön cluster in northern Mexicoöhas not emerged unscathed, having experienced significant declines in both production and employment in recent years (Bair and Gereffi, 2003). Even at the height of the boom, however, when the prospects for Mexico's transition `beyond the maquila model' were most auspicious, the progress of the industry towards full-package capabilities was profoundly uneven.

9 Regional trade and production blocs in a global industry 2241 A major obstacle to increasing Mexico's competitiveness as a world-class exporter has been the disappointing performance of the country's textile industry. Several of the largescale textile investments that were announced by US and Asian firms in the heady years after NAFTA have either failed to materialize or performed below expectations (Bair, 2002). The Central American and island nations of the Caribbean Basin are the other regional exporters of significance, together accounting for 13% of US import market share in Proximity to the United States, relatively low labor costs, and preferential access to the US market made these countries attractive sites for assembly subcontracting throughout the 1980s. In fact, this offshore production was organized by many of the same US manufacturers with assembly operations in Mexico. Initially, analysts predicted that the Caribbean Basin countries would be harmed by their exclusion from NAFTA (Matthews, 2002; Mortimore, 2002). (3) But some countries in Central America have fared well in recent years. Exports from Honduras, for example, increased by 322% between 1994 and 2004, making this small nation the fourth-largest supplier of clothing to the US market. Partly, this reflects recent investments by large, vertically integrated Asian firms which are producing fabric as well as garments (Bair and Dussel Peters, 2006). The development of full-package capabilities in this region has been even more uneven and halting than in Mexico though, and firms in the Caribbean basin are concerned about their future competitiveness. Although the region boasts success stories to be sure, such as the area around Guatemela's capital city, where a single production complex owned by the local firm Koramsa employs over workers and turns out pairs of pants a week for clients such as Levi Strauss, Gap, and Calvin Klein (Just-style.com, 2004), numerous reports of plant closings and job losses in 2004 and 2005 generated concerns about the future of the industry. The most recent trade data would seem to confirm these fears: apparel exports from the Caribbean basin countries fell by almost 8% in 2005, down from $10.0 billion in 2004 to around $9.2 billion. These developments are particularly worrisome for the small Central American economies, in which the apparel industry generates over 50% of formal employment and 60% of total export revenue in some countries (ECLAC, 2004; Thompson, 2005). The experience of the Central and Eastern European countries during the 1990s is more similar to the trajectory of Mexico than to that of the Caribbean and Central American countries. Mexican textile and apparel manufacturers, protected from international competition for several decades by the country's import-substitution regime, were unprepared for the surge in garment imports following trade liberalization in the late 1980s. Similarly, the deindustrialization and restructuring that occurred after 1989 in the postsocialist space resulted in labor shedding and plant closings affecting many of Central and Eastern Europe's fabric and garment producers. Like Mexico, firms in the region saw exporting to foreign markets as a survival strategy, and, like Mexico, these companies have become incorporated into the global apparel industry through a combination of assembly subcontracting and full-package networks. During the first half of the 1990s, the assembly subcontracting model ö known in the region as outward-processing trade, or OPTödominated, accounting for 80% of the clothing imported into the EU from Central and Eastern Europe in the (3) Over 70% of the region's apparel exports enter the US market under various production-sharing arrangements, meaning that the garments contain yarn and/or fabrics manufactured in the United States. That percentage varies considerably across countries, and is notably lower in some, especially Guatemala. However, that regional average is higher than the comparable percentage for Mexico (50%), let alone China (1%) (ECLAC, 2004).

