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Journal of Policy Modeling 30 (2008) 737750

South African quotas on textile imports from

China: A policy error?
Wim Naude a,b, , Riaan Rossouw c
a

World Institute for Development Economics Research, United Nations University, Helsinki, Finland
b WorkWell Research Unit, North-West University, South Africa
c School of Economics, North-West University, Potchefstroom, South Africa

Received 10 August 2007; received in revised form 8 November 2007; accepted 27 December 2007
Available online 24 January 2008

Abstract
In August 2006 the South African government announced quotas on the imports of clothing and textile
products from China. Three questions arise. What are these expected benefits? What will be the most likely
impact of the import quotas on the South African economy? And what are the policy implications? In this
paper we answer these questions by using a computable general equilibrium (CGE) model. We find that,
contrary to the motivations apparently underlying the quota implementation, the macro-economic, sector
and household effects are negative and result in greater inequality between poorer and richer households.
We refer to modeling results elsewhere in the literature which report results consistent to ours. The policy
implications are that the imposition of these quotas could come to be seen as a policy mistake, and that South
Africa may benefit more from considering a free trade agreement with China.
2008 Published by Elsevier Inc. on behalf of Society for Policy Modeling.
JEL classication: C68; C52; N0
Keywords: China; South Africa; Clothing and textiles; Import quotas; CGE model

1. Introduction
In August 2006 the South African government imposed quotas on the imports of clothing and
textile products from the Peoples Republic of China, for a period of 2 years starting on 1 January
Corresponding author at: World Institute for Development Economics Research, United Nations University, Helsinki,
Finland. Tel.: +358 961599 219.
E-mail addresses: Wim@wider.unu.edu (W. Naude), Riaan.Rossouw@nwu.ac.za (R. Rossouw).

0161-8938/$ see front matter 2008 Published by Elsevier Inc. on behalf of Society for Policy Modeling.
doi:10.1016/j.jpolmod.2007.12.006

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W. Naude, R. Rossouw / Journal of Policy Modeling 30 (2008) 737750

2007 (Government Notice, 2006). These quotas represent an about-face in trade policy after more
than a decade of commitment to trade liberalization. The products on which the quotas were
imposed were already significantly protected by high import tariffsof 40%.1 It also comes after
South Africa recognized Chinas market economy status in 2004 and signaled its intention to start
negotiating for a free trade agreement (FTA) with China.
Given the costs that the manner of the imposition of these quotas imply in terms of the credibility of South Africas trade policy stance, it might be inferred that the government had high
expectations that these quotas would have real benefits for the South African economy. Three
questions arise. What are these expected benefits? What will be the most likely impact of the
import quotas on the South African economy (apart from a loss of credibility)? And what are the
future policy implications? In this paper we answer these questions by using a computable general
equilibrium (CGE) model of the South African economy to model the economy-wide impacts
of the imposition of the quotas. Our interest in the comparative economy-wide effects of trade
restrictions versus trade liberalization adds to an important strand of work in this field in Journal of Policy Modeling, such as Arunanondchai (2003), Barro (2004), Bureau, Guyomard, and
Requillart (2001), Cororaton and Cockburn (2007), Costa (1985), Naude and Coetzee (2004),
Stifel and Thorbecke (2003), and Tcha and Kuriyama (2003). Our focus on ChineseAfrican
trade relations adds to a small but fast growing literature on the growth of Chinese exports and its
possible impacts on Africa (see for instance Broadman, 2007; Wang, 2003).
The paper will proceed as follows. In Section 2 we discuss as background the likely motivation
for the imposition of these quotas. In Section 3 we discuss the quotas that were specified and point
to some inconsistencies in the governments choice of product lines and quota levels. In Section
4 we describe our modeling approach. Section 5 sets out the results from simulating the effects
of the quotas. Section 6 concludes by outlining the policy implications.
2. Background: unprecedented crisis in the industry2
The imposition of quotas on imports of Chinese clothing and textiles by South African government in August 2006 is based on the apparent belief that significant jobs could be saved, that
the sector could improve its competitiveness in the 2 years over which the quotas are valid, and
that additional jobs could even be created in the industry. It is often pointed out that job losses in
the clothing and textile industry have been significant, ever since 1994, when South Africa started
its trade liberalization. Statistics South Africa data3 suggest that total employment in the industry
declined from 228,053 in 1996 to 142,863 by March 2005 (Vlok, 2006, p. 230). Over the same
time that the job losses intensified, South Africas total imports from China (including clothing
and textiles) increased substantially. After the EU, China is now South Africas largest single
trading partner. Total South African imports from China increased from 2.1% of total imports
in 1996 to over 9% in 2005 (amounting to US $4.9 billion in 2005) (Sandrey, 2006, p. 1). A
large share of Chinese goods is imported duty free (about 45%) although all imports of clothing
and textiles carry a 40% import tariff. Despite these tariffs, Chinese clothing and textiles have
gained a huge market share in South Africa (Sandrey, 2006, p. 14). About 74% of South Africas
1

