Overview

The WTO Agreement on Textiles and Clothing (ATC) set up a transitional mechanism in 1995, with a view to phasing out quotas for trade in textiles and clothing by the end of 2004. Even though the total global imports of textiles and clothing will expand, competition is also likely to increase among many garment exporting countries around the world. It is expected that textile and garment companies in medium- to high-cost countries will reduce their manufacturing production. In contrast, those in low-cost countries with a strong competitive advantage will expand their production and export capacities to become preferred suppliers and to take advantage of liberalization. Lao textile and garment companies will be affected at different levels depending on their competitive capacities. In order to maintain its market shares or reduce losses, the garment industry needs to implement a product diversification strategy with the introduction of products in the medium to higher market segments and develop sufficient production inputs. Laos needs to develop modernized production facilities, better upstream industries (spinning and weaving) and well-trained workers to be prepared for trade liberalization. Support from the government is crucial, in particular on market access negotiations and trade facilitation. Nevertheless, a lack of capacity in terms of budget and expertise is the main constraint in the process.

The problem in context

The textile and garment industry is of great importance to the Lao economy. Currently, the industry comprises ninety-six factories and employs more than 25,000 workers.