10 2242 JBair mid-1990s (Smith, 2003). As was the case in Mexico and the Caribbean Basin, where region-specific production-sharing programs were expanded during the same decade, export production under the OPT tariff regime took off in Central and Eastern Europe during the 1980s. The logic behind the OPT system in Europe was similar to that of its North American counterpart. In the case of the apparel industry, it was intended to confront heightened global competition in the garment trade (especially from Asian exporters) while providing some protection to Western Europe's textile industry. The profile of leading OPT exporters has changed over time, as production shifts to the South and East. Early OPT exporters such as Poland and Hungary have declined in importance, and countries with lower labor costs (especially Romania and Bulgaria) are claiming a growing share of assembly contracting orders for the EU market. Similarly, Western European countries differ with regard to their use of the OPT option. During the second half of the 1990s, `official' OPT trade declined as a proportion of exports from Central and Eastern Europe to the EU, falling from 82% to 35% between 1996 and Yet, as Begg et al point out, the apparent `normalization' of the region's garment trade is to some extent a statistical artifact of ongoing trade liberalization, which eliminated the special status of OPT as a preferential regime in 1997: ``although the OPT regulatory regime has ended and is no longer recorded as such in the EU trade statistics, outward processing as a production process continues to be the largest part of ECE [Eastern and Central Europe] ^ EU apparel trade. Indeed, outward processing as a form of assembly production using imported fabric has continued at an increased rate as trade has been liberalized'' (2003, page 2201; see also Pellegrin, 2001). However, several trends regarding the changing nature of networks linking this region to the EU market can be noted. First, the use of locally manufactured fabrics in the region's apparel exports is growing. Improvements in the quality of the region's textile base are being driven partly by foreign direct investment from EU firms, such as the Italian textile companies that have invested in Romania and the Czech Republic (Begg et al, 2003). Joint ventures between companies from Western Europe and local firms are also serving to improve the quality and increase the quantity of locally manufactured fabric (Kalantaridis et al, 2003). Second, `triangle subcontracting' arrangements have developed between first-generation OPT producers and firms in lower cost locations farther east (Kalantardis et al, 2003; Smith et al, 2006). Danube, a Hungarian knitwear manufacturer, is typical in this regard. The company, which services both EU and US clients, continues to manufacture fabric in Hungary while shifting some of its sewing to Romania, resulting in a reported labor-cost savings of 80% (Abend, 1996, pages 12 ^ 15). In Bulgaria, triangle manufacturing arrangements are organized predominantly by Turkish firms, many of whom are producing for US customers instead of, or in addition to, EU customers (Smith et al, 2005). To summarize, assembly subcontracting and full-package networks coexist in both macroregions, though the mix of production models varies greatly across and within countries. The transition to more locally integrated manufacturing for export may be occurring at a faster pace in parts of Central and Eastern Europe than in Latin America, perhaps reflecting a stronger textile base in the former. Second, lead firms from the United States and EU organizing regional production include manufacturers, retailers, marketers, and sourcing agents. European retailers appear to do less direct sourcing from global suppliers than their US counterparts, relying more frequently on importers and trading houses (Palpacuer et al, 2005). In the North American context, manufacturers have been more likely than retailers or marketers to coordinate assembly subcontracting networks, with retailers or marketers relying primarily on full-package solutions to their sourcing needs. This difference in organizational strategies appears

11 Regional trade and production blocs in a global industry 2243 less pronounced in the European context, however, where large German retailers often coordinate production through more hands-on OPT arrangements with subcontractors in the East. Finally, although over the past two decades exporting via a mix of full-package and assembly subcontracting networks to foreign firms has become a widespread response to economic crisis in both regions, own-brand production for the domestic market continues to be an important business for some firms. Although, in both Latin America and Eastern Europe, growth in the domestic market has been sluggish to nonexistent in recent years, the firms (albeit likely to be limited in number) that can succeed via this strategy may prefer it to exporting (Bair, 2002; Smith et al, 2006). Still other strategies, such as production for informal markets, are pursued by some firms. In short, rather than a clear trajectory from assembly subcontracting to full-package manufacturing, many firms experiment with and combine various production models, meaning that the same company can be integrated into the apparel commodity chain in different ways. Institutional context For over three decades, international trade in garments was regulated by a series of regimes, beginning in 1961 with the Short Term Arrangement Regarding International Trade in Cotton Textiles. Early regulations were succeeded in 1974 by the MFA. In 1995 the adoption of the ATC established a framework for phasing out the MFA and incorporating trade in garments fully into the WTO framework by 1 January The transition to quota-free trade has generated much speculation, and even alarm, as manufacturers, policymakers, and industry analysts try to predict its impact on international trade and the global geography of clothing production. Although most experts agree that India and China will be among the winners emerging in the post period, and that countries relying heavily on the quota system (for example, Bangladesh and Vietnam) will be the biggest losers, there is diasgreement nevertheless regarding the magnitude of these changes. Some maintain that a Chinese industry unconstrained by quotas will claim as much as 50% of the world market for apparel, whereas others take a more cautious view (UNCTAD, 2005). For example, Abernathy et al (2006) argue that the rise of `lean retailing' in the United States and Europe changes the logic of global apparel sourcing because factors beyond the price of raw materials and labor costs enter into the sourcing equations of lead firms. At any rate, the global geography of production will continue to be impacted in the post-mfa era by the institutional contexts shaping the apparel commodity chain. At the global level, these include the regulatory framework governing international trade in textile products. However, regional institutions are also relevant, and the phasing out of the MFA may make them more so: the ATC eliminates quotas, but it does not abolish tariffs, which continue to affect global trade in garments. Thus, insofar as exporters in Latin America and Eastern Europe enjoy duty-free access to their respective core markets, they continue to enjoy some benefits vis-a -vis extraregional exporters such as China. (4) The efforts of countries in the Caribbean Basin to secure `NAFTA parity' culminated in the Dominican Republic ^ Central America Free Trade Agreement (CAFTA), which was negotiated over the course of 2003 ^ 04. Although in the United States its Congressional fate seemed uncertain, CAFTA was finally ratified by a narow margin (4) Regional initiatives impacting the apparel industry include the Caribbean Basin Trade Partnership Act of 2000, the Everything but Arms Initiative, and the African Growth and Opportunity Act (UNCTAD, 2005).

