PICKING UP THE PIECES

Mark Twain once wrote that "heaven was copied after Mauritius." It's easy to see why. Lush sugar-cane fields spread across this Indian Ocean island--mercifully spared casualties from last week's tsunami. Jagged volcanic mountains rise out of the sea mist like peaks of meringue; wide tranquil bays of vibrant turquoise meet beaches of fine white sand and swaying palms. Colonized over the centuries by the Dutch, British and the French, Mauritius remains a favorite winter holiday destination for Europeans.

It has also been for the past 30 years one of the world's key centers for textile manufacturing. Hundreds of factories dot the inland hills, where workers, most of them female, produce sweaters, cashmere blankets and T shirts for everyone from discount retailers like JCPenney to luxury names such as Giorgio Armani and Burberry. But it's a purely contrived industry; Mauritius produces none of the raw materials used in its textiles. It has to import everything from the yarn to the packaging. What Mauritius does have, and has since it started textile manufacturing in the 1970s, is abundant labor. As a member of the African, Caribbean and Pacific consortium of countries, Mauritius received under the 1975 Lome Convention the right to export duty-free and quota-free to the EEC (now the European Union). That was one of dozens of trade agreements that created and supported textile manufacturing in developing nations around the world.

Mauritius made the most of it. In 2003, the country's annual turnover in textile and clothing-manufacturing exports was roughly $1.5 billion. The sector employed about 40 percent of the work force, and contributed 12 percent of the GDP and 60 percent of the foreign-exchange earnings of the country. As a result, Mauritius has the highest per capita gross domestic product in sub-Saharan Africa--$10,800 in 2001, according to U.S. government estimates. This prosperity is evident in the abundance of new European cars, upscale restaurants, shopping centers and new housing construction. "Textile manufacturing is a main pillar of our economy," says Mookeshwarsing Gopal, chairman of the Mauritius Export Processing Zone Association, the industry's trade association.

But that's about to end. When the WTO completes its 10-year phaseout of the textile-industry quotas on Jan. 1--what Linus Kent, a major garment trader in Hong Kong, calls "the greatest foreign aid program ever" --countries like Cambodia, Mongolia, Bangladesh, Madagascar and Sri Lanka will find their economies in a tailspin. Few will be harder hit than Mauritius's, says apparel-industry consultant David Birnbaum of Third Horizon Ltd. in "Winners and Losers 2005," a study of the economic impact of the phaseout on 28 key garment-producing countries. Already Mauritius has lost 30 companies employing 15,000 apparel and textile workers in the past two years. And Birnbaum reports that textile shipments from Mauritius to the United States were down 17.5 percent from 2003. "The phasing out of these quotas will have a serious consequential affect on Mauritius," Gopal says. "It's going to cause an economic downturn, and maybe even a crash. We are very worried."

A coalition of 31 textile-producing nations lobbied up to the last minute for an extension of quotas, warning of "massive job disruption and business bankruptcies in dozens of countries." Ek Sokheng, 26, supports an extended family in a small town outside Phnom Penh on the $80 a month she earns stitching clothes for foreign labels. "Without the factories," she says, "the young women in this village will die." Eleven Cambodian garment factories have shuttered since September at a cost of 25,000 jobs; Trade Minister Cham Prasidh fears social unrest. In Bangladesh, the country's 4,000 garment-manufacturing companies employ 1.8 million people and fetched $5.7 billion in turnover last fiscal year, making up 76 percent of the country's annual exports. Most of those workers--some 85 percent--are Muslim women, the majority of whom have traveled from home villages to big cities to work alongside men, in defiance of their cultural traditions. Many Westerners have described Bangladesh's garment industry as a "social revolution."

The phaseout will be its Waterloo. According to a survey report prepared jointly by Switzerland's Ghezi Textil Organization and Bangladesh's Project Promotion and Management Associates, Bangladesh's garment exports could decline to $3 billion by 2007. The International Labor Organization projects that the country will lose as many as 1 million of its 1.8 million apparel jobs. "I don't know what is going to happen to us," says 19-year-old Yasmin Akhtar, who has been working in a Dhaka factory for the last five years. "Allah will take care of us."

Latin Americans will find themselves scrambling, too. Honduras, which owes about 10 percent of its GDP to the textile trade, could lose as much as 40 percent of its jobs. Mexico, which in 2003 was the world's second largest apparel exporter to the United States after China, could lose up to 7 percent of its market share to the Middle Kingdom by 2008, according to a recent study published by the U.S. International Trade Commission. "We're very worried about what could happen here," says Raul Garcia, head of the largest apparel-manufacturing lobby in Mexico. "In the worst-case scenario, we could lose 200,000 jobs and $3 billion in two years."

But Mexico's textile industry is not giving up without a fight. Apparel workers like Garcia are pressuring the government to bring a multination lawsuit against China at the WTO for what Garcia and others are calling "illegal subsidizing." They claim that China's only real advantage is that its industry has the strong financial backing of the government. During 2005, Garcia says, a consortium of threatened nations, including some from Central America and Asia, will attempt to legally document Chinese subsidies for an eventual legal battle at the WTO. They also plan to ask the United States to impose restrictive tariffs on Chinese goods for the transitional period and while the case works its way through the courts.

Analysts see such moves as useless stopgap measures that will serve only to highlight how poorly countries like Mexico have adapted to China's growing economic might. "They can't get their political act together," says Gary Gereffi, a professor of sociology and an apparel-industry expert at Duke University. "There is a sense that Mexico is stagnating. Asian economies show incredible dynamism, but in Mexico none of the major investments to move the country forward are being undertaken."

Some quota countries are better prepared for the phaseout than others. In South Korea, currently the world's fifth largest textile exporter, apparel companies have invested in more than 2,500 overseas projects worth a total of $2.6 billion--one third of which are in China. Even the polyester maker Huvis, which is laying off 30 percent of its Korean labor force, has recently completed a $90 million factory in Sichuan, China, employing 300 local workers. The company plans to triple the capacity of its Chinese factory by 2010, increasing the work force there by a similar margin.

Guatemala, where the apparel industry brought in $600 million and employed more than 125,000 people in 2003, has been upgrading its technology in an effort to adapt to the lower-volume, higher-quality needs that U.S. companies now demand. Still, workers are bound to lose jobs; Dona Rose Garcia Portillo, a single 43-year-old mother of two who earns $64 a week working for a cotton-apparel supplier in Guatemala City, is fatalistic about the transition. "The situation isn't easy," she says. "I don't want to change jobs, but one day maybe I'll have to go to the United States if I can't make enough here." That's a common sentiment among those who see a dim future for the apparel industry. "If all these people lose their jobs there's one place they're going to go," says Sanchez Llano, of Trajes Mexicanos, a Mexican suit manufacturer. "And that's up north, to the U.S."

Not everyone in the losing countries believes that the phaseout will equal disaster. "The abolition of the quota system will be a blessing in disguise," argues Anisur Rahman Sinha, a leading garment manufacturer and exporter in Bangladesh. "The industry itself has to be more professional and efficient." And governments, he said, will be forced to improve infrastructure in order to compete with China and India. Back in Mauritius, the mood is more resigned. "The textile industry has a nomadic nature," admits Gopal. And when the resources dry up, the tribe moves on. Even if it means leaving paradise.

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