1. Facing collapse: Socio – economic dynamics of Shtip Textile industry analysis

2. Why textile? Approximately 24,9% of the total Macedonian employment is provided by the textile industry Contributes with over 20% to Macedonian GDP Contributes approximately with 24% to Macedonian export - approximately 90% of production goes for export 8,84% of the total number of Macedonian companies work with textiles

3. Core WTO Principles Non – discrimination, expressed in two sub- principles - Most Favoured Nation (MFN) Treatment; - National Treatment of Foreign Products. Reciprocity of national treatment Transparency and prohibition on trade restriction other than tariffs - Establishment of regional trade alliances, as free trade areas, custom unions; - Preferential treatment of the developing countries

4. Historical Development - WTO & Textile Industry Long-Term Arrangement (LTA) - since 1960s until mid 1970s only for cotton textiles Multi Fibre Arrangement (MFA) - since 1974 until the end of the Uruguay Round (1994) Agreement on Textiles and Clothing (ATC) - since1995 until 2004

5. The WTO Agreement on Textiles and Clothing (ATC) 1995 - 2004 Built on the following key elements: product coverage (yarns, fabrics, made-up textile products and clothing); progressive integration of these textile and clothing products into GATT 1994 rules; progressively enlarge existing quotas (until they are removed); special safeguard mechanism during the transition period; establishment of a Textiles Monitoring Body; other provisions (rules on circumvention of the quotas, their administration, treatment of non-MFA restrictions).

6. The WTO Agreement on Textiles and Clothing (ATC) and Custom Duties The disappearing quota system under the WTO Agreement on Textiles and Clothing (ATC) 1995 – 2004 is independent of the customs duties that the United States and Europe apply to imported textiles, which average 16 % in the case of the US. Countries such as Cambodia and Honduras have asked that, come 1 st January 2005 and the end of the quota system, their goods be given duty-free access to the United States to give them a cost advantage over China.

7. The WTO Agreement on Textiles and Clothing- Impacts on the Textile Industry...poor countries should be quaking at the prospects of textile trade liberalisation. China is planned to be the biggest beneficiary after the liberalisation of the Textile Market Source: I wouldnt start from here. The Economist print edition. Nov. 11 th 2004

8. Southeast Asian Countries - 1 Benefits expected after 1 st January 2005 Benefits expected after 1 st January 2005 - Further development of market economy - GDP increase - Development of the poorest communities within the countries - Bonanza in International Sales and Trade - Boost of FDI - Reduced unemployment -Improvemed labour skills

9. Potential Hazards after 1 st January 2005 Potential Hazards after 1 st January 2005 - Increased unemployment due to automated production process improved - Increased competition from the neighbouring countries - Low quality products may not be the most profitable - Need of huge investment for renewing the machineries - Imposed safeguards and other protection mechanisms by importing countries Southeast Asian Countries - 2

10. EU and Western Countries Potential repercussions expected after 1 st January 2005 Potential repercussions expected after 1 st January 2005 - Access to cheaper textile products with: - Lower product quality of imports - Close down of textile factories and lay-offs

11. Strategies by EU member states - 1 Investment into research and innovation Investment into re-education, training and employment Other competitiveness related issues (intellectual property rights, made in labeling, access to finance) Trade policy issues (measures of retaliation, monitoring of imports, establishing of a result monitoring dialogue with China)

12. Strategies by EU member states - 2 Government procurement policies Customs procedures Health and sanitary regulations National standards Broad range of other laws and regulations that discriminate against imports or offer assistance to exports Safeguards Istanbul Declaration

13. WTO & Macedonia Macedonia – WTO member since April 4, 2003 (all WTO arrangements apply to Macedonia directly since the date of accession) From January 1 st 2005 all protective textile quotas will be abolished The tariff rate of most important industrial products in the transitional period of 3-5 years is preserved in the level of 6.3%. A protective tariff is arranged for leather, fur products, textile, cotton and wool industry.

14. Macedonian import regulations No import restrictions (including quantitative restrictions); Simple average import tariff at 21.02 % ad valorem for textiles No exceptions for raw materials; Non-automatic import licenses to protect domestic industries; Licences for the allocation of tariff rate quotas under certain preferential trade agreements; Products might be imported into Macedonia on a temporary basis; (for contract manufacturing –or lon proizvodstvo) Certain temporarily imported products - exempt from customs duties: raw materials processed in Macedonia and re-exported; infrastructure equipment produced by foreign contractors.

