There is little doubt that the South African clothing, textile and footwear sectors are going through a difficult period. There is broad recognition of that. The loss of jobs and the deprivation of sustainable livelihoods to the most vulnerable segments in our society cannot be tolerated. To reverse the situation will require a collective effort on the part of all stakeholders. This collective effort has to be located within the context of a developmental state that is integrated into the global trading system.

In order to have a clear understanding of the challenges the sector is experiencing it is important to look at the sector in a historical context, particularly over the last decade or so. With the advent of democracy, the new government inherited a domestic economy that was highly protected, subsidized, inefficient and uncompetitive mainly as a result of import substitution policies. On a global level the deepening integration of financial, technological, service and commodity markets had intensified and changed the nature of international competition, also profoundly impacting on the dynamics of international production and its division of labour.

Since then the government has adopted a number of policies and programmes to restructure our economy in order to make it a globally competitive and integrated manufacturing economy able to confront the rapid changes in the world economy from which no society can remain immune, whilst also addressing the country's socio-economic needs through sustainable economic activity.

As South Africa started re-integrating itself in the global economy, it moved away from import substitution policies and gradually started opening the economy in line with WTO commitments through measures such as tariff reductions in order to lower manufacturing input costs, generate competition and contribute to the establishment of a competitive, diversified and value adding industrial base. Since the introduction of these and other policies, significant economic achievements have been recorded, including macroeconomic stabilisation, a profound restructuring of the real economy in certain sectors, and substantial increase in exports delivering nearly a decade of consistent growth.

Incentives

Whilst most sectors had to adjust to tariff liberalisation and changing international trade dynamics, the clothing and textile sector remained mostly immune from these developments. In the Uruguay Round of 1993, an extended tariff phase down of 12 years was negotiated for the sector, allowing tariffs to remain in place for an extended period whilst tariffs were being

lowered in other areas of the economy. In the domestic market the sector has enjoyed the benefit of elevated tariffs, over 40% on some products today - 12 years later, at a time when duties above 20% are viewed as high in the WTO. Government also extended support measures several times to assist industry to restructure. In the case of the Duty Credit Certificate Scheme (DCCS), a measure initially designed for a single year, has now been in operation for nearly 12 years. Government is considering further extending this scheme in a slightly changed format.

These measures were introduced and extended with the clear understanding that they were to be used for a limited period to afford industry to adapt to changing conditions, as other sectors of the economy have done. In essence therefore the clothing and textile sector has had the advantage of extensive and sustained protection relative to other sectors of our economy, and more than sufficient notice and support to restructure and prepare for the benefits and challenges of global integration.

The question remains whether industry utilised these measures for its intended purpose? How were the last 12 years spent in terms of investment, restructuring, R&D, technology and skills development?

Trading practices

Many of the woes the sector is experiencing have been attributed to a surge in imports from China. China officially became a WTO member on 11 December 2001. Under China's WTO accession agreement it made substantial market access commitments covering the agricultural, industrial and services sectors. In return China was afforded trade rights similar to other members of the WTO, as expressed in its WTO Protocol of Accession. In practice it has meant that China has to be treated in accordance with clearly defined rules and regulations.

Within the global trading environment, and our own domestic legal environment, the instruments to address unfair practices, namely anti-dumping and countervailing duties, do exist and the processes involved in making use of these measures are well understood by industry. If China's success in the local market is attributed to unfair trade practices, measures are in place to address them.

It must also be noted that Industry has always been free to apply for these measures at any time, and no extraordinary intervention by government is required in this regard. However these measures are initiated by an application by industry containing valid information, and cannot be unilaterally implemented by government.

Government has always been open to these measures, but is not convinced that these measures alone would save the industry, as they can only be applied for a limited period after which trade will continue unabated. Currently the debate around the clothing and textiles issue has been mostly centred on limiting imports from China, with limited discussion undertaken on current levels of readiness and competitiveness of the sector in terms of global dynamics.

Is China really the problem? If we block China, will India or Pakistan or Bangladesh become the new problems? Could there be something besides China causing the current crisis? Should consumers and taxpayers bail out uncompetitive or unsustainable sectors? These are very important and pertinent questions stakeholders should be asking.

It is interesting to note the following data received from industry representatives in the textiles sector:

The South African government has always been clear in its policies that the country cannot afford to artificially sustain uncompetitive industries through import substitution or protectionist measures. Based on this, the government has committed to support this sector through a range of initiatives with the understanding that in its current form industry was neither competitive nor sustainable and needed to change.

