Scotland and China and Cashmere Trade (CASHMERE)

          CASE NUMBER:   275
          CASE MNEMONIC: Cashmere
          CASE NAME:     Scotland and China and Cashmere Trade 

A.   IDENTIFICATION

1.   The Issue

     Since the Victorian Era, British textiles have been regarded
among the world's finest knits. Dawson International, Britain's
largest textile company, requires one metric ton of cashmere wool
per day to operate, while Britain's cashmere breeders produce less
than one metric ton annually.(1) Presently, China supplies 60% of
the world's cashmere, which amounts to 3,000 metric tons per
year.(2) With economic liberalization, growth in textile and
apparel industries, and direct access to cashmere wool, the Chinese
are encroaching upon the domain of the British knitters and rival
the British for the limited supply of cashmere wool. With the
limits of wool produced globally, the increased popularity of
cashmere apparel, and the inexpensive textiles from China, Scotland
is faced with the possibility of inadequate supplies of quality
cashmere wool at elevated prices.(3) While China seeks to expand
markets and continue economic growth, Britain fights to maintain
the cashmere supply at responsible prices while carrying on the
tradition of high-quality woolen knitwear. Environmentally, the
Scottish Highlands and the Himalayan regions of China will be
impacted by increased herding, over-grazing, deforestation, and
increased textile manufacturing.  Within China, an environmentally
unstable country, goat herding seems to attract little concern.
More pressing environmental issues, such as elevated carbon dioxide
levels and polluted water supplies are the focus of a quickly
modernizing China. 

2.   Description

        Cashmere cloth is prized for its softness, warmth, and long
life. Cashmere fibers become increasingly soft with wearing and is
referred as the Fiber of Kings.(4) 'Ring shawls,' which are named
for the process of pulling the shawl through a ring, are often
passed down through the generations.(5) In addition to its softness
and flexibility, cashmere wool, which experts claim is eight times
warmer than sheep's wool, provides the necessary warmth for the
harsh Himalayan climate.(6)  Although cashmere is no longer limited
to royalty, a king's ransom is required to buy cashmere with the
current rate of a $190 per pound for quality cashmere wool.(7) The
economic stakes, competition over the supply of cashmere, and its
significance to China and Britain, is understandable..

     The name cashmere originates from the Kashmiri goats of the
Himalayas. Cashmere wool is the downy undercoat that grows from
midsummer to winter in varying quality by all goats.(8) Long guard
hair protects the cashmere undercoat from the elements and is
removed in the spring by shearing or gradually combing the hair to
remove the down.(9) Each goat produces 3 to 8 ounces of cashmere
down per year and the average single-ply women's sweater requires
the wool of 3 or 4 goats or approximately 10 ounces of wool.(10)
The quality of the wool is defined by the length, texture, and
diameter of the fibers. These quality standards are affected by the
climate in which the goats are raised and the nutrients that they
consume.(11)

       Mongolia's climate and geography is suited for herding
cashmere goats, who thrive in harsh dry mountainous climates and
produce the highest quality of wool. In  moderate climates, goats
loose the ability to grow the downy coats that produce  quality
cashmere for garments.(12) A significant quality differential
exists between wool produced in Britain and the Himalayas. The
British were content to import raw wool from China until the recent
of competition over the cashmere supply became a concern. 

     Previously, Chinese wool producers brought raw wool to a
central market to sell at set prices; however, this operation
changed.(13) With the economic liberalization of the mid-1980s, the
mountain farmers were free to sell 25% of their crops on the open
market for cash.(14) The transition toward a market economy removed
the central authority that set prices, standards, and amount of
wool sold in China. To replace the government control, middlemen
entered the equation and capitalized on the new economic operations
by exacting high prices from the Western buyers. As restraints are
removed, the quality of the raw wool decreases and prices soar as
much as 50% in 1990. With the substantial price increase for raw
materials, Dawson International, Inc., the largest British knitwear
company, estimated that the volume of cashmere sweaters sold fell
by 30% in 1990.(15)

     The increased interest in the market economy led Chinese
industries to expand beyond raw materials to begin processing and
spinning the raw wool into cheap alternatives to Scottish knits.
These inexpensive garments already have entered the Asian markets
and may begin to enter the Western markets, which poses a threat to
the British textile industry. According to Dawson International,
the problem is not that the Scots will have to compete with the
Chinese, rather, the limited amount of cashmere available. (16)  

     With the lessening of governmental control over the economic
forces, China began to evolve from a raw material supplier, to a
cloth and apparel producer. The changes in production diminished
the amount of raw wool for sale to British textile firms without
relying on the Chinese processing techniques.(17) The British argue
that the Chinese processing techniques ruin the length of the
fibers, which (high-quality) woolen knits require. During the later
half of the nineteenth century,Joseph Dawson, the founder of Dawson
International, perfected the processing of cashmere wool. Since
Dawson invented this process, it has been a strictly guarded secret
and remains unchanged.(18)  