15. Macedonian export regulations Exports of textiles and clothing, including semi- finished and finished products are not taxed or restricted Average tariff of 0.1 % is levied on all exports to finance export promotion activities

16. Arrangements with EU and the USA Trade in textile products with the European Union is governed by an Agreement on Trade with Textile Products since 1 January 1997; Quantitative export restrictions are applied under a Bilateral Agreement on Textile Products with the United States (textile visa); Apart from the bilateral textile agreements with the United States and the EU, Macedonia does not maintain similar arrangements with any other country.

17. The Global Textile Sector and the Future As we found out from 1.1.2005 world retailers are set free to buy what they want from wherever they want: the consequences for countries with labor-intensive industries that rely on making garments will be huge. Macedonian textile industry is labor-intensive (low wage), that uses little capital (low investment). Labor costs are the biggest area of concern. China and others lower prices. In Macedonia gross wages in the textile industry grew by 6% year on year in the first seven months of 2004, outstripping the 3.8% average wage growth across all sectors.

18. Labor Costs Around the World and Other Data on Textile Industries CountryTextile Exports in $% of total exportswage per hour in $ Mexico9.7 billion6%2.45 Honduras2.7 billion63%1.48 Turkey15.4 billion33%2.13 Jordan695 million29%0.81 China79.7 billion18%0.68 Pakistan12.3 billion74%0.41 India12.9 billion23%0.38 Sri Lanka2.8 billion60%0.48 Thailand6.1 billion8%0.91 Cambodia1.9 billion88%0.32

19. China Between 1997 and 1999, the Chinese government dismantled a network of outmoded, state-financed textile and apparel factories and allowed the free market a much greater hand. As a result a number of modern private, equipped with modern machines textile companies have appeared which have pushed up labor productivity and pushed down the cost of its exports by as much as 30 % over the past five years. Rich in labor and raw materials, China has also invested in the full array of textile and apparel operations, allowing it to spin, weave and dye the fabric, cut and stitch the clothing, and manufacture and attach the buttons and zippers. Average wage is 0.68 USD per hour, or c.140 USD per month. Chinese factories routinely talk of forced 12-hour shifts with no overtime pay and no days off. The end of the quota system is expected to cut the price of Chinese goods even further.

20. China 2 The overall balance of quality, reliability and price makes China probably the most competitive market in the world." The potential impact on world trade is demonstrable. In Japan and Australia, two major nations that have no quota restrictions, China has already captured 70 % of the textile market. In the United States, quotas were eliminated in 2002 on products such as baby clothes and robes, and China's share of those U.S. imports jumped from 11% to 55% by the end of last year. About the same time, China supplanted Mexico as the largest supplier of textiles and apparel reaching the United States, accounting for about 17 % of U.S. imports.

21. How to Survive Competition in the Future? QUICK DELIVERY so, take even more advantage of close EU markets (in the world of fashion-speed to deliver to market matters most and shops restock more regularly.) to deliver quick service, Macedonian suppliers must learn about FLEXIBILITY; orders will go to suppliers who have flexible production lines that can switch from one product to another on a daily basis to meet demand for various but small orders. Do everything offering a FULL PACKAGE OF SERVICES from design to cutting and assembly. HIGHER QUALITY There will be a new premium on skilled labor, as companies have to extend their range of skills from just sewing and stitching

22. What About Macedonian Textiles? What was the Situation in the Past? What is the Situation Today? What about Shtip?

23. Introducing Shtip 1

24. Introducing Shtip 2 POPULATION FIGURES StipMacedoniansVlachsTurksRoma 4779641670 87.2%2074 4.3%1272 2.7%2195 4.6% BUSINESS SUBJECTS BY TYPES AND SECTION ACTIVITES, SHTIP (Information of the District Unit Statistical Office in Shtip) Status 30 September 2004 Types of business subjects TotalEnterprisesTrade companiesSole proprietorsOthers 434517551850402338

25. Introducing Shtip 3 INDUSTRIAL COMPANIES IN SHTIP (1940 – 1986) City 19401957196619771986 Shtip410162225 Today there are 75 Industrial Companies 38 out of which are Textile Firms EmployedUnemployed Total Labor Force Stip 13669 (LATEST DATA 11,131) 6,399 (9,937)20068 Macedonia460544283,132743676 EMPLOYMENT IN SHTIP

