Service on WTO and Trade Issues (Oct20/27)
Geneva, 22 Oct (Kanaga Raja) – The COVID-19 crisis has hit the garment sector in the Asia and Pacific region particularly hard, affecting millions of workers and enterprises throughout the supply chains, the International Labour Organization (ILO) has said.
In a research brief released this week, the ILO said as of September 2020, about one in two garment workers in the region lived in countries with required closures of all but essential workplaces, including garment factories.
Nearly half of all garment supply chain jobs in the region were dependent on domestic or foreign consumer demand from countries with highly stringent lockdown measures, where sharp declines in retail sales were also observed, it added.
In some cases, imports from Asia’s garment-producing countries to major buying countries dropped by as much as 70 per cent.
The ILO said cancellations of buyers’ orders were common at the onset of the crisis and garment manufacturers also experienced disruptions of up to 60 per cent of their imported input supply.
The ILO study assessed the impact of the COVID-19 crisis on supply chains, factories and workers in 10 major garment-producing countries in the region, namely, Bangladesh, Cambodia, China, India, Indonesia, Myanmar, Pakistan, Philippines, Sri Lanka and Viet Nam.
“This research highlights the massive impact COVID-19 has had on the garment industry at every level. It is vital that governments, workers, employers and other industry stakeholders work together to navigate these unprecedented conditions and help forge a more human-centred future for the industry,” said Chihoko Asada Miyakawa, ILO Regional Director for Asia and the Pacific.
“The typical garment worker in the region lost out on at least two to four weeks of work and saw only three in five of her co-workers called back to the factory when it re-opened. Declines in earnings and delays in wage payments were also common among garment workers still employed in the second quarter of 2020,” said Christian Viegelahn, a labour economist at the ILO Regional Office for Asia and the Pacific.
According to the ILO study, the Asia and the Pacific region is particularly vulnerable to the adverse impacts of the crisis on the garment industry, as it accounts for 60 per cent of the world’s total apparel exports – a fact that has led it to be labelled the “clothing factory of the world”.
“In some countries of the region, the garment sector accounts for more than half of manufacturing value-added and goods exports.”
The garment sector in the Asia and the Pacific region is also an important source of income and employment, including both formal and informal employment.
In 2019, the region employed an estimated 65 million garment sector workers or 75 per cent of all garment sector workers worldwide.
Overall, the garment sector accounted for 3.4 per cent of total employment in the region (compared with an employment share of only 1.6 per cent outside the region), or 21.1 per cent of manufacturing employment.
The share of garment sector workers in total employment is highest in South Asia (4.3 per cent), followed by South-East Asia and the Pacific (3.7 per cent) and East Asia (2.6 per cent).
The ILO also said that the majority of garment workers are women (35 million), and the garment sector employs 5.2 per cent of all working women in the region, or 27.9 per cent of all women working in the manufacturing sector.
Nearly one in five women in Cambodia in employment, are employed in the garment sector, while in Pakistan and Sri Lanka, roughly one in seven women are employed in the sector and one in nine women in Bangladesh and Myanmar.
RIPPLE EFFECTS FROM COVID-19 CRISIS
According to the study, Asia and the Pacific was the first region to feel the impact of the COVID-19 crisis.
Already shortly after the first infections were recorded in China, the novel coronavirus spread within the region to Thailand, the Republic of Korea and Japan, before cases were later detected in other parts of the world.
These developments prompted governments in the region and worldwide to introduce a variety of unprecedented measures such as workplace and shop closures as well as travel restrictions in order to help curb further spread of the virus.
The study noted that COVID-19-related supply chain disruptions originating in one location can expect to have “ripple effects” across the entire supply chain.
“The cumulative impacts of the crisis on garment supply chains are therefore both far-reaching and complex,” it said.
It noted that garment production not only serves domestic consumer markets, but large numbers of workers and manufacturers are embedded in global supply chains that produce garments for international fashion brands based in Europe, Japan, North America and elsewhere.
As such, said the ILO, many of these jobs depend on steady global demand for consumer apparel and a stable retail environment not only in domestic markets, but also abroad.
Moreover, workers and manufacturers in the industry are dependent on a reliable flow of raw materials and inputs into production, often sourced from foreign suppliers.
According to the study, the impact of the COVID-19 crisis on garment supply chains has been largely mediated through three main channels: factory closures; falling consumer demand; and supply chain bottlenecks.
Firstly, governments have been ordering mandatory closures of non-essential workplaces, which in most cases included garment factories.
