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Gospel of Globalization: No Sure Path to Growth

The issue of globalization is personified by Adam Feldman, a man born into a U.S. textile family who now runs a factory in Mexico.

NEW YORK — If the issue of globalization could be personified, Adam Feldman would be a good choice to portray the character.

Feldman was born into a textile family that for about 25 years owned plants in New Jersey and Pennsylvania, which at their peak employed more than 400 people. In the mid-Nineties, after the North American Free Trade Agreement took effect, his family closed its U.S. operations and he moved to Halacho, Mexico, where he opened a T-shirt factory. Today, his company, E&R Textile, employs about 500 workers, and Feldman said he’s content with his life in the Yucatán.

But he’s not so sure the current drive to further lower trade barriers and promote global commerce is such a good idea.

“Do I believe in it? No, I don’t believe in it. I believe it’s somewhat destroying our economy, the U.S. anyway,” he said in a phone interview. “I kind of have a jilted perspective, in the sense that I’m happy here, I’m glad things worked out. But in the end, who knows how long this will last?”

Through all sectors of the apparel industry — from U.S. manufacturers to U.S. retailers to foreign-owned companies with operations in Latin America, Africa and Asia — executives said they applaud the theory of using free trade to raise the standard of living of people around the world.

Both President Bush and his rival, Massachusetts Sen. John Kerry, describe themselves as free trade backers. But they differ on the fine points of globalization. The Bush administration has aggressively sought free trade agreements around the world, while Kerry has said if elected he’d take a step back to review many of those agreements. He’s also supported the inclusion of language on labor and environmental standards in those deals.

In Washington and Geneva, lobbyists on both sides of the free trade debate sketch out their position in stark black and white: They’re either for it or against it. But executives who every day face the realities of global trade and its effects on the people that work for them offered mixed views on the subject. In practice, they said, free trade is often a zero-sum game where one person’s gain is another’s loss. At worst, it runs the risk of not improving people’s standards of living over the long term, instead simply offering a few years of low-wage work before moving on.

“Who’s to say that in another year or two there will be anything left for Mexico,” Feldman asked rhetorically. “I don’t feel like moving to China or Vietnam.”

He has reason to be concerned. On Jan. 1, the 147 nations of the World Trade Organization are set to drop the system of textile and apparel quotas that have regulated the global trade in those goods for the past three decades. That event will open the floodgates for a wave of intense competition by apparel makers in the developing world to grow their sales to wealthy markets such as the U.S. and the European Union.

A handful of massive developing nations — particularly China and India, as well as Vietnam, which is not a WTO member — are expected to dominate the market, a development that could cause smaller nations, such as Bangladesh, Sri Lanka and Mexico, to lose much of the apparel exports that are a critical part of their economy.

Over the past year, China’s share of the $78.81 billion U.S. market for imported fabrics and garments has soared 21.2 percent to $12.79 billion for the year ended in June, making it the U.S.’s number one supplier. Over that same time period, Mexico’s share has fallen 8.6 percent to $7.74 billion, making it now the U.S.’s second-ranked resource.

China’s rapid growth, which dwarfed the overall 2.5 percent rise in total imports over that time, has come even though it is 7,000 miles by sea from the U.S. and still subject to quotas and duties. Mexico, meanwhile, shares a 2,000-mile border with the U.S. and enjoys quota- and duty-free treatment under NAFTA, which took effect in 1994.

China’s ability to overcome some natural disadvantages has left many executives worried about what effect the lifting of quotas will have on the tens of millions of people employed elsewhere in the global garment trade.

“I’m a die-hard free trader,” said Marjorie Yang, chairman of the Esquel Group of Cos., a Hong Kong apparel firm with factories in China, Indonesia, Hong Kong and Sri Lanka. “I’m against the quota system. Everybody must think a little more of the people whose lives we are going to be impacting. I hope that we sort this out.”

Esquel closed one of its factories in the Indian Ocean island country of Mauritius this year, and Yang said intense competition after the quotas are lifted could cause the firm to relocate as many as 25,000 of its 47,000 workers, moving more into China.

