TEXTILE QUOTA AUCTION SYSTEM (Impact on garment industry)

The following question stood in the name of Mrs Yu-Foo Yee Shoon -

Mrs Yu-Foo Yee Shoon: To ask the Minister for Trade and Industry what impact the introduction of the Textile Quota Auction System has on the garment industry.

Mr Goh Chee Wee (Boon Lay): Question No. 11, Sir.

The Minister for Trade and Industry (BG Lee Hsien Loong): Mr Deputy Speaker, Sir, textile quotas are a scarce national resource. The new allocation sytem aims to distribute them more fairly and more efficiently. Under the new system, 25% of the textile quotas will be tendered out. The balance is still allocated to manufacturers based on past performance, but it is subject to a levy which will be regularly adjusted to reflect the actual tender prices. This year the levy is 0.5%.

The Trade Development Board called the first tenders for the 1988 quota on 17th November last year. Some 190 companies submitted a total of more than 4,500 bids for 118 categories. 164 companies or 86% of them succeeded in tendering for at least one category. Of these, 11 companies without past performance record were successful in bidding for 'hot' categories in popular demand.

The new quota allocation system will make it easier for new companies without a performance record to enter the business. It will encourage competition in the industry. Quotas will go to the more efficient and competitive companies. The less competitive manufacturers will have an incentive to sell their performance quotas to other manufacturers, to other stronger companies, or to shift to producing items whose quotas are in less demand. We can therefore expect the industry to consolidate itself in the next 2-3 years. The result should be a leaner and more competitive textile industry.

Mr S. Chandra Das (Chong Boon): Sir, can I know from the Minister for Trade and Industry how much money was collected from auctioning the textile quotas and, secondly, to ask him what he proposes to do with the funds collected if this is not a revenue-generating exercise.

BG Lee Hsien Loong: Mr Deputy Speaker, Sir, I do not have the figures but about $30 million was collected from the tender. The amount is substantial. It accrues to the Trade Development Board. It will be used for trade defence, for promoting our exports, for looking after our interests in America and Japan where it is necessary to obby for support for open trade, for free trade and for Singapore exports, in particular.

Mr Goh Chee Wee: Sir, would the new system increase the cost to manufacturers and therefore affect their competitiveness?

BG Lee Hsien Loong: Mr Deputy Speaker, Sir, under the new system, the manufacturers will have to pay for quotas which they used to receive for free. In that sense, it will cost them more. But in two senses, it is the right thing to do. Firstly, these quotas are a scarce national resource. They belong to the State. As custodians of these quotas, it would be irresponsible of us to give them away for free. Nobody suggests that we should give manufacturers utilities for free, give them electricity at zero price, or water free, or land rent free. Quotas are just the same. They are scarce, they are valuable, they must be paid for.

Secondly, it does not make sense for textile companies to say that quotas are too expensive and are putting them out of business. The quotas are only worth as much as the textile companies can afford and are able to pay. For the whole industry to say it is too expensive is logically impossible, because if that is the price, somebody has been willing to pay and if one company is willing to pay when a second company is not, it is most likely because the first company is better run, more profitable, better able to make use of the quotas, and therefore deserves it. It is the same principle on which we tenderout shophouses, flatted factories. It is a principle which should also be applied here.