12 2244 JBair Table 3. US apparel and textile trade with major exporters, 1990 ^ 2004 (in US $1000) (source: US International Trade Commission data, domestic exports and imports for consumption, customs value) CAFTA countries Apparel exports to USA a Textile exports to USA b Textile imports from USA Mexico Apparel exports to USA Textile exports to USA Textile imports from USA China Apparel exports to USA Textile exports to USA Textile imports from USA a SITC 84. b SITC 65. in July As four of the six Caribbean Basin countries are major exporters of garments to the US market, CAFTA has important implications for the textile and apparel industries. (5) Proponents argue that eliminating tariffs on apparel imports from these countries will boost the competitiveness of regional suppliers vis-a -vis Asian exporters. They further contend that, because, unlike China, Central America's garment manufacturers rely heavily on US fabrics, a trade deal which supports regional apparel exporters will also help the US textile industry. Table 3 provides data regarding trade in textile products between the United States and its principal apparel suppliers between 1990 and In 2004 the six CAFTA countries imported $2.6 billion worth of textile products from the United States, while US imports of apparel from those countries totaled $9.6 billion. In comparison, US textile exports to China totaled less than $268 million in 2004, while the United States imported $13.6 billion in clothing from China, and an additional $4.2 billion in textiles. The US textile industry did not unanimously support CAFTA, however. The National Council of Textile Organizations, whose eighty members include large manufacturers such as Guilford Mills and the International Textile Group (comprising Burlington Industries and Cone Denim), announced its support of the agreement in May 2005 (Abrams, 2005). The council pointed out that Central America's garment factories consume approximately 40% of US yarn exports and 25% of US fabric exports, making textile mill products the leading US export to the region and making Central America the second-largest customer for the industry behind Mexico. Steven Lamar, executive vice president of another group that supported CAFTA, the American Apparel and Footwear Association, explained that ``the real issue is whether the Western Hemisphere can compete vs. Asia. Without CAFTA, we will not be able to integrate the US and Central America'' (quoted in Field, 2005). This view (5) Honduras ranked fourth among exporters of apparel to the US market in 2004; the Dominican Republic ranked ninth; Guatemala ranked eleventh; and El Salvador ranked fifteenth. With the exception of El Salvador, which retained its position as the fifteenth largest exporter (by value) to the United States, these countries lost US import market share in The rankings of Honduras, Dominican Republic, and Guatemala fell to seventh, tenth, and twelfth, respectively.

13 Regional trade and production blocs in a global industry 2245 was not shared by another organization representing predominantly smaller fabric manufacturers, the American Manufacturing Trade Action Coalition, which called CAFTA a ``job killer''. As was the case with NAFTA, the rules of origin governing trade in textile products were among the most contentious issues during the CAFTA negotiations. Protracted negotiations produced something of a compromise, with the parties agreeing to a basic `yarn-forward' rule of origin, meaning that every process from the spinning of yarn through the final assembly of the garment must occur in one of the seven signatory countries. (6) Although the yarn-forward provision, as opposed to a more lenient `fabric-forward' or cut-and-sew rule, benefits the US textile industry, some domestic manufacturers were disappointed that CAFTA includes a cumulation provision, which allows inputs manufactured in Mexico or Canada to be used in woven apparel products. In addition, US industry groups opposed the inclusion of tariff preference levels for Nicaragua, which permit that country to export to the United States up to 100 million square meter equivalents of apparel containing fabric from any country in the world. While textile companies in the United States complain that these loopholes could cost the industry $1 billion in foregone sales, US retailers and importers lament what they consider restrictive rules of origin that do not provide Central America's apparel exporters with sufficient access to textiles produced outside of the hemisphere. The heated debate over CAFTA's rules of origin reflects the perceived importance of the agreement among the participating countries. The regulatory framework that it establishes is intended to consolidate a regional production bloc in the western hemisphere which will strengthen the competitive position of textile and apparel manufacturers in the Americas vis-a -vis Asian producers. Although this hemispheric strategy is likely to be of limited success, as suggested by the now decade-long experiment with NAFTA, it nevertheless underscores the efforts of private-sector and public actors to shape the institutional context in which the apparel commodity chain operates (Bair and Dussel Peters, 2006). Like their North American counterparts, European textile and apparel manufacturers are concerned about the competitive pressures of the post-mfa era, and have sought ways to strengthen and deepen intraregional production and trade. The most notable development in this regard is the Euro ^ Mediterranean (Euromed) Partnership, which was launched in One of the primary