On 9 September 2020, 5 out of 33 countries or territories in the region with available data still had mandatory closures of all but essential workplaces in place in at least parts of the country.
More than 31 million garment workers (48 per cent of total garment employment in the region) lived in these countries.
This is less than in April, when up to 20 countries or territories had such measures in place, where approximately 56 million workers (86 per cent) reside.
A second channel through which the COVID-19 crisis has been impacting garment supply chains, is the sharp drop in global consumer demand.
“The sudden decline was largely driven by losses in purchasing power, increased uncertainty that pulls back consumption, and lockdown measures such as the closure of clothing stores or different types of travel restrictions,” said the study.
Global consumer confidence collapsed at the fastest speed in recent history during March and April 2020, and has not fully recovered since, it noted.
Despite being eased in some countries, stringent COVID-19-linked lockdown measures remain in place in many others, which keeps the average stringency worldwide at high levels.
Highlighting the relationship between the stringency of lockdown measures and consumer demand, the ILO said that in countries with the most stringent lockdown measures, annual retail sales growth has been lower by more than 25 percentage points, relative to countries with low levels of stringency. The difference is 10 percentage points for countries with a medium level of stringency.
The ILO said that in 16 countries or territories within the region for which estimates are available, accounting for 87 per cent of the region’s labour force, an estimated 60 million workers have jobs in garment supply chains (defined as jobs that depend on domestic and foreign consumer demand for garments).
This includes jobs in the garment sector itself, but also jobs in sectors that provide inputs into the garment sector, such as the agricultural sector (cotton, jute or silk), the chemicals sector (colour dyes or other chemicals for the treatment of garments) or different services sectors (design, marketing).
“When demand for garments falters, workers along entire garment supply chains are also affected,” said the ILO.
As of 9 September 2020, 49 per cent of all jobs in garment supply chains (29 million) were dependent on demand for garments from consumers living in countries with the most stringent lockdown measures in place, where retail sales have plummeted.
A further 31 million jobs (51 per cent) depended on consumer demand that is based in countries with a medium level of lockdown measures in place. Only 240,000 jobs (0.4 per cent) depended on consumer sales in countries with a low level of lockdown restrictions, where the impact on consumer demand is likely to be limited.
According to the ILO, garment supply chains are also impacted by workplace closures abroad, which lead to the third impact channel – supply chain bottlenecks.
Workplace closures have, in many cases, caused supply chain disruptions and prevented imported inputs into garment production from arriving in time.
“The depletion of input inventories can present serious obstacles to maintaining garment production, and for garment workers to earn an income – regardless of whether the pandemic is under control in the country in which the factory is located,” said the ILO.
The garment sector in countries that are highly dependent on imported as opposed to domestic input supply, and whose input supplier base is very much concentrated on one or very few countries, are also more vulnerable to disruptions of imported input supply, it added.
In this regard, the garment sector in South-East Asia and the Pacific is most vulnerable to imported input supply disruptions, as countries in this region – such as Cambodia or Viet Nam – import a large share of their inputs from a concentrated supplier base.
The ILO said many of the countries in this sub-region rely heavily on China as an input supplier, which renders them vulnerable to supply input shortages should the country face sudden workplace closures, in response to a second wave of infections, for example.
As of 9 September, it noted, an estimated 30 per cent of foreign inputs into garment production were sourced from countries with closures of all but essential workplaces in at least some geographic areas, suggesting that the supply of some of these inputs is disrupted.
“This is lower than the 60 per cent observed in the beginning of April but suggests that input supply disruptions remain a significant channel of disruption, especially in South-East Asia and the Pacific (47 per cent) and South Asia (41 per cent).”
COLLAPSE OF GLOBAL TRADE IN GARMENTS
According to the study, the impact of the COVID-19 crisis led global trade in garments to sharply decline in the first half of 2020.
Major countries’ imports from garment-exporting countries in Asia declined sharply, leading to widespread factory closures – both temporary and indefinite – and mass lay-offs of workers.
Imports of garments in the United States (US) declined by 26 per cent from January to June, compared with the same time period in 2019, with similar declines being seen in the European Union (EU) and Japan import data (25 per cent and 17 per cent declines respectively).
In total, these year-on-year import decreases represent a US$17.5 billion decrease for the EU, a US$17 billion decrease for the US, and a US$2.6 billion decrease for Japan from 2019.
These import markets are significant for garment-producing countries, as the EU, US, and Japan are the world’s top three importers of apparel in 2018. Together, the three accounted for 61.5 per cent of world apparel imports in 2018, said the ILO.
