Textile Sector Reaps Benefits of Cooperation
For many Ukrainian apparel manufacturers, assembling clothes for foreign companies under a “cut-and-make” scheme is a way to survive while their own brands develop and find room to compete in Ukraine with established Western brands or cheap Chinese and Turkish imports. Ukrainian law stipulates that under the cut-and-make scheme, manufacturers must export the finished goods no later than 90 days after importing cloth and accessories for assembly or pay import duties and VAT.
A March 2005 a law establishing commercial banks as intermediaries between apparel manufacturers and the State Tax Administration, which allowed banks to charge up to 10% commission for providing this “service,” threatened the cut-and-make arrangements that many apparel manufacturers had developed by effectively swallowing the narrow profit margins that had existed.
Kashtan, a Kyiv-based apparel manufacturer, was unhappy with the new law, which was passed without consultations with firms within the sector. Kashtan quickly turned to USAID’s BIZPRO project for assistance.
BIZPRO helps individual enterprises to develop in competitive sectors of the economy, including apparel and light industry. Sector-specific trainings the project has conducted for the apparel sector have resulted in labor increases of 10.3% and sales increases of 5.4% in Ukraine. Such results have earned BIZPRO the sector’s confidence and become key to BIZPRO’s ability to mobilize sector stakeholders to partner with the government and help create a better regulatory environment for business.
Responding to the new law, BIZPRO rallied sector stakeholders to organize a “We Should Be Heard” campaign, which culminated in December 2005 with a roundtable attended by 48 sector stakeholders, including the Ministry of Industrial Policy and the Ministry of Economy, the first time senior policy-makers engaged the private sector on this topic. As a result, on January 21, 2006, the Cabinet of Ministers cancelled the March 2005 law, saving the apparel industry over $12 million a year.
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| Production process at Kashtan |
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