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    Impact of Brexit on Global Textile and Apparel Industry

    Introduction:
    Brexit is the withdrawal of the United Kingdom (UK) from the European Union (EU). This occurs after the historical poll that chose ‘Brexit’ by 52% to 48%. The exit process would take more or less two years as per the law mentioned in Article 50 of EU. However the impact has already been emerged in many areas including textile and clothing trade.

    Brexit impact on global textiles and apparel industry:
    While experts say Brexit would affect manufacturing, the textiles and fashion industry is expected to take a hard hit both in UK and across the world. UK’s fashion industry contributed an estimated £26 billion to the economy in 2014.

    Brexit will definitely have an impact on garment and textile exporters due to the devaluation of the pound and the euro, which influences prices.

    So the common themes are, that devaluation of GBP ultimately means that British will end up paying more on orders paid for in euros or dollars. In turn, these extra costs will likely be passed on to the consumer, leading to price inflation. Second theme is the EU FTAs that would now need to be renegotiated separately for EU and UK. The lengthy time for such deals to reach closure could keep uncertainty going for some time.

    There is an interesting survey done by Just-Style on the prevailing sentiments on the outcome of Brexit and its impact on Global Apparel Industry. The Key findings are –
    • It will take at least two years before the implications of the Brexit vote become clear
    • Reduced confidence in global apparel industry’s short and medium-term prospects
    • Non-UK Europe respondents most pessimistic for the future
    • Four in ten respondents suggest it will take up to two years before the implications of the Brexit vote are fully understood
    Speculations and views abound on the impact of Brexit. We do a round-up of the sentiment amongst the apparel exporting communities and countries.

    Bangladesh:
    Impact of ‘Brexit’ on global textile and apparel could easily be understood if UK’s bilateral trade between Bangladesh could be analyzed. It is because Bangladesh is a textile based county and its foreign trade has more than 87% contribution from textile and apparel.
    Table1: Bangladesh export to UK in comparison to its global export (Source: ITC, WTO)
    Table 1 show that Bangladeshi goods require no tariff to enter in UK. It is because of the EU GSP policy towards LDC countries. Bangladesh should take immediate action as if those benefits never be disrupted.

    International Trade Center data shows that in 2015 more than 10% of total Bangladesh export went to UK. UK being one of the oldest trade partners of Bangladesh, it is not surprising.

    Bangladesh exported more than $3.5 billion to UK which was having on an average 6% growth for last five years. Among $3.5 billion of total export to UK, more than $3.23 billion is of RMG goods. Knitwear sector was having 5 % and woven wear was having 10% average growth for last five years. This data show how important is the UK for Bangladesh trade. UK has been considered to be a thirst market for Bangladesh and the country has set higher export target in UK market in the current fiscal year.

    India:
    The Biggest Concerns are around two issues –
    1. Currency fluctuations. GBD declined 12% from the levels prevailing at the time of vote for Brexit. This impacts the money that the British buyers will be paying to honour their USD contracts with their suppliers. A downward pressure on prices is the natural outcome.
    2. India EU FTA – which was being negotiated between India and EU. With Brexit, the FTA terms may need to be re-evaluated and renegotiated. Britain makes up for roughly a third of India’s apparel exports to the EU. Out of the 28 nation block, Britain alone has 37% share. India enjoys a 20% tariff preference in the EU under its GSP program. It remains to be seen, how this gets impacted after Brexit for exports to the UK.
    Vietnam:
    In 2015, Viet Nam's export value for textile and garment products to the European Union accounted for some 19-20 per cent of national revenue from textile and garment exports, with the United Kingdom contributing nearly 4 per cent.

    The political change will affect the purchasing power of customers in the European Union and the United Kingdom.

    These issues will have a direct impact on textile and garment enterprises in Viet Nam. For instance, material prices will have to be re-negotiated due to changes in the exchange rate, which will have a direct influence on the input prices of products from the fourth quarter of this year. That situation will affect the long-term export orders for enterprises from 2017. 

    Brexit’s impact is already being felt in Vietnam. And How?
    1. Chairman of Vietnam Textile and Apparel Association (VITAS) Vu Duc Giang told reporters that export firms with big export orders to UK were facing difficulties. Many British firms in Vietnam were scaling down and offering workshops for sale in the wake of Brexit and the sharp devaluation of the GBP currency.
    2. UK is the biggest importer of Vietnam’s textile garment products. Vietnam earned over US$257 million from exporting such products to the UK in the year’s first five months compared to annual exports of some US$400 million to this market. US$257 million made up 21% of Vietnam’s total textile-garment exports to the EU in the period.
    3. The difference between the Vietnam-EU FTA terms versus the Vietnam-UK FTA are also an area of speculation and concern which will need to be sorted out in the next two years.
    Sri Lanka:
    The only country which probably stands to gain from Brexit. Any Why?
    1. Sri Lanka lost duty free access to EU under the GSP plus scheme in 2010. This made them less advantageous compared to other countries like Bangladesh which enjoyed Duty free access to EU and UK as part of EU. Brexit is likely to create a level playing field for Sri Lanka’s Apparel exporters as the other nations may also lose the duty free access to UK.
    2. According to Central Bank data, 29 percent of Sri Lanka’s exports reach the EU and out of which 34 percent go to UK. From the total exports from Sri Lanka, the UK accounts for slightly under 10 percent or slightly above US $ 1.0 billion. Apparel exports accounted for 46 percent of total exports from Sri Lanka in 2015
    China:
    The story of China in the wake of Brexit is more of a victor than a loser, as it emerges as a power to reckon with.
    1. Brexit and a divided EU is likely to increase China’s bargaining platform. As was visible in German Chancellor Merkel’s recent griping on her visit to Beijing, that foreign firms deserved to ‘enjoy the same rights and privileges’ as the foreign firms. This is a reverse story, where the west is pleading for a level playing field.
    2. China’s aggressive shopping spree in Europe even buying beloved football clubs and the fact that European Nations have been competing amongst themselves vying for better business deals with China, makes it evident that a United EU stood better chances than now, as the 2nd largest economy-UK exits.
    3. While in the short run, China does get affected by Brexit, EU being the largest trading partner, in the long run a divided Europe would be a lesser power to deal with compared to a United EU.
    Well, I want to end this article on the note that it’s the people who know the best. It’s the public sentiment which decides the turns the economies take in the end! Let’s wait and watch which way the wind blows. 

    References:
    1. Bangladesh Textile Today
    2. http://www.fashionatingworld.com/new1-2/item/5870-brexit-affect-global-textiles-apparel-industry-to-feel-the-heat.html
    3. http://bizhub.vn/business-insight/17118/brexit-could-impact-vns-garment-industry.html
    4. Anjuli Gopalakrishna - an apparel and fashion industry professional
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