Africas average tariff rate in 2004 was only 7.9%-compared to the 40% on the imports of clothing and textiles.
According to Vlok (2006, p. 228) the South African clothing and textile industry is in an unprecedented crisis
following a surge of imports from China.
3 Edwards and Morris (2006, p. 127) suggested that job losses in the sector could be overstated due to sampling problems
in Statistics South Africas data.
2

W. Naude, R. Rossouw / Journal of Policy Modeling 30 (2008) 737750

739

clothing imports come from China, and about 19% of its textile imports. In both categories there
have been significant increases since 2000: from 49% in 2000 in the case of clothing and from
7% to 19% in the case of textiles (Vlok, 2006). The South African Clothing and Textile Workers
Union (SACTWU) predicted further jobs losses of about 50,000 over the period until 2009, and
made the imposition of quotas (in terms of safeguard provisions) its number 1 priority for the
restructuring of the sector (Vlok, 2006). Moreover, as reported in Edwards and Morris (2006, p.
121), the SACTWU claims that the imposition of import quotas will not only reverse the most
recent job losses, but will create an additional 50,00060,000 jobs.
The response has been the imposition of quotas on 31 product lines of clothing and textile
imports from China. The next section describes the extent of the restrictions.
3. The policy response: import quotas
The 31 product categories on which quotas were places include woven fabrics of cotton, woven
fabrics of synthetic staple fibres, wrap knit fabrics, knitted or crocheted fabrics, tracksuits, ski
suits and swimwear, other garments, curtains (including drapes) and interior blinds, curtain or
bed valances, etc. No quotas were imposed on footwear. The quotas were to be implemented on
1 January 2007 and are valid until end December 2008.
The quotas are shown in Table 1. The table indicates the products groups in respect of which
quotas were requested, the actual volume of imports for the period 20022005 and the level
of quotas for 2007 and 2008. Out of the 31 quotas imposed, only 4 allowed for growth above
the 2005 level of imports (curtains, woven fabrics of polyester and cotton, woven cotton fabrics
and other knitted or crocheted fabrics). In the case of 26 products, quotas will reduce import
levels by more than 10% compared to 2005. There are in particular 7 product lines, where
the quota will result in reducing the volume of imports by more than 50% over 2005 volumes
(Brink, 2006).
4. Modeling approach
4.1. The CGE approach
Since we are interested in the economy-wide impacts, and in particular the impacts on household welfare, inequality and unemployment of the import quotas, the most appropriate modeling
tool is the by now well-known approach of using a CGE model. A CGE model is an economywide model that includes feedback between demand, income and production structure, and where
all prices adjust until decisions made in production are consistent with decisions made in demand
(Dervis, De Melo, & Robinson, 1985, p. 132). The model is applied (or computed) using economywide consistent data on a particular economy as is normally contained in a social accounting matrix
(SAM) In the present case we use the most recent published SAM for South Africa (Statistics
South Africa, 2004, 2002). Other parameters, in particular expenditure elasticities are obtained
from outside the model (typically from econometric studies or by making plausible guesstimates)
(Naude & Coetzee, 2004).
In this paper we use a South African adaptation of ORANI-G to solve the model. It is known
as the UPGEM and was developed for South Africa by the University of Pretoria (see e.g.
http://www.monash.edu.au/policy/oranig.htm). The UPGEM model used in these simulations
distinguishes 32 sectors, 6 household types and 4 ethnic groups (Horridge, 2000). For a more
detailed exposition of the modeling approach followed in UPGEM, see Horridge, Parmenter, and

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W. Naude, R. Rossouw / Journal of Policy Modeling 30 (2008) 737750

Table 1
Import quotas (20072008) and imports of selected clothing and textile products from China (20022005)
Item

Description

2002

2003

2004

2005

2007

2008

5208

Woven cotton fabric,

>85% cotton, 100 or
200 g/m2
Woven cotton fabric,
>200 g/m2
Woven cotton fabric,
85% cotton and
manmade fibre,
>200 g/m2
Woven fabrics of
polyester + cotton,
>170 g/m2
Warp knit fabrics
Other knitted or
crocheted fabrics
Mens knitted trousers
Womens knitted jacket
Womens knitted skirts
Womens knitted trousers
Mens knitted shirts
Womens knitted blouses
Mens knitted underpants
Womens knitted panties
Babies knitted garments
Mens woven
windbreakers
Womens woven
overcoats
Womens woven
windbreakers
Mens woven suits
Mens woven jackets
Mens woven trousers
Womens woven jackets
Womens woven dresses
Woman woven skirts
Womens woven trousers
Mens woven shirts
Womens woven blouses
Mens woven tracksuits
Womens woven
tracksuits
Bras
Curtains