     Liberalization efforts affected the Chinese economy.
Fluctuations within the reform movement caused imbalances within
the textile industrial structure. This hesitant reform process
fragmented certain sectors such as spinning and weaving, which
remained under government control through the Fall of 1991. As the
Chinese government loosened its hold over the people, political
turmoil has obstructed cashmere supplies, and prompted Britain to
search for alternative sources of cashmere.(19) Further, the
industries will have to overcome obstacles that accompany an
inadequate infrastructure, to allow goods to reach their export
markets.

      The greatest threat to China's burgeoning textile industry is
the possibility of export market protectionism. The Sino-US
bilateral textile agreement (under the Multi-Fiber Arrangement of
1985) was profitable for China through the 1980s.(20) Beginning in
1988, trade restrictions intensified as the United States began to
experience a slow down in the economy and an increase in the
federal and trade deficits; yet, China continued to supply over 12%
of the textile and apparel imports to the American markets. Within
China, economic growth elevated the incomes of the workers, which
benefited the textile and apparel industry through an expansion of
the consumer base.(21) Reports show that both imports of raw
materials and exports of finished goods from China have multiplied
since the initiation of economic reform measures.

         In the wake of economic liberalization, the Chinese made
efforts to establish standards, price limits and trade laws to
counter the problems of poor quality and fluctuating prices. In
August of 1989, the State Administration for the Inspection of
Import and Export Commodities instituted laws that serve to raise
the quality of import and export commodities. China introduced and
revised 19 laws and regulations throughout 1989 to increase the
number of products that are inspected. Furthermore, the government
has increased the number of inspection laboratories to increase
examination abilities.(22)  With the large increase in the demand
for cashmere and relaxed governmental controls, small local
companies capitalized on the increased demand by selling inferior
wool at inflated prices. These practices raised questions as to the
reputation of China's cashmere. 

     In 1990, the Chinese government took steps to ensure quality
standards and price uniformity within the textile industry. To
improve the quality standards, the Ministry of Foreign Economic
Regulations and Trade (MOFERT) established China's Cashmere Foreign
Trade Center to manage cashmere exports. The Center sponsors four
trade fairs per year to sell cashmere, to set limits for export
prices, and to issue licenses for the Center.(23) Another measure
to define economic policy was the textile export announcement that
was issued on February 21, 1991, by the Chinese Ministry of Foreign
Economic Relations and Trade. This announcement states that textile
products produced in China or processed with imported materials
require labels of origin, cannot exceed quota restrictions, and may
not be exported to countries that have not signed bilateral
agreements. Currently, bilateral agreements exist with the European
Union, the United States, Canada, Norway, and Finland.(24) With the
projected growth of the textile and apparel exports and the
institution of management and quality control measures, one
believes that efficient practices and higher quality products will
be forthcoming.(25)

     As the  economy of China changes, the British textile
companies must search for alternative sources of cashmere wool to
satisfy their supply requirements. The EU funded a project
(œ500,000) in Scotland to breed indigenous goats that would produce
a comparable quality of cashmere fiber to that produced in China,
Afghanistan, Iran, and Mongolia was initiated in the late 1980s.The
projected outcome of the program would expand into an industry
worth œ5 million by 1997.(26)  Additionally, Scottish Cashmere
Producers Association (SCPA) initiated a program to "increase
cashmere production by 25-fold within the next decade" (2004).
Presently, the SCPA produces no more than a metric ton of cashmere
a year, which would not supply Dawson for a day. They offer
incentives to farmers to raise goats. The Association provides
"goatpacks", which consist of 12 does and the hire of a buck for
the breeding season. (27)

     To protect the supply of cashmere coming to the British
textile industries, joint ventures have been initiated in China.
One joint venture in textile manufacturing is the Shanghai United
Wooltex Corp. Ltd, the first joint venture in the textile and
apparel industry, which started in 1981. This company began as a
wool spinning and knitting operation, and has expanded to develop
goods, including cashmere garments, that target foreign
markets.(28) Another way the British are attempting to stave off
the lesser quality inexpensive cashmere knits is based on expanded
clothes lines, more boutiques, and enhanced marketing schemes.(29)
The challenge, however, remains to be the need for a continuing and
reliable supply of wool more so than a market for the garments.

