EAST ASIA'S TEXTILE EXPORTS: A YEAR UNDER NEW RESTRAINTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700050044-7
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 14
• Document Creation Date: December 20, 2016
• Document Release Date: March 13, 2006
• Sequence Number: 44
• Publication Date: June 1, 1973
• Content Type: IM

 Approved For Release 2006/04/19: CIA-RDP85T00875RO01 TOO) ' 4 7
ell
Confidential
intelligence Memorandum
East Asia's Textile Exports: A Year Under New Restraints
CIA
DOCUMENT SERVICES B1NCH
FILE COPY
00 NOT DESTROY
Confidential
ER IM 73.47
Copy No. nit
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TIA. PSr00875R001700050044-7
East Asia's Textile Exports:
A Year Under New Restraints
As a result of textile restraints adopted in late 1971 by Japan, Taiwan, Hong Kong,
and South Korea, the volume of East Asian textile shipments to the US market in 1972
fell by 10%. In dollar terms, however, the overall value of US textile imports from East
Asia jumped 15% to US $1.6 billion because of product upgrading and price increases.
The restraints deflected large amounts of East Asian textiles to countries other than
the United States. Overall East Asian textile exports rose by 14% (according to East Asian
statistics), reaching $5.6 billion. About one-third of the increase went to the European
Community (EC) and the United Kingdom. Until the new restraints were imposed, only
Hong Kong paid much attention to those markets. Because of 'their success in diversifying
export markets and getting higher prices for their goods, the East Asian textile industries
continued to prosper during 1972, although the Japanese industry experienced a slight
drop in output.
East Asia's export drive faces serious challenges in the future. Protectionist sentiment
against the East Asians already is mounting, especially in the EC, and a proliferation of
restraints will probably develop in the absence of a broad international agreement covering
textile trade. Differences between the EC and East Asia will make a comprehensive
agreement difficult to achieve. Under these circumstances the exporting countries may
press for easier access to the US market in return for accepting a new international
agreement. In addition to new restraints, Japan will have difficulty boosting sales because
of its weakened international competitive position.
directed to
Note: Comments and queries regarding this memorandum are welcomed. They may be
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DISCUSSION
The Prelude to Broadened Export Controls
1. Since the mid- I960s, East Asia has become increasingly important
in world textile trade. Japan and I-long Kong had long been major exporters,
and, with the emergence of 4arge industries in Taiwan and South Korea,
the region became by far the leading source of inexpensive textile products
for the world market.1 Between 1965 and 1971, East Asian textile exports
more than doubled in value., reaching nearly $5 billion annually -- about
one-third of the world total. At the same time, Japan's share of East Asian
textile exports fell from 73% to 54% because the other countries' exports
grew especially rapidly. The combined value of Taiwanese and South Korean
textile sales abroad, for example, rose an average of 45% annually during
1966-71.
2. Crucial to this outstanding performance was East Asia's easy
access to the US market. US textile imports from the region nearly tripled
between 1965 and 1971, when they amounted to $1.4 billion - three-fifths
of the US total. Growing purchases from East Asia were the key factor
boosting the US trade deficit in textiles from about $700 million in 1965
to $2.0 billion in 1971. The East Asians captured a substantial share of
the US market in numerous product lines, especially man-made fiber textiles,
which accounted for three-fourths of the volume of US purchases from
East Asia by 1971.
Nature of the New Restraints
3. Because of inroads made in the US market, the East Asians came
under increasing pressure from Washington to restrain textile shipments.
For a time the countries strongly resisted export controls on the grounds
that they would damage the industry, cause major losses in foreign exchange
earnings, and slow economic growth. Near the end of 1971, however,
agreements finally were reached that placed tight volume limits on shipments
of man-made fiber and woolen textiles to the US market. Limits on exports
of cotton textiles to the United States had been in effect for many years
but did not rule out substantial short-term gains.
4. Japan, the largest supplier, accepted the stiffest restrictions.
Tokyo agreed to limit the annual growth in export volume to 5% for
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man-made fiber textiles and 1% for woolens during the three-year period
ending in September 1974. Agreements with the other countries limited
the annual growth in export volume to 7.5'/o for man-made fiber products
and 1% for woolens during the five years ending in September 1976. The
restraint programs also included detailed item-by-item restrictions within
the overall volume limits. For all four countries the base year used in
calculating future export limits was the 12 months ending in March 1971.
Export volume in this period was considerably smaller than volume in
calendar year 1971, which reflected soaring shipments made in anticipation
of the restraints. Japanese exports during the base year, for example, were
only two-thirds of the level for calendar year 1971.