1,653,079

2,313,767

3,494,715

3,950,861

3,004,879

3,425,562

2,000,644

3,190,085

1,924,090

1,714,221

5,280,445

6,336,535

304,422

345,180

673,522

716,938

539,438

636,537

554,422

1,112,254

1,782,090

1,501,789

1,764,939

2,082,628

463,485
527,678

441,851
911,759

1,084,993
2,086,684

734,810
2,701,441

635,137
2,704,978

737,759
3,083,675

1,362,859
219,170
1,338,640
2,667,158
3,186,173
4,415,951
8,243,339
15,297,359
853,356
577,737

3,854,821
737,882
2,885,584
4,736,351
4,499,737
7,948,373
8,359,713
27,710,209
1,405,396
1,746,235

9,370,735
1,773,591
8,176,838
10,497,055
8,079,521
13,287,098
18,964,629
46,310,320
2,094,828
2,326,449

9,652,971
1,404,092
7,076,032
11,142,628
7,180,251
13,323,920
23,681,211
37,211,555
3,160,833
2,549,900

4,666,751
881,696
3,430,268
5,955,657
5,385,587
9,823,039
9,932,175
33,118,836
1,713,493
2,070,371

5,086,759
961,049
3,738,992
6,491,666
5,870,290
10,707,112
10,826,071
36,099,532
1,188,842
2,231,860

533,225

1,289,588

2,871,209

2,408,201

1,594,660

1,754,126

317,068

688,058

1,344,386

934,233

874,608

979,561

96,407
1,163,042
11,180,949
674,405
734,434
2,386,895
6,229,525
6,515,761
3,468,405
553,138
164,283

219,660
2,672,764
21,993,748
2,896,034
929,997
7,505,169
20,091,724
12,088,219
8,882,951
1,086,805
345,751

516,669
3,021,703
36,864,708
2,821,510
1,559,224
14,334,888
26,932,310
14,284,413
11,697,590
3,268,913
1,419,228

340,789
3,706,078
39,235,059
4,340,094
2,563,554
18,430,607
32,985,211
19,785,721
17,669,153
2,194,611
1,614,565

295,632
3,205,000
26,690,354
3,524,668
1,165,259
8,951,820
24,284,217
14,950,981
11,411,968
1,057,541
259,949

342,934
3,493,450
28,772,201
3,877,135
1,281,785
9,650,062
26,178,386
16,296,570
12,781 404
1,163,295
291,143

332,059
1,027,610

577,647
4,106,205

932,440
5,364,638

900,099
4,311,891

747,246
4,778,018

836,916
5,150,703

5209
5210

5514

6005
6006
6103.4
6104.3
6104.5
6104.6
6105
6106
6107.1
6108.2
6111
6201.9
6202.1
6202.9
6203.3
6203.4
6204.3
6204.4
6204.5
6204.6
6205
6206
6211.3
6211.4
6212.1
6301
6403.4

Source: Brink (2006, pp. 2021).

Pearson (1993). A recent application of the model to environmental economics in South Africa
is contained in Van Heerden et al. (2006).
4.2. Specication of simulations
In this paper we used two procedures to model quotas(a) the tariff-equivalent procedure,
and (b) the complementarity procedure (Harrison, Horridge, Pearson, & Wittwer (2004)). The
tariff-equivalent procedure is a generally accepted way of shocking the system of equations, by

W. Naude, R. Rossouw / Journal of Policy Modeling 30 (2008) 737750

741

Table 2
Estimated tariff-equivalent shocks for textile and clothing, 2007 and 2008 (%)

Textiles
Clothing
Total

Import quota

Tariff equivalent

16.02 (83.98)
6.87 (93.13)13*
22.89 (77.11)13*

20.28
5.13
25.41

Source of data: authors own calculations.

