Suck China Morning lose
Living with the textile quotas
By ERC AXILROD
LETS assume that the texle quotas impose per cent growth rate exports, whatever happens to the U.S. economy.
Le is fiber assume that the base pear rate of growth on which the quota rate is calculated has been 15 per
Simpatic which is somrimS 25 useful as plex economaries,
*CK: tie exe
that there can be
as 8 per a decline in the rate of growth of exports during the coming year.
The margin of error may be that the base rear rate of growth, acceptable under the agreme could run higher than 15 per cent, say 17 per cent and enforce a 10 per cent decline in Hongkong exports.
The margin of error could be that US demand for Hongkong experts falls to a lower levd than the 7 per cent quoia rate if the U.S. recession and protectionist means on back U.S. terie impors significantly,
Stalk about an 8 per can decline as a sensible Mation
Tak k zakar drastic nor easy to overlock, just as a is
lenmed that out of
* opportunities
Ďuring the coming year, it
is doubtful that the Phase II umpires in the U.S. will be able to hold prices to the 2.5 per cent guideline.
It will more likely be close to a 4 per cent price inflation, if unemployment does not increase significantly.
It could also be closer to 5 per cent price inflation, if unemployment begins to fall rapidly below 5.5 per cent.
So, a 4 per cent inflation in the U.S. can provide Hongkong exporters with a margin to raise their prices, given the surcharge and the exchange rate.
There is a current average price advantage for Hongkong products in the U.S., even including the whole value of the surcharge, at the current exchange rate.
Now, a Hongkong shirt may sell in the U.S. for $$ and the same shirt, made in the US may sell for $6, just to round the figures off.
Before the surcharge and appreciation of the HKS in terms of the U.S.S. there may have been U.S.S1.50 price advantage in favour of Hongkong.
Therefore, the Hongkong quota exporters can raise their prices, say, 4 per cent during the coming year and still maintain their price advantage. if 4 per cent is the increase in U.S. domestic made apparel and textiles.
But if the Hongkong exporters chose to raise their prices by this amount, and if the decline in exports. under
the quota, is 10 per cent in current market prices, then the volume of exports will have to fall 14 per cent.
That is, a 4 per cent price increase and a 14 per cent volume decline will conform to the 10 per cent decline in export sales brought about under the quota.
This means that if Hongkong exponers chose to take their profits more in price increases, there will be a larger decline in employment than if they minimise their price increases.
How much, for example. will employment decline if export prices rise 4 per cent and volume declines 14 per cent during the coming year?
We have to know much more about productivity in Hongkong textiles before a precise answer can be given.
Once again, we have to assume а benchmark productivity of, say, 4 per
cent.
If output decline 14 per cem, and productivity per worker is 4 per cent, then we may expect employment to decline 3.5 per cent.
If the employed work force approximately 250.000. then employment will decline 8,750 workers.
assume
Now take the more favourable option, and that Hongkong exporters do not raise prices at all, and that output de- clines 8 per cent in the com- ing year under the quota. then employment will only fall 2.3 per cent or approxi-
matel
tions
show a 4 per cent inflati in Hongkong exporest prices will bring about $200 les jobs than if the exmers not raise their plas in a
in to keep
In profits quota. Competition probari itself om
limits.
Yes demination wi depend o the happens to
of of the
the data me
hat is all being
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The ad shaking improv prévity and
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If Bogkong textile induseg
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prod much
prod.
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at leas
depends on de Se of
its in th gedies
For example ==='s shins how many is t there 60 worken and 61 to 199, 200 to 555, and over?
What are the fence in productivity in each of thes classifications?
It is entirely possible there is not any significant dfference In prodleivity, except as you approach the extremes of production unit size.
If prices rise 4 per cent and unemployment 3.5 per cent under the quota, what will happen to wage rates, hours of work and the total wage
O:
MOTE, it customary to rely on the past and assume that wage w drop fairly rapidy, since the price of labour wil come down with employment.
a
Ye this effect in the past can be offset in current circumstances by
the persistence in inflation in the workingman's cost of living.
Hongkong is hardworking agle, clever business unit. and its small size though it may magnify some problema, will also be 2 advantage. while the gams ke Japan. thrash about trying to find new markets for unemployed workers and capital.
Bu Hongkong will have to learn more about itself, more about the workings of its acctomy, for this is the proper basis for strategio Forward planning in a period of increasing problems and adjustments.
9/10/1