The fear of job losses has prompted textile and apparel associations in more than 50 countries to sign the “Istanbul Declaration,” which calls for an emergency WTO session to address the end of the quota system. In an informal meeting early this month, WTO officials ruled there would be no emergency session, but said nations could discuss the issue further at an official forum in October.

Andrew Bernard, professor of international economics at Dartmouth University’s Tuck School of Business in Hanover, N.H., said he’s a “firm believer” in globalization, but acknowledged its benefits are not felt everywhere.

“One of the things that I find in my research is that industries that are exposed to global trade in the U.S. have a lot more entry and exit, a lot more birth and death, a lot more creation and destruction of jobs,” he said. “There are individuals and firms that get hit by globalization, and we’d be naïve to think that we can ignore the consequences for those folks. If we’re going to be part of the world economy, we have to help the people who get put out of jobs.”

Over the past few decades, millions of U.S. textile and apparel workers have lost their jobs, largely as a result of rising imports. In July, total U.S. fabric and garment manufacturing employment stood at 702,500, off 5.5 percent from a year earlier, and a fraction of the industry’s glory days: In 1973, apparel manufacturing employment topped out at 1.5 million, while the textile industry peaked at 1.3 million in 1951. The U.S. Department of Labor in recent years has revised the way it counts jobs, making current figures not directly comparable with the historic highs.

Roger Chastain, president and chief operating officer of Mauldin, S.C.-based Mount Vernon Mills, has laid off 1,075 staffers over the last two years, reducing the domestic denim manufacturer’s head count to 4,900.

“It’s just been not fun to see yourself shrink,” he said.

Still, he supports the idea of using globalization as a tool to bring economic development to poor nations. The problem, in his eyes, is that this might not be happening.

“We’re seeing more polarization between the haves and the have-nots in the world,” he said. “The factory owners do pretty well, and the workers don’t. Therein lies the problem. If I thought it would do good in the rest of the world, I’d say, ‘Let them have the rest of our industry.’ But it’s not going to. That’s not the answer.”

In the meantime, he said, the free trade policies pursued by recent Republican and Democratic administrations have taken a toll on the nation’s middle class.

Asked what effect globalization has had in his neck of the woods, Chastain said, “It would be the middle-aged and older people that have either given up [finding a job] or are underemployed. There’s a little bit of despondency that has set in.”

Still, many executives who live in or spend significant amounts of time traveling in the developing world assert they see evidence that globalization is leading to economic development.

Nick Godley runs a handbag factory in the Madagascar town of Majunga and uses the town’s name as his brand. The U.S. is his key market, and he said that without free trade, none of the 140 jobs at his factory would exist.

“When I came to Majunga in 1994, I had to bring my own satellite phone, since you could not call internationally,” said Godley, who serves as president of the firm. “Now there are two cell phone providers, along with [France] Telecom [the international satellite telecommunications concern based in Paris], and a fiber-optic cable is planned for 2006. Madagascar has opened to investors in the last 10 years or so. There is far more consumer choice than before, and many more opportunities for local companies to grow both internationally and to export.”

Similarly, Peter McGrath, president of J.C. Penney Purchasing Corp., who, like most sourcing executives, spends weeks traveling overseas, said he’s seen many things that lead him to believe countries that manufacture apparel are benefiting economically.

“In terms of creature comforts, many years ago I would sleep with my clothes on at night because of the quality of the hotels in China and the lack of power and services,” he said. “Today, you can stay at up to a five-star hotel if you want. The development has been profound.”

When in developing countries where Penney’s buys today, he said he looks around and sees “the same thing that happened with [South] Korea and Taiwan,” which are now among the more prosperous nations in Asia.

“Trade acts as a ladder to climb out of poverty,” he said.

While assessing a nation’s economic health by the quality of its hotels might be a peculiarly American way of thinking, Asian executives said they see other signs that China, in particular, is growing economically.

“A good way to look at the Chinese economy is to track Starbucks,” suggested Yang of Esquel.

The Seattle-based coffee chain has built its business on getting people to pay premium prices for a commodity product. Today, Starbucks operates 100 stores in China — excluding Hong Kong and Macao — with 45 around Shanghai, according to a spokeswoman.