changing the import tariff on the selected import categories by a sufficient amount so as to limit
actual imports to the levels allowed under the quota.
The first step in estimating the tariff equivalents of the quotas on import prices is to ascertain
whether the quotas are restrictive. If quotas are not restrictive, it is the tariff, not the quota that
drives up import prices. For 2004, data on import quotas and target imports for the textile and
clothing industry were used to make the calculations. Imports from China subject to quota (target
imports) for each individual category were compared with the quota for that category. For most
individual clothing categories (except four) quotas were restrictive (see Table 1 and the discussion
thereof).
Various simulations were done to calculate the exact tariff-equivalent value of the import quotas
on the textile and clothing industry by making the tariff rate exogenous, and solving the basic
model to achieve imports equal to the specified target imports. Table 2 contains the resulting tariff
equivalents for the quotas as calculated.
The complementarity procedure4 is used to make the generic model (UPGEM) more realistic, by including an inequality constraint (e.g. import quotas). To do this, we have adapted
the UPGEM database simply by adding the two data vectors required for the new treatment of quotas. By ascribing (for clothing and textiles) a value of 1 to XIMP RATIO and
1.98 for clothing and 1.84 for textiles to TIMP QUOTA, we assume that implicit in this
database, there is a substantial quota rent on clothing and textile imports. The value assigned
to TIMP QUOTA is illustrative only, rather than reflecting known estimates of the magnitude
of distortion induced by a quantitative restriction on clothing and textile imports. In the modified UPGEM, the variable XIMP QUOTA depicts the total barrier to imports. To simulate
the implementation of the quota restrictions, we decrease the barrier up to the quota level of
imports.
When modeling the impact of the quota as specified above, we assume that illegal imports
will increase, from 30% to 40%.5 In the model this will result in a loss in government import tax
revenues as well as in less of a protective effect on the affected sectors. In the results in Section 5,
we show the impact of the quota both when there is no change in illegal imports, as well as when
there is an increase (10%) in illegal imports.
To implement the simulation a number of further assumptions were made which related to
the closure of the model. An in-depth discussion on the closure of CGE models can be found in
Horridge (2000). In the present case the simulations were done using a short-term comparative
static closure for the model (see Table 3). This implies that the impact reflects the change in a short

For further details, see Harrison et al. (2004).

The anticipation of an increase in unrecorded (illegal) imports in the wake of the imposition of the quotas is reasonable
given that the most recent trade data from South Africa and China (for the second quarter of 2007) shows that the
discrepancy between Chinese data on exports to South Africa and South African data on imports from China had increased
5

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W. Naude, R. Rossouw / Journal of Policy Modeling 30 (2008) 737750

Table 3
Impact on macro-economic variables (% change relative to the base case)
Annualised % change

Scenario 1 (tariff
equivalent)

Scenario 2
(quota)

Scenario 3 (quota
+ illegal imports)

% in real GDPa (x0gdpexp)

% in aggregate employment
(employ iop)
% in GDP price index
(p0gdpexp)
% in consumer prices (p3tot)
% in average nominal wage
(p1lab iop)
% in exports price index (p4tot)
% in total supplies of imported
goods (x0imp)
% in export volume (x4tot)
% in Import volume CIF
(x0cif c)
% in competitiveness
(p0realdev)
% in contribution of balance of
trade to real GDP (contBOT)
% in the terms of trade (p0toft)

0.10
0.20

0.09
0.20

0.19
0.30

0.29

0.29

0.40

0.29
0.29

0.29
0.29

0.40
0.40

0.14
0.34

0.14
0.34

0.21
0.31

0.57
0.31

0.57
0.34

0.83
0.31

0.29

0.29

0.40

0.10

0.09

0.19

0.14

0.14

0.21

Source: UPGEM model results.

a Real GDP from expenditure side.

period of time (approx. 23 years) before investment can react to the changed market conditions.
Herein, the rate of return on capital, employment, trade balance, technology variables and the
real wage (realwage), amongst others, are taken as exogenous. On the income-side of GDP we
have realwage and capital exogenous (and real cost of labour) and nominal rate of return on
capital to adjust. On the expenditure-side of GDP we have C, I, G exogenous, which only leaves
the trade balance to adjust. All three types of labour, skilled, semi-skilled and unskilled, are
perfectly mobile between sectors. However, clothing and textile industries use mostly unskilled
labour.
4.3. Policy scenarios
The base case scenario representing free trade in the clothing and textile industry is compared to
a number of policy scenarios representing quotas and their tariff equivalents. The policy scenarios
that are simulated with the UPGEM include
Scenario 1. Tariffs set at 20.28% for textile imports and 5.13% for clothing imports into South
Africa.
Scenario 2. The tariff-equivalent quotas to the tariffs in scenario 1, set at 16.02% for textile
imports and 6.87% for clothing imports.

to a more than twice the level it had been over the recent past (Van Eeden and Sandrey, 2007, p. 11).