objectives of the partnership is the promotion of free trade between the EU and ten countries of the Mediterranean region. Among these are three leading apparel exporters to the EUöTurkey, Morocco, and Tunisia. (7) As with NAFTA and CAFTA, this requires establishing rules of origin to determine which products enjoy preferential access to the EU market. Currently, the members of the Euromed Partnership are creating a system of diagonal cumulation to incorporate the Mediterranean countries into the pan-european model. The resulting pan-euro ^ Mediterranean system will harmonize trade rules among participating countries that are linked to each other by a series of agreements, providing that all of the agreements contain identical rules of origin (Augier et al, 2004). For example, so long as preferential trade agreements with the required provisions are in place between the countries involved, a garment can be considered to meet the pan-euro ^ Mediterranean rules of origin for import into the EU if it is sewn in Romania from Turkish-formed fabric using yarn spun in Tunisia from Egyptian cotton. (6) There are several exceptions to this basic rule. Garments using fabric deemed to be in short supply in the hemisphere, such as silk, are subject to the more lenient `cut-and-sew' rule, which CAFTA also extends to brassieres, pajamas, woven boxer shorts, and some woven girls' dresses. (7) The seven other members from the Mediterranean region are Algeria, Egypt, Israel, Jordan, Lebanon, Syria, and the Palestinian Authority.

14 2246 JBair The system of pan-euro ^ Mediterranean cumulation is intended to promote the regional integration of the apparel commodity chain within the geographical limits of this broadly defined Greater Europe. It is strongly supported by EURATEX, the European textile industry's lobbying group, which hopes that this regional strategy can provide some protection from Chinese apparel imports to the EU. This is in contrast to the US textile industry's opposition to cumulation with the NAFTA countries in CAFTA on the grounds that weak customs enforcement in Mexico would allow Asian manufacturers `backdoor' access to the US market. (8) Industrial upgrading and development outcomes Because of its central role in the industrialization experiences of many countries, textile and clothing production is often considered to be an early but critical stage in the development trajectory of an economy. To what extent does the contemporary apparel industry play a similar bootstrapping role for developing countries today? If exportoriented apparel manufacturing provided the newly industrializing countries (NICs) of East Asia with opportunities for capital formation and industrial upgrading in the period after the Second World War, can their experience be replicated by today's aspiring NICs? This question is a central theme in much of the literature on the apparel industry, and scholars generally fall into one of two camps regarding the developmental prospects afforded by participation in the global garment trade. The pessimists argue that the landscape of apparel production has changed in several ways that make the industry a less auspicious route to developmental success, including rising barriers to entry and heightened competition among exporters for a relatively stagnant world market in which import penetration levels are approaching 100% in several wealthy countries. Palpacuer et al (2005) argue that the maturation of the global industry is changing the relationship between developed-country and developing-country firms in ways that make it more difficult for developing-country firms to upgrade via participation in the apparel commodity chain (see also Bair and Dussel Peters, 2006; Mortimore, 2002). On the other side are the optimists, who do not necessarily dispute the pessimists' general characterization of the industry, but claim that even networks structured largely by relations of unequal power are nevertheless dynamic, and that developing-country firms with `strategic intent' can find ways to leverage them into higher value-added and more profitable activities (Dicken et al, 2001; Hassler, 2003). The optimists' more favorable assessments of the industry tend to rely on case studies, focusing on the trajectory of an individual firm (Tokatli and Kizilgu«n, 2004) or on the export dynamism of a particular region (Bair and Gereffi, 2001; Smith, 2003), raising perennial questions about the generalizability of their findings, as many of these authors acknowledge. In the North American context this debate has focused on the assembly subcontracting or maquila model of export-oriented production, and specifically its implications for the economic and social development of the countries in which it takes place. Scholars of Mexico's maqiladoras and the Caribbean Basin's export-processing zones argue that assembly subcontracting provides access to foreign currency, generates jobs in communities that need them, and gives local firms an entry point to the US market. But this type of production for export is also criticized for trapping countries in low-value-added (8) One probable explanation for these diverging opinions regarding cumulation lies in the fact that EURATEX, as a lobbying group involved in shaping trade policy in Europe, has a more diverse membership than the textile industry associations that are its counterpart in the United States. In addition to the Western European countries, EURATEX also includes among its members countries that would be expected to support cumulation, including Turkey, Poland, Slovakia, and Morocco.