Yang said the growth of Starbucks in China, where tea is the traditional hot beverage of choice, is a sign of a growing middle class with a desire to consume foreign products. Many executives suggested that this factor presents an enormous growth opportunity for American companies.

“This country was closed for 100 years, and they desire everything,” said Howard Li, chairman and chief executive officer of the Waitex Group of Cos., referring to China. “American retailers can make more money [in China] than in the U.S.”

Waitex is headquartered in New York and operates an apparel factory in Tianjin, China, outside Beijing. Li, who was born in Canton, which is now known as Guangzhou, and who grew up in Hong Kong, also holds the license to sell the Missoni and Versace brands in China.

Li said the rising standard of living in China has meant he’s had to reach further afield to recruit staff for his factory, which is currently building its headcount from 1,000 to 3,000.

“In Tianjin, I can’t afford to hire the local citizens,” he said. “I have to go west.”

Hiring migrant workers, who typically travel to industrial cities from rural areas and work for a one-year term, is a common practice in China. It’s also been the source of some controversy. In March, the AFL-CIO claimed the Chinese authorities used a system of internal work visas to encourage the practice and keep wages down, and it called on the Bush administration to take action, which the President declined to do.

Li asserted that globalization will help China — where the per capita gross domestic product last year stood at $5,000, up 9.1 percent from 2002 — to develop economically, and in so doing will make the country less of a competitive threat to other apparel manufacturing nations.

“Sooner or later, China will not be cheap anymore,” he said.

Much of the industry’s fears surrounding 2005 are focused on China, and the possibility that it will dominate the apparel business in the way it already does the toy and shoe industries. Yet some executives assert that this is an unreasonable fear.

“I don’t think people are going to put all their eggs in one basket,” said Martin Richter, vice president of Kazu Apparel Group, based in New York.

His firm is owned by Chinese investors and operates apparel factories in China and in Africa, with about 4,000 employees on each continent. He said Kazu is confident its operations in Kenya and Botswana will remain competitive after the quota system ends.

Jeanne Atkinson, a consultant who has worked with the U.S. Agency for International Development and advises industries in Eastern Europe and the Middle East on how to prepare for 2005, said she’s worried that many countries are not prepared for the changes.

“The Chinese are out for blood, and they have such excess labor,” she said.

With a population of 1.2 billion, China over the past decade has been slowly privatizing its many state-owned industries, taking companies that were managed with the goal of creating as many jobs as possible and forcing them to become self-sustaining. That’s resulted in millions of layoffs and a need for new jobs.

Atkinson noted the U.S. has negotiated many free trade deals in recent years, covering areas from North America to the Caribbean to sub-Saharan Africa. All these countries saw apparel manufacturing as a route to industrialization, and many depend heavily on their apparel export earnings.

“We’re taking away all the gifts that we’ve given all the underprivileged countries,” Atkinson said.

Bruce Raynor, president of the UNITE HERE union, also was skeptical of the value of free trade.

“To me, this religious fixation with globalization is bad economic theory and bad social policy,” Raynor said.

His concern is that workers in many developing countries are unable to stand up to their employers to demand better wages or benefits, but that their employers are able to compete with manufacturers in the U.S. and other parts of the developed world where employers are required to pay higher wages and offer benefits like health insurance.

“The notion that standards for the workers in the world should be set by the poorest workers in the poorest countries means…that man’s economic progress is reduced to the least common denominator,” he said.

UNITE HERE advocates that free trade agreements include language on labor and environmental standards — issues that candidate Kerry has said he’ll look into.

“Manufacturing jobs in America were not born good jobs,” Raynor said. “The early factories were brutal, but workers organized unions, workers did something about it. In many Third World countries, workers don’t have that right.”

Other executives asserted that by earning money, workers in the developing world will eventually have the perspective to compare their situation with the rest of the world — and the power to do something about it.

“China, before, 100 percent controlled people’s jobs, controlled everything,” said Li of Waitex. “Over the last five or six years, they’re [the Chinese government] not giving them money, but they’re giving them opportunity, freedom, like Hong Kong or the U.S. That is power. All of these people are looking for opportunity.”

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