W. Naude, R. Rossouw / Journal of Policy Modeling 30 (2008) 737750

743

Scenario 3. Similar to scenario 2, but with a 10% increase in illegal imports of clothing and
textile products into the South African market.
All results presented in the tables below are in the form of percentage changes from the base
case scenario. The first results are percentage changes in macro-economic variables in the various
policy scenarios.
The modified UPGEM (including the inequality constraintcomplementarity) has a variable
depicting the total barrier to importswhich includes both the duty component and the tariff
equivalent of the quota restriction. This variable is represented in the model as the power of the
total barrier or quota (XIMP QUOTA). That is, if the tariff plus tariff equivalent of the quota is
30%, then the starting value for this variable is 1 + 30/100 = 1.3. Both simulations with scenario
2 and 3 involve a change in the value of this variable to include one or both components of the
total barrier as appropriate.
5. Modeling results
In interpreting the results from the CGE model we follow Adams (2005) proposal that results
first focus on macro-economic impacts, and then move down towards industry/sector level impacts
and household impacts.
5.1. Macro-economic impacts
In our simulation we implemented the import quotas on clothing and textiles by shocking
XIMP QUOTA in the UPGEM model. This alters the state of the quota from non-binding to binding. This results in a sharp increase in the imported price of clothing and textiles to bring demand
and supply into equilibrium. Assuming imperfect substitutability between imported and domestic
goods (Armington assumption), this will induce a larger increase in the price of domestically
produced clothing and textile products. We find in the present case that the basic price of clothing
and textile products increases by 2.78% and 2.30%, respectively for the domestic product, and
5.13% and 20.28%, respectively for the imported.
Prior to the quota increase, clothing and textile imports totalled R3.5 billion (US $488 million)
compared with R2.7 billion (US $370 million) post-simulation. The value of clothing and textile
imports thus decreases by 22.9%. The implied quota rent is worth about R1.06 billion (US $118
million).
Table 3 summarizes the impact of the quota on the main macro-economic variables. Columns
two and three of the table summarize the results, first, in the absence of any increase in illegal
imports and second, with an increase in illegal imports of 10%.
It should be noted that although the import quotas are implemented over a period of 1 year,
the impact is simulated as a once-off event that plays itself out over a period of about 23 years.
The results are then annualized and the impact can therefore be discounted back to reflect annual
adjustments over the 1-year period. From Table 3 it is evident that GDP growth decreases by
0.10%, 0.09%, and 0.19%, respectively on an annualized basis.
The results in Table 3 show that the impact of the import quotas on GDP is negative. This
is mainly due to the import intensity of the South African economy. Higher import prices
reduce investment, and it negatively impacts on exports, production, and also results in overall
employment losses.

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W. Naude, R. Rossouw / Journal of Policy Modeling 30 (2008) 737750

In scenario 1 real GDP growth (x0gdpexp) decreases with 0.10%, implying a loss of close
to R1100 million (US $154 million). In scenario 2 real GDP growth (x0gdpexp) decreases with
0.09%, implying a loss of about R1000 million (US $140 million) to the economy. In scenario
3, which includes illegal imports, real GDP growth (x0gdpexp) decreases with 0.19%, implying a loss of about R1900 million to the economy (US $266 million). The extent to which the
South African government can limit further increases in illegal imports is therefore important
to the amount of potentially more than R900 million (US $125 million) annually in terms of
GDP.
The simulation results also indicate that employment levels will overall decrease by 0.2% due
to the shock, leading to a loss of at least 26,000 jobs. More jobs are lost the more illegal imports
increase. The decline in activities/services is expected to decrease employment, particularly in
the semi- and unskilled labour segments. These employment losses are significant and illustrate
the shortcomings when the clothing and textile sector is studied in isolation from the rest of the
economy.
Table 3 also shows an increase in inflation (0.29%). The price increase experienced is due to
increases in wages caused by the quotas (which raises the cost of production). The price level
of goods and services (p3tot), and nominal wages (p1lab iop) both increase with 0.29%. The
increase in the general level of prices might be due to the fact that real wages increase, which
forces nominal wages to increase with the same amount.
Due to the relatively higher domestic prices, as indicated by the p3tot variable in Table 3,
the foreign demand for local exports decreases with 0.19%. The demand for imports (other than
Chinese clothing and textiles) has increased slightly, which is due to a substitution effect due to the
increase in prices of clothing and textiles, and the increase in output of the textile sector. The net
effect of changes in imports and exports of 0.09% corresponds to the percentage deterioration
in the balance of trade (contBOT) variable shown in Table 3. The quotas under the scenario 1 and
2, for the covered sectors, limited exports to approximately 0.6% of those for our 2002 base case,
compared to scenario 3, which limited exports by the same sectors to approximately 0.8% of base
case 2002 exports.
5.2. Sectoral impacts
Production volumes in South Africa under scenarios 1 and 2 are lower by approximately 0.1%,
with reduced production in all but one sector (see Tables 4 and 5). The only sector that improves
its production levels is the textiles industry, due to little change in prices (with the quota) and
a large increase in the domestic demand for textile products. Scenario 3 results in even greater
production losses of 0.2%.
Tables 4 and 5 show that food processing, business activities, footwear, clothing, leather goods
and other services/activities are amongst the biggest losers due to the clothing and textile quotas.
The tables show that they are also the sectors where most jobs are being lost. Furthermore, the
tables show that the only sector that benefits from the imposition is the textile sector, where
output grows by 5.29%. Below we consider more closely what is causing the textiles result
above.
We decomposed the change in demand for textiles between (a) the local market effect (measured
as the change in non-export demand for textiles), (b) domestic share effect (measured as the change
in domestic use/import ratio for textile demand), and (c) the export effect (measured as a change
in demand for textile exports). In Table 6 the results of this decomposition shows that in case
of textiles and clothing positive changes in demand comes primarily through a decline in the