In this regard continued lobbying by industry for government to intervene will not deflect from the fundamental and underlying requirement for the sector to undergo deep-rooted restructuring in order to become globally competitive. It is also important to note that within a market economy businesses are the key drivers of economic change, and therefore this sector's restructuring should be led by companies and only supported by government and labour. It is therefore not up to government alone to save the sector, but the onus is also on industry to save itself through responding and adapting to changing global dynamics.

Structure of Industry

Not much has been said about the structure of industry. Herein lies one of the major setbacks in this economy. At the firm level, SA companies have elaborate management boards with high wages and still maintain apartheid mentality relationships with their workers. When competitive pressures appear, the pain is passed on to the factory floor. A recent World Bank investment climate survey found that wages in South Africa were among the highest in emerging markets. This did not relate to workers, but to managers.

With recent shortcomings of large companies, it would be prudent to assess whether part of their demise was as a result of poor management. Some responsibility must be taken by industry for the predicament in which they find themselves and the predicament in which they have placed workers.

The lack of creativity, entrepreneurship, vision and leadership in this industry is alarming. Opportunities to benefit from South Africa's market access arrangements continue to fly over the heads of established "industry leaders".

Labour

As one of the most concerned and affected parties in the crisis, it is important to recognize the role of labour. In order to develop a sustainable world class industry, the current relationship between the owners of capital and workers needs to be revisited in the context of 21^st century. It is a shame that we lament the closure of firms that have become city landmarks. It is a shame that we celebrate the perverse effect of apartheid policies as they manifest themselves through successive generations of families working for the same firm for a hand to mouth existence. That is not worth rescuing. Workers should not be made to absorb the brunt of competitive pressures. Employers and workers have to develop a partnership in a new paradigm that will look at workers as partners in business, not merely a variable input into the production process.

China

China is the world's fastest growing economy, while at the same time it is an economy going through radical changes. China has moved from a centrally planned to a market based economy and has been opening up to the world since the late 1970's. Over the last decade, China's manufacturing capabilities have threatened to challenge the status quo and the global balance of economic power. This poses a complex question for members of the global trading community. How do you deal with China? The government's approach is to foster a strategic and long term relationship, based on shared values and common approaches to broader global and geo political issues. A long term partnership on economic co-operation with the fastest growing economy in the world serves the strategic interests of this economy.

In the context of the clothing and textile sector, partnering with China as part of their global supply chain offers South African industry a tremendous opportunity. Leveraging it however, would require some initiative and creativity.

Way Forward

A comprehensive restructuring plan must be developed with all stakeholders. The ongoing work in the dti around the Customised Sector Program is adding value in this area. There are sound partnerships developing with some industry players and labour. The work of the task team and the alliance process further provide convergence of ideas towards developing a sound, sustainable and progressive strategy.

With a view to creating the space for the sector's transformation, government has indicated its willingness to explore restrictive measures, even though the clothing and textiles sector has experienced sustained and higher levels of protection compared to other sectors of the economy. The long-awaited applications for safeguards received in recent months have opened the door to take this process forward. Based on the safeguards application, we have been engaging the Chinese side in order to find a speedy solution not only to the surge, but also broader economic cooperation in the sector. It should also be emphasized that one sector alone should not determine or influence the broad economic opportunities that a trading partners offers the country.

A solution addressing imports though will be merely part of a range of responses required by all stakeholders in an effort to secure the survival of this sector. The reality of competition by China and a number of other market leaders will not disappear in years to come, and on the contrary will remain part of the landscape of doing business in a global environment.

Perhaps before enterprises had a choice of whether they wanted to participate in the global trading environment or not, however the challenges we are experiencing in the clothing and textiles sector are bringing to light the fact that engaging and understanding world markets is not a matter of convenience, but a matter of survival. Even with the best intentions by government to try and shield domestic industry from imports, international competition is a reality from which no country or business can remain immune anymore.

Within a rapidly developing global rules-based system aimed at creating transparency and removing barriers to trade, all economic actors should become well versed in the rights and obligations, as well as the instruments which have been established to deal with both fair and unfair trade practices.

The only defence against fair competition though is to constantly adapt and respond to changing market conditions and finding one's own competitive niche, whilst in cases where unfair trade occurs it is up to business to understand and know how to best utilise existing instruments in line with international rules. Any initiatives by government to respond to the challenges in the clothing and textiles sector is bound to fail if industry is not willing to acknowledge and adapt to this new reality.