Export Developments in 1972
5. East Asia's global textile exports continued to expand rapidly in
1972, but the restraint program and other factors deflected most of the
growth to countries other than the United States, according to East Asian
statistics. Increases in volume and prices raised the four countries' exports
by $708 million, to $5.6 billion. As the following tabulation shows, the
two exporters with the smaller value of textile exports achieved the largest
percentage gains:
1971
1972
Percent
Increase
Total
4,888
5,596
14
Japan
2,653
2,799
6
I-long Kong
1,132
1,265
12
Taiwan
624
860
38
South Korea
479
672
40
6. US data indicate that the restraint programs were successful in
curbing the growth of export volume to the United States in 1972, even
though limits were not observed strictly during the programs' first
12 months. Shipments declined by 10%, to 3.2 billion square yard
equivalents, because restraint kwels were tied to the relatively low volume
of the base period. Shipments of man-made fiber products fell particularly
sharply, while cottons increased markedly (see the following table and the
Appendix). Although US textile imports from other countries rose, the fall
in East Asian shipments held the overall gain in US import volume to 7%,
compared with 36% in 1971.
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Japan
Hong Kong Taiwan South Korea
Total
East Asia
Million Square Yard Equivalents
Total
1,306
768
619
479
3,172
Man-made
products
980
254
518
416
2,168
Wool
products
11
26
8
12
57
Cotton
products
314
488
93
51
946
Percent Change Over 1971
Total
-24
11
-7
5
-10
Man-made
products
-30
3
-12
2
-18
Wool
products
-56
4
167
71
-5
Cotton
products
10
17
26
24
16
1. Because of rounding, components may not add to the totals shown.
7. The volume of US textile imports from Japan dropped by 24%
last year. Purc;tases of man-made fibers and yarns were off more than
one-half because of the restraint program and the yen revaluation in
December 1971, which weakened Japan's ability to compete with other
suppliers. Tight item-by-item restrictions caused shipments of finished
man-made fiber textile goods, including apparel, to stagnate. Japan was
unable, for example, to use its quotas for non-knit skirts and slacks owing
to US style changes, and itemized restrictions prevented much shift into
products of growing popularity. In contrast to man-mades, cotton textile
imports from Japan increased 10% during 1972 in response to growing US
demand for such productF as denims. Even so, Japan filled only half of
its cotton textile quota in the US market.
8. US purchases from the other East Asian countries increased only
moderately in aggregate volume. Under the pressure of restraints, shipments
of man-made fiber products from Taiwan declined, and those from Hong
Kong and South Korea rose little. Hong Kong, like Japan, made important
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gains in cotton textile sales, somewhat exceeding its US cotton textile quota
in the process.
9. Of the four countries, only Taiwan held its overall shipments of
man-made fiber products during the period October 1971 - September 1972
within the quota, as the following tabulation shows:
1. Figures for Japan and Taiwan arc based on data for calendar year 1972; the
figure for South Korea is estimated from nine months' data.
There also were numerous instances of above-quota shipments of particular
textile products. In some cases, quotas were exceeded because US and East
Asian authorities classified new product lines differently. Style changes, for
example, frequently resulted in reclassification of a product under US
customs regulations, while the exporting country continued the original
classification. These problems have been partly resolved by refining the
control procedures. In other instances, especially for Hong Kong and South
Korea, textile producers simply shipped more than the quotas allowed. US
customs officials embargoed some textiles upon delivery in the United
States, and Washinton has pressed the governments for better compliance.
10. Despite the drop in import volume in 1972, the value of US textile
imports from East Asia jumped by 15% - according to US statistics2 -
because of price increases and shifts to higher quality products. Average
unit value rose by 32% for imports from Japan, owing to higher dollar
prices charged following the yen's revaluation and to the upgrading of
product lines. Average unit values for the other countries increased by 12%
to 30%. These values rose appreciably for nearly every major category of
each country's sales to the United Str-.s. All four countries were able to
charge higher prices without seriously hurting their sales because
competition among them was limited by the restraint programs. Because
the value of imports from other countries also rose substantially, the US
trade deficit in textiles widened by another $300 million in 1972 to $2.3
billion.
2. The 1% decline in value indicated by East Asian data apparently reflects the fact that large
shipments arriving in the United States in early 1972 had left the exporting countries in late 1971.