Table 4
Sector results for scenario 1 (tariff-equivalent quotas)
Value added

Exports

Imports

Employment

Volume (x1tot)

Price (p1tot)

Volume (x4tot)

Price (p4tot)

Volume (x0imp)

Price (p0imp)

Volume (employ op)

Price (p1lab op )

Agriculture
Gold mining
Other mining
Food processing
Beverages
Tobacco
Textiles
Clothing
Leather
Footwear
Wood
Paper
Printing and publishing
Chemicals
Rubber
Plastic
Non-metallic minerals
Basic metal products
Fabricated metal products
Machinery
Electrical machinery
Transport equipment
Other manufacturing
Electricity
Building
Civil engineering
Trade
Accommodation and catering
Transport
Communication
Financial services
Communication services

0.04
0.15
0.06
0.10
0.03
0.03
5.29
1.23
0.73
0.69
0.36
0.23
0.15
0.15
0.64
0.28
0.20
0.31
0.27
0.39
0.30
0.53
0.25
0.05
0.01
0.06
0.08
0.10
0.11
0.04
0.06
0.13

0.03
0.03
0.00
0.14
0.17
0.17
2.30
2.78
0.21
0.39
0.15
0.12
0.19
0.12
0.45
0.22
0.13
0.07
0.14
0.13
0.14
0.19
0.14
0.17
0.24
0.19
0.22
0.09
0.20
0.23
0.19
0.24

0.15
0.15
0.02
0.54
0.64
0.69
8.99
10.26
0.77
1.52
0.61
0.49
0.75
0.44
1.77
0.90
0.53
0.30
0.54
0.53
0.56
0.74
0.55
0.00
0.00
0.75
0.88
0.30
0.79
0.91
0.74
0.96

0.04
0.04
0.01
0.13
0.16
0.17
2.38
2.74
0.19
0.38
0.15
0.12
0.19
0.11
0.45
0.23
0.13
0.07
0.14
0.13
0.14
0.18
0.14
0.00
0.00
0.19
0.22
0.08
0.20
0.23
0.19
0.24

0.02
0.10
0.18
0.19
0.41
0.45
16.02
6.86
0.13
0.81
0.09
0.02
0.12
0.11
0.30
0.15
0.15
0.19
0.10
0.03
0.00
0.15
0.19
0.00
0.00
0.00
0.00
0.12
0.22
0.00
0.00
0.28

0.00
0.00
0.00
0.00
0.00
0.00
20.28
5.13
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

0.14
0.23
0.15
0.18
0.13
0.13
6.60
1.40
1.14
1.10
0.47
0.50
0.25
0.38
1.30
0.35
0.40
0.68
0.43
0.57
0.52
0.80
0.89
0.16
0.01
0.10
0.14
0.39
0.25
0.10
0.19
0.15

0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29

W. Naude, R. Rossouw / Journal of Policy Modeling 30 (2008) 737750

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

Sector

Source: UPGEM model results.

745

746

Table 5
Sector results for scenario 2 (quota with higher illegal imports)
Sector

Agriculture
Gold mining
Other mining
Food processing
Beverages
Tobacco
Textiles
Clothing
Leather
Footwear
Wood
Paper
Printing and publishing
Chemicals
Rubber
Plastic
Non-metallic minerals
Basic metal products
Fabricated metal products
Machinery
Electrical machinery
Transport equipment
Other manufacturing
Electricity
Building
Civil engineering
Trade
Accommodation and catering
Transport
Communication
Financial services
Communication services

Source: UPGEM model results.

