Dr. P.V. Viswanath



Economics/Finance on the Web
Student Interest


Indonesia Fears Smuggling Rise As U.S. Curbs Chinese Imports
May 20, 2005, Wall Street Journal



JAKARTA -- New U.S. import curbs on China could lead to a flood of smuggled garments into Indonesia and other Asian countries for domestic sale or covert reshipment, government officials and manufacturers warn.

Such a flood could wash away the gains that Indonesia has reaped in textile exports since the expiration at the end of 2004 of the Multifiber Agreement, which regulated U.S. and European Union import quotas, these people say.

Smuggling "is a problem, and Indonesia can be a likely place if the Indonesian authorities don't...prevent false declaration of goods incoming from China," said A.T. Chuan, secretary-general of Indonesia's Apparel Manufacturers Industries. "Other countries like Cambodia, Vietnam, Laos and Thailand are targets for circumvention activities, as they are in close proximity to China's borders."

Potential Scale

Government officials and producers lack estimates of the potential scale of such illegal trading practices and resulting financial losses, but they say the threat to the industry is acute.

"It's going to be serious if the U.S. and the EU impose import safeguards [because] China will use Indonesia as an [export] transit point," said Baari La Inggi, an expert with the Indonesian Textile Association of Greater Jakarta. He said China-based garment exporters have long experience in using regional neighbors, including Indonesia, as covert trans-shipment platforms to developed markets.

Washington last week re-imposed safeguard quotas on selected Chinese garment imports, in response to complaints from domestic producers. The EU launched a 60-day investigation into surging Chinese textile imports in late April, a move that also could result in import quotas on certain types of garments.

China's textile sales have surged since the dismantling of the quota system. In the first quarter, the country's textile exports rose 29% compared with a year earlier, according to China's official Xinhua news agency, while the U.S. government said imports of Chinese textiles and apparel in that period were up 54% from a year earlier.

Some observers say the increased Chinese exports reflect products that China-based companies trans-shipped illegally through other Asian countries in the decades that the Multifiber Agreement regulated trade.

Hurting Sales

Chinese garments "went via a third country where there was minimum or zero-value-added production, and the label sewed on [such garments] identified it as made in that country," said Paul McKenzie, head of Asia-Pacific consumer research for brokerage house CLSA in Hong Kong. "What happened this year is there hasn't been a need [for Chinese exporters] to make these illegal third-country trans-shipments and they've been going out directly."

U.S. and EU import curbs may encourage China-based exporters to "go back to the old system," he said.

The concerns come as Indonesia posted a 30% rise in garment and textile exports to $771.2 million in the first quarter, before the U.S. quotas were imposed. Indonesia-based companies say smuggled garments from China already are hurting sales.

Indonesian Minister of Industry Andung A. Nitimihardja told representatives of the Indonesian Synthetic Fiber Makers Association last week that Indonesia's regulatory barrier against smuggled goods "isn't good enough" and that his ministry would work to bolster official antismuggling efforts, but didn't elaborate.

Asked at a news briefing Tuesday whether the U.S. measures might fuel an increase in smuggled garments and textiles from China to regional neighbors, China's Ministry of Foreign Affairs spokesman Kong Quan reiterated China's opposition to the U.S. quotas but didn't address smuggling.

--Fitri Wulandari in Jakarta and Aiping Cui in Beijing contributed to this article.




  1. What does this article say about how successful quotas can be?