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Man-made
Fiber Products
Wool
Products
Cotton
Productsl
Japan
102
51
54
Hong Kong
110
64
107
Taiwan
100
154
82
South Korea
105
84
101
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EAST ASIA'S SHARE OF US IMPORTS
VOLUME OF US IMPORTS
MILLION SQUARE YARD EQUIVALENTS
6,478
The Shift to Other Markets
$2,436
EAST
ASIA
EUROPEAN
COMMUNITY
(OF SIX)
EAST
ASIA
EUROPEAN
COMMUNITY
(OF SIX)
UNITED KINGDOM
11. Higher unit prices held
East Asia's share of dollar value
of US textile imports at close to
60% in 1972, as shown in the
accompanying chart. But the
East Asian share of US import
volume fell sharply to 49% as
other suppliers took advantage of
the restraint program and moved
aggressively into the market for
low-priced items. The EC, for
example, took advantage of the
restraints on Japan by markedly
increasing exports of man-made
fibers to the United States.
Southeast Asian and Latin
American countries meanwhile
expanded their sales of
inexpensive finished goods very
rapidly.
12. Confronted with tight
restraints on sales to the United
States, East Asia successfully
turned to other markets last
year. Indeed, the increases for
Taiwan and South Korea in these
markets were 66% and 55%,
respectively. The total value of
the region's sales increased by
14% - particularly notable gains
being made in Western Europe,
as the following tabulation
shows:
Percent
1971 1972 Change
Total 4,888 5,596 14
United States 1,531 1,512 ?1
European Commu?
pity (of six) 334 506 51
United Kingdom 264 327 24
East Asia 842 996 18
Other 1,917 2,255 18
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VALUE OF US IMPORTS
MILLION US $
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This diversification effort reduced the US share of East Asian textile exports
from 31% in 1971 to 27% in 1972.
13. All four countries considerably expanded sales to the six-member
EC as well as to the United Kingdom. Largely ignored in the past because
they restricted textile imports from East Asia and the US market was
relatively open, West European countries became the object of serious sales
efforts. The EC countries' controls proved to be too weak to prevent a
sharp rise in East Asian textile exports from their traditionally low level.
Taiwan and South Korea doubled their textile exports to the EC, and Hong
Kong's sales increased by about 40%. Japan achieved a 15% gain despite
strong competition from the other East Asian exporters. Despite the
impressive percentage gains made, East Asian textile exports to the EC and
the United Kingdom totaled only $833 million, or 15% of global sales.
14. For Japan, growing markets in the Communist countries,
especially the Soviet Union and China, also were important in making up
for the setback in the United States. Sales to Communist countries rose
by nearly 50%, to $212 million. East Asia itself remained the largest overseas
market for Japanese exports of man-made yarns, fibers, and fabrics, which
typically are processed into finished goods for export. Sales to South Korea
and Taiwan, however, increased. little in 1972 because these countries are
moving toward self-sufficiency in synthetic fiber production.
15. Japan itself continued to be a k i growth market for South Korea
and Taiwan, whose already strong competitive position in that market was
strengthened by the yen's revaluation. Each country's sales to Japan rose
by roughly one-half. South Korea did particularly well, selling raw silk and
products such as pockets and collars that Japan uses to make finished
clothing, while Taiwan greatly expanded exports of fabrics and finished
clothing items.
Domestic Impact
16. The new restraint program, rising export prices, and growing
competition in the home market from foreign suppliers combined in 1972
to cause a slight decline in Japanese textile production -- the first drop
since 1958. To reduc: opposition to the restraint agreement and ease the
impact of last year's setback, Tokyo has made available to the industry
some $750 million in long-term loans at low interest rates. These funds
have helped to accelerate the modernization of textile plants and equipment.
The synthetic fiber industry has already recovered from the initial adverse
effect of restraints and weak domestic demand and is planning to increase
investment spending by roughly 45% during the year ending in March 1974.
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17. In response to the restraints, Japanese firms also have stepped
up their investment in overseas textile industries. These facilities are usually
supplied with Japanese intermediate products - yarn, fibers, and fabrics --
which are processed into finished goods for sale in both the host count,-y
and third country markets, including the United States. During 1972,
investments increased especially sharply in Latin America, reflecting joint
ventures in Costa Rica, Guatemala, Peru, and Brazil. Investment in Southeast
Asia, especially Indonesia and Thailand, also increased, and the Japanese
have begun investing in the US textile industry. Several joint ventures have
already been set up in the Carolinas. Moreover, major Japanese textile
manufacturers such as Teijin Ltd., Toray, and Kanebo have been considering
plant sites in the United States.