Exports

Imports

Employment

Price (p1tot)

Volume (x4tot)

Price (p4tot)

Volume (x0imp)

Price (p0imp)

Volume (employ op)

Price (p1lab op )

0.04
0.15
0.06
0.10
0.03
0.03
5.29
1.23
0.73
0.69
0.36
0.23
0.16
0.15
0.64
0.28
0.20
0.31
0.27
0.39
0.30
0.53
0.25
0.05
0.01
0.06
0.08
0.10
0.11
0.04
0.06
0.13

0.03
0.03
0.00
0.14
0.17
0.17
2.30
2.78
0.21
0.39
0.15
0.12
0.19
0.12
0.45
0.22
0.13
0.07
0.14
0.13
0.14
0.19
0.14
0.17
0.24
0.19
0.22
0.09
0.20
0.23
0.19
0.24

0.15
0.15
0.02
0.54
0.64
0.69
8.99
10.26
0.77
1.52
0.61
0.49
0.75
0.44
1.77
0.90
0.53
0.30
0.54
0.53
0.56
0.74
0.55
0.00
0.00
0.75
0.88
0.30
0.79
0.91
0.74
0.96

0.04
0.04
0.01
0.13
0.16
0.17
2.38
2.74
0.19
0.38
0.15
0.12
0.19
0.11
0.45
0.23
0.13
0.07
0.14
0.13
0.14
0.18
0.14
0.00
0.00
0.19
0.22
0.08
0.20
0.23
0.19
0.24

0.02
0.10
0.18
0.19
0.41
0.45
16.02
6.87
0.13
0.81
0.09
0.02
0.12
0.11
0.30
0.15
0.15
0.19
0.10
0.03
0.00
0.15
0.19
0.00
0.00
0.00
0.00
0.12
0.22
0.00
0.00
0.28

0.00
0.00
0.00
0.00
0.00
0.00
20.28
5.13
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

0.14
0.23
0.15
0.18
0.13
0.13
6.60
1.40
1.14
1.10
0.47
0.50
0.25
0.38
1.30
0.35
0.40
0.68
0.43
0.57
0.52
0.80
0.89
0.16
0.01
0.10
0.14
0.39
0.25
0.10
0.19
0.15

0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29
0.29

W. Naude, R. Rossouw / Journal of Policy Modeling 30 (2008) 737750

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

Value added
Volume (x1tot)

W. Naude, R. Rossouw / Journal of Policy Modeling 30 (2008) 737750

747

Table 6
Decomposition of demand for locally produced textiles (percentage change)
Fandecomp

LocalMarket (%)

DomShare (%)

Export (%)

Total (%)

Textiles
Clothing

0.11
0.62

7.68
1.57

2.26
1.95

5.32
1.00

Source: UPGEM model results.

Table 7
Percentage change in real household consumption by population group (percentage change)
Households (x3tot h)

Tariff equivalent

Quota

Quota + illegal imports

White
Coloured
Asian
Black

0.02
0.01
0.00
0.02

0.02
0.01
0.00
0.02

0.04
0.06
0.05
0.02

Source: UPGEM model results.

Table 8
Percentage change in nominal total household consumption (quota)
w3totx (quintiles)

q1
q2
q3
q4
d9
d10

0.04
0.03
0.02
0.02
0.02
0.02

0.01
0.01
0.02
0.02
0.01
0.02

0.04
0.01
0.00
0.01
0.01
0.01

0.01
0.02
0.03
0.03
0.01
0.04

Source: UPGEM model results.

imports,6 and an increase in domestic demand. Export demand falls as locally produced clothing
and textile products becomes more expensive.
From Table 6 we can conclude that the impact of the import quotas on the output of the textile
industry is due to the fact that the textiles industry serves mainly the domestic market. In contrast,
the clothing industry in South Africa serves both the export and domestic markets, and loses some
of the former due to increases in domestic costs.
5.3. Household impacts
Tables 7 and 8 summarize the differential impacts of the quotas on households. The 1998 SAM
used as basis for our model makes a distinction between White (W), Coloured (C), Asian (A) and
6 imports of clothing and textiles decreased 10.3% and 20.6%, respectively, while the output of the clothing and textiles
industry decreased by 1.28% and increased by 7.12%, respectively. For clothing and textiles, the household purchasers
price has changed by 3.37% and 2.90% (domestic) and by 6.51% and 24.08% (imported), respectively. This causes the
household demand (x3 in the model) to change by 1.82% and 7.25% (domestic) and (10.75% and (28.95% (imported)
respectively via a substitution away from the imported good to the domestic good. Because of local distribution costs, the
import quota leads to an increase in the local retail price. The elasticity of household demand for clothing and textiles can
be calculated from the results (% quantity/% price) and is around (0.259. The luxury share of household demand
elasticity is around 0.28.