Total combined imports into the US, EU and Japan from ten major apparel and footwear producing countries in Asia also fell significantly between January and June 2020, when compared to the same period in 2019.
The largest percentage decreases in exports were observed in China, India, the Philippines, and Sri Lanka, said the ILO.
The study pointed out that cancellations of buyers’ orders were also common at the onset of the crisis.
At the initial outset of the crisis, many global buyers responded to falling consumer demand by seeking to reduce or cancel orders, hold shipments, and request discounts from suppliers – often by invoking force majeure clauses in supplier contracts, said the ILO.
Several long-established retailers including Brooks Brothers, Debenhams, G-Star (US), J. Crew, JC Penney, and Neiman Marcus have declared bankruptcy or gone into administration, it noted.
McKinsey estimated in April 2020 that up to one-third of global fashion buyers will not survive the crisis.
The reasons for buyer bankruptcies vary, said the ILO study, with analysts indicating that many companies had already been struggling to adapt to a changing retail environment and some large retail chains were deeply in debt before the pandemic.
The study cited a Better Buying survey of 179 suppliers from 30 countries (including China, Bangladesh, India, and Pakistan) conducted in May 2020 that found that 64 per cent of apparel factories received cancellations from customers.
Among those surveyed, 18 per cent of respondents reported a complete loss of accounts receivable due to order cancellations.
The Better Buying report also found that 35 per cent of factories surveyed had buyers ask for discounts on existing orders of more than 20 per cent.
The ILO study also found that COVID-19’s impact on suppliers through order cancellations, reduced demand and lockdowns have resulted in widespread worker lay-offs and dismissals.
It said that most suppliers in the countries covered in its report have had to lay-off at least some portion of their employees.
For instance, in Myanmar, reports indicate that of the country’s approximately 600 garment factories, 44 remain closed resulting in approximately 22,000 workers unemployed.
Similarly, in Cambodia, more than 150,000 workers – representing approximately 15 per cent of the country’s garment workers – were reported to have lost their jobs during the pandemic.
Factories operational at the start of the third quarter of 2020 – whether they had remained operational throughout or re-opened – were reportedly not operating at their pre-pandemic capacity, said the ILO.
For example, approximately 43 per cent of suppliers in Bangladesh are operating with less than 50 per cent of their pre-pandemic workforce. Only 3.9 per cent of suppliers retained their entire workforce.
WOMEN DISPROPORTIONATELY AFFECTED
According to the study, the health and economic impacts of the COVID-19 pandemic have also affected women workers disproportionately, presenting serious risks of reversing previous gains achieved towards closing some gender gaps.
In Asia and the Pacific, the garment industry employs more than 5 per cent of all women workers, making the industry the largest employer of women among all industrial sectors in the region.
“Not only has the disruption to the garment supply chain significantly affected women workers, the pandemic has exacerbated pre-existing inequalities,” said the ILO.
“Many workers, especially women, have a double burden of combining both their paid and un-paid work responsibilities, shouldering a disproportionate share of household chores and care of children and other family members.”
The study cited a Care International survey of 307 women garment workers in Cambodia, conducted in May and June 2020, that found that 36 per cent of respondents reported that they bore a heavier workload than men during the pandemic and 13 per cent identified an increase in unpaid care work among the top three problems from the crisis.
Noting that most governments have enacted efforts to support garment sector workers and suppliers, the ILO said international solidarity and support will be key for countries in the Asia and the Pacific region, especially those with limited fiscal space.
Stimulus packages in advanced economies have been larger than those in developing economies and, as of June 2020, accounted for 88 per cent of the global fiscal stimulus.
However, said the ILO, support for workers and factories in developing countries, including those where garment manufacturing dominates the economy, should likewise be an important priority.
To tackle the COVID-19 crisis, the ILO said that it has proposed a Policy Framework with four pillars, based on international labour standards: (i) stimulating the economy and employment; (ii) supporting enterprises, jobs and incomes; (iii) protecting workers in the workplace; and (iv) relying on social dialogue for solutions.
“As the pandemic continues to take its toll on the health as well as the economic and social well-being of the world population, the continued mobilization of resources and action along those four pillars remains key to safeguard jobs and livelihoods, including those in the garment sector.”
Continued support for enterprises, as well as the extension of social protection to all, is key to mitigate adverse impacts of the crisis in the garment supply chain.
Solutions need to be found to address the needs of all workers in the sector, including women which make up the majority of garment employment, said the ILO.