18. Other East Asian producers have not been seriously hurt yet by
restraints. Output continued to rise fairly rapidly in 1972; indeed, South
Korean textile production increased by 32%. All the industries also benefited
from higher prices. Employment has remained at high levels, and, although
some investments have been delayed or canceled, many modernization and
expansion programs apparently have been moving ahead. Taiwan and South
Korea, for example, still expect to reach self-sufficiency in synthetic fiber
production by the mid-1970s, and Hong Kong's textile industry continues
to attract foreign investors, mainly Japanese.
Prospects
19. The restraint programs should hold annual increases in East Asia's
sales volume to the US market to between 5% and 10% during the next
few years even if cotton textile exports show continued strength. Growth
rates are likely to be moderate because some itemized quotas will remain
unfilled as US tastes change and because Japan, at least, will have difficulty
selling some products owing to its weakened competitive position since the
revaluation. The value of East Asian sales to the United States will continue
to rise more rapidly than sales volume as product upgrading continues,
although not by the margin achieved in 1972.
20. Overall, East Asian textile exports are unlikely to expand nearly
as fast in the 1970s as they have in the past decade because the countries
face growing trade restrictions and (in the case of Japan) more effective
competition. Japan will remain an important world supplier, but the latest
currency rei aluation will impair its ability to sell abroad. The other countries
will encounter growing protectionist sentiment as they try to boost their
exports. The EC will almost certainly tighten its controls on textile imports
from East Asia if they continue to mount as in 1972. Other West European
countries, as well as Australia and Canada, will be inclined to tighten
controls if they become the focus of East Asia's marketing effort.
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21. The only alternative to proliferating restraints on textile trade
seems to be a broad international agreement aimed at an orderly world
market, as the United States has proposed. Obtaining an international
agreement will be difficult because the East Asians probably will press hard
for a fairly rapid growth in exports to markets such as the EC. East Asian
exports to the EC and UK markets, for example, would have to grow by
an estimated 20% annually just to equal the increments in volume now
permitted in the US market. Because the EC is likely to reject any liberal
control program, the East Asians can be expected to press Washington for
somewhat easier access to the US market in return for acquiescing to a
new international agreement.
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 APPENDIX
Statistical Tables
Table A-1
Japan
Hong Kong
1971 1972
1971 1972
1971 1972
Volume
Million Square
Yard Equivalents
Percent
Charge
Million Square
Yard Equivalents
Percent Million Square
Percent
Million Square
Percent
Man-made
457 479
S
products
1,401
980
-30
247
254
3
592
518
-12
408 416
2
Fibers
607
255
-58
4
5
25
13
3
77
43 24
-44
Fabrics
Finished
486
420
-14
4
13
225
63
61
-3
19 22
16
goods
208
305
-1
240
236
-2
516
454
Wool
products
25
11
-56
25
26
4
3
8
Cotton
products
285
314
10
416
488
17
74
93
26
41 51
24
Million US S
Man-made
20
190
257
35
products
439
411
-6
149
177
19
236
276
17
166
223
34
Fibers
F
79
29
-63
1
2
100
4
1
-75
5
3
-40
abrics
Finished
goods
wool
products
Cotton
products
180
180
40
139
178
204
20
193
-!
13
-50
39
1
147
66
149
4
171
71
206
300
16
8
38
4
228
S
21
4
271
7
31
0
19
40
48
7
154
12
12
10
210
15
19
43
36
25
58
1971
1972
Million, Square
Percent
3,526
3,172
-10
2,648
2,168
-18
667
287
57
572
516
-10
816
946
16
Million US S
1,433
1,649
15
990
1,087
10
89
35
-61
192
196
2
709
856
21
123
113
-8
321
449
40
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East Asia: Direction of Textile Exports'
Percent
Chan
Total
2,653
2,799
6
United States
637
558
-12
Hong Kong
279
280
Negi.
South Korea
150
154
3
Taiwan
126
133
6
EC (of six)
84
97
15
United Kingdom
29
36
24
Other
1,348
1,541
14
Total
624
860
38
United States
274
280
2
EC (of six)
57
117
105
Japan
42
66
57
United Kingdom
14
34
143
Other
237
363
Hong Kong
53
Total
1,132
1,265
12
United States
407
414
2
United Kingdom
217
242
12
West Germany
136
196
44
Netherhinds
26
31
19
Japan
22
16
-27
Other
324
366
13
Total
479
672
40
United States
213
260
22
Japan
122
182
49
EC (of six)
31
65
110
United Kingdom
4
1.5
275
Other
109
150
38
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