748

W. Naude, R. Rossouw / Journal of Policy Modeling 30 (2008) 737750

Black (B) households (see Statistics South Africa, 2004, 2002). Table 7 shows how these households consumption (a measure of their welfare) is affected by the quotas. It shows Coloured and
Black households to suffer somewhat reduced consumption and White and Asian households to
increase consumption levels marginally. Asian household experience reduced consumption under
a scenario where greater illegal imports accompany the quota. These changes in consumption is
mainly driven by changes in the consumer price index faced by each household (which depends
on its consumption basket) and incomes, which result from its share of unskilled labour.
In terms of nominal total consumption, Table 8 shows that wealthiest households gain proportionally more than others from the quota implementation.
Unskilled labour loses due to the quota implementation, through the impact of the increase
in the price of domestically produced clothing and textiles on factors used in the production of
clothing and textiles. The main reason why richer households do better than other households is
because unskilled labour accounts for a smaller proportion of its total income than for any other
household (1.3% compared with 47.7% for poorer households) and because, compared to poorer
households, in total they spend a smaller proportion of their income on textiles and clothing. For
poorer households, the contribution of unskilled labour to the overall fall in income is 8.94%,
while its CPI increased by approximately 0.20%. For only a few of the various households does
the increase in nominal income compensate for the overall increase in the CPI. Thus, because the
nominal wage of unskilled labour increases by a smaller degree than that of skilled labour with
the implementation of the quota, it t worsens the outcome for households with a high proportion
of unskilled labour in their income base. But other households gain because the increase in their
nominal income more than compensates for the increase in the CPI.
6. Policy implications and conclusion
The macro-economic, sector and household effects of the South African quotas against clothing
and textile imports from China appears to be are overall negative. The quotas cost the economy
about R1 billion (US $140 million) in terms of output losses (0.09% of GDP). Although 12,500
jobs are created in textiles, respectively, and a number of sector increase their employment, the
output of textile production increases by 5%, total job losses amount to 26,000. The quota effects
are also negative on inequalities. Import quotas raise the domestic price level, which hurts export
competitiveness. The latter harms sectors which are dependent on foreign demandthus textiles,
which mainly produce for the local market benefits, but clothing not. Quotas also raise the prices of
clothing and textiles and reduces demand for unskilled labour in the economy, which reduces the
incomes and consumption of poorer households relative to richer households, who are spending
proportionally less on clothing than poor households, and own more skilled labour, which are less
affected by the quotas.
Our results are not self-serving as they should be seen against other recent findings which
are consistent with ours. Edwards and Morris (2006) for instance argue that the view that the
surge in imports from China was the main reason for the shedding of jobs in the industry may be
wrong. They note that a number of reinforcing events have impacted on the sector simultaneously.
These include the decline in export competitiveness due to a strong Rand, the ending of the Duty
Credit Certification Scheme, the relocation of non-metro clothing firms due to rising wages, the
relocation of clothing exporters to neighboring countries to take advantage of rules of origin
provisions in the AGOA, as well as technological improvements in the sector. Furthermore, they
are highly skeptical of the view that quotas will lead to the creation of a significant number of new
jobs. Using the employmentoutput elasticities for the clothing (0.4) and textiles (0.9) industries

W. Naude, R. Rossouw / Journal of Policy Modeling 30 (2008) 737750

749

they illustrate that the creation of 55,000 new jobs require increases in the output of clothing and
textiles of between 75% and 98%, which is unrealistic (Edwards & Morris, 2006, p. 135). Indeed,
our model had found that clothing will have difficulty increasing its output, especially in the face
of losing export markets, and that textiles only succeed in raising output by about 5%.
So what are the policy implications? In light of our results one might argue that the governments
policy response should have been more consistent with its previously expressed intention to
conclude a free trade agreement with China. Indeed, in contrast to a scenario of restricted trade,
Sandrey and Jensen (2007) used a GTAP7 model to investigate the impact that greater free trade
between South Africa (SACU) and China will have. They show that a FTA, where all tariffs
and quotas between SACU and China are reduced to zero, will result in overall gains for both
countriesthey measure the gains in equivalent variation of income to be about US $300 million
each per annum. Their model suggests that South African exports will increase by 1.1% due to
the FTA and that imports from China would increase by US $1.5 billion (and increase of about
30% over current levels), of which about US $830 million would be in clothing and textiles. It
is mainly trade from the EU that is displaced. Imports of cheaper clothes furthermore reduce the
South African inflation ratein contrast with the increase in inflation due to quotas.
For future policy the upshot of the arguments in this paper is that a protectionist trade policy stance on Chinese imports will in all likelihood not have the intended effects of protecting
and creating jobs and assisting the local industry to improve its competitiveness. Given that the
arguments in favour of the import quotas do not stand up to scrutiny, that the global system as
such is moving to reduce such quantitative restrictions (which have clear deadweight losses), that
this may damage the credibility of South Africas trade policy, and finally that the benefits and
domestic impact of the quotas are largely negative, the imposition of these quotas may come to
be seen as a regrettable policy mistake by the South African government.
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