26. Introducing Shtip 4 Municipality Total Labor Force= Employed+ Unemployed MaleFemaleEmployedMaleFemale Stip20068 11291 56.3% 8777 43.7% 13669 7422 54.3% 6247 45.7% Macedonia743676 456199 61.3% 287477 38.7% 460544 285570 62.0% 174974 38.0% Shtip Employs More Women than Macedonian Average SOURCE: National Human Development Report 2004, FYR Macedonia Decentralization for human development, Dimitar Eftimoski et al. UNDP, 2004

27. Facts About Macedonian Textile Industry exports 90 % of its production. About 70 % of the exports for the markets of EU and the USA. a major employer (25-29% of whole labor force) contributes between 10-20% of GDP. The Export Share of wearing apparel in all of the Macedonian Exports has risen from 18.7 % in 1990 to 24 % today

28. More Data about Macedonian Textiles Data for 31.12.1988 Industrial branches Number of units (factories) Employed peopleWorkers per unit Macedonian Textile industry 12662.518496.2 In the same time Shtip had 2 factories- Astibo and Makedonka employing 5100 persons.

29. Today In Macedonia: Dejnost Broj na subjekti Broj na vrabot. Proizvodstvo na tekstilni tkaenini3296.213 In mid-October 2003 Shtip had 42 companies. Four of them have closed down since.

30. Shtip Textile Companies Let us see what we have found out so far researching in Shtip in Albatros, Beas, Briteks, DA, Denim (Tekstil- Invest), Gracija, Lars, Linea, Mavis, Metro Premier, Modena (Milano), Shtipko, Shtipteks, Zoguri. 2 of them (13%) produces jackets, coats and other more sophisticated heavy textiles (less exposed due to higher transport costs, needs more skilled labor, and more capital investment). The rest (87%) produce only light textiles, such as shirts, blouses, etc. which is less competitive due to less capital investments and less transport costs and is/will be directly exposed to Asian competition. For all 15 (100%) the main activity (from 70 to 100% of production) is contract manufacturing (lon proizvodstvo). Positive Examples: BEAS has its own fashion design, shops around Macedonia sell their garments; Gracija has own fashion line Virus. However, future plans for own brands of the Shtip textile companies or for conquering foreign markets an issue- the only company that was abroad to expose its fashion was promoted by GTZ-Bulgaria. Different projects and institutions, such as MCA offer aid.

31. Problems 19992000200120022003 Textiles1161059210073.5 Wearing apparel; dressing & dyeing of fur 12111611410080 Textile output in the first six months of the year was 20% lower than in the same period of 2003. Data on the Industrial production in the last 4 years (2002=100)

32. Issues for the Future A) Shtip and the Macedonian Textile industry in general import raw materials such as: -cotton - wool - viscose rayon - artificial fibbers - dyes and chemicals - silk yarn and fabric (In the same time the production of cotton in Greece has increased substantially over the past several years, but it still represents only a small part of the European Unions consumption.) B) The custom fees on import of raw materials are about 15%

33. Issues for the Future! Total Higher university Without or unfinished ElementarySecondary N.N.%Number% % % Stip47,7962,5785.3918,01337.699,43019.7315,00031.38 C) Graduated students in 2003 at Technological-Metallurgy Faculty, Department of Textile engineering: 6 D) How About Education in Shtip? The total for Without or Unfinished and Elementary Education is 57.42%

34. Issues for the Future! E) How About the Unemployed in Shtip? Shtip has 9937 unemployed persons (as of 30.09.2004) Unemployed according to the educational structure -Unqualified 4401 -Unemployable 715 -High school graduates 2430 -University graduates 911 -Qualified 1475

35. Issues for the Future! F) Macedonia has no School of Design G) Main Activity is Contract Manufacturing (CM) of simple products. For all 15 (100%) the main activity (from 70 to 100% of production) is contract manufacturing (just sewing and stitching also known in Macedonia as lon proizvodstvo from loan manufacturing). 5 (33%) of them also make small quantities of apparel for the Macedonian or the former Yugoslav markets. H) How to advance from simple CM to Contract Manufacturing and Trim (CMT)? How to make Own Production, a Brand? How about Marketing of CM, CMT or own product? These are Expensive Endeavors!

36. LESSONS AND RECOMMENDATIONS? NOT YET! CRPM WILL CONTINUE ITS RESEARCH ON SHTIP AND PRESENT CONCLUSIONS NEXT YEAR. THANK YOU FOR YOUR ATTENTION

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