     With the rise in demand for cashmere products, environmental
repercussions will follow unless the farmers take measures to
prevent overpopulation, deforestation, and become environmentally
conscious. Goats are notorious for being indiscriminate eaters. In
addition to grain and water, goats consume over 10% of their body
weight in roughage daily.(30) With the land overstocked, the eating
habits of the goats are likely to cause deforestation. In the arid
Himalayan region, deforestation can kill pasture land, encourage
the growth of weeds, initiate soil erosion, and
desertification.(31)  Further, the increased breeding and raising
of goats in Scotland, Australia, New Zealand, the United States,
Iran, Afghanistan, Tibet, and Tasmania will impact the environment.

     In Scotland, the highland cattle are being forced to share the
land and limited vegetation with increasing numbers of goats.(32) 
With less food available, fewer nutrients will be consumed and the
quality of the cashmere fibers will suffer.(33) During the
industrialization period, a large portion of Britain's land was
deforested for ship building, and manufacturing. According to
experts, goats may improve pasture land and aid reforestation by
eating rough plants and brush.(34) The danger, however, stems from
the maximization of profit through increased herd sizes, which may
result in environmental crises.

      The challenge to supply the markets with cashmere wool serves
as a significant economic struggle to meet increasing demand and
maximize profits. One must look beyond fashion and luxury of
cashmere garments to the possible detrimental affects on the
environment. 

3.   Related Cases

CEDARS Case
OTOMI Case
ECFURBAN Case
BABYSEAL Case
              
     Keyword Clusters

     (1): Trade Product            = CASHMERE
     (2): Bio-geography            = DRY
     (3): Environmental Problem    = DEFORestation 

4.   Draft Author:  Theresa Purcell (May, 1996)

B.   LEGAL CLUSTERS

5.   Discourse and Status:    In Progress

6.   Forum and Scope:    China and Scotland and BILATeral

7.   Decision Breadth: 1 and China

8.   Legal Standing:TREATY

C.   GEOGRAPHIC Clusters

9.   Geographic Locations

     a.   Geographic Domain:  ASIA
     b.   Geographic Site:         WEST ASIA
     c.   Geographic Impact:  CHINA

10.  Sub-National Factors:  No

     Mongolia, Kashmir, Tibet economically center around herding
animals (yaks, sheep, goats). The best cashmere is produced in
these harsh mountainous regions and provide source of income within
the region.

11.  Type of Habitat:    DRY 

D.   TRADE CLUSTERS

12.  Type of Measure:    QUOTA, LICENsing, LAW

     Through China's bilateral trade agreements, quotas were set,
export licenses were instituted, and labels of origin were required
on cashmere. Also, laws on inspection of import and export
commodities were implemented August 29, 1990. 13.  Direct vs.
Indirect Impacts:  INDirect

14.  Relation of Measure to Environmental Impact

     a.   Directly Related:   NO
     b.   Indirectly Related: YES  GOAT 
     c.   Not Related:   NO   
     d.   Process Related:    YES  DEFORorestation

15.  Trade Product Identification: Cashmere wool

16.  Economic Data: 

          China produces 3,000 metric tons of cashmere per year at
a current price of $.14 per pound (de-haired) or retail to spinners
$12 per ounce. After spinning, cashmere is valued between $120 and
$190 per pound. Currently, the highest quality of cashmere is being
sold for more than $190 per pound.  In 1989 revenues of $575
Million were recorded by Dawson International, the leading British
textile firm. The EU awarded œ500,500 in 1987 for a ten year study
on breeding goats for high quality cashmere. The projected worth of
the project, based on increased quality of cashmere output, is
estimated to be œ5 million by 1997.

17.  Impact of Measure on Trade Competitiveness:  LOW

18.  Industry Sector:    Textile and Apparel [TEXTAPP]

19.  Exporter and Importer: China and (Scotland) UK

E.   ENVIRONMENT Clusters

20.  Environmental Problem Type:   DEFORorestion

21.  Name, Type, and Diversity of Species

     Name:     Goat (pasang or bezoar)
     Type:          Cashmere (originally from Kashmir and Tibet)  
     Diversity:     300 varieties domestic goats

22.  Impact and Effect:  MEDIUM and PRODuct

23.  Urgency and Lifetime:    LOW and 5-10 Years

24.  Substitutes:   SYNTHetic and LIKE

F.   OTHER Factors

25.  Culture:  YES

     According to historical accounts, cashmere was used to line
and cover the Arc of the Covenant.

26.  Human Rights:  NO   

27.  Trans-Border:  NO

28.  Relevant Literature

"Better Quality of Imports & Exports." Beijing Review, September
17-23, 1990:42.

Fetzer, Scott. "Goat." World Book Encyclopedia. vol.8, 239-242.

"First Joint Venture Makes Much Headway." Beijing Review, September
9-15, 199:       38-39.

"Goat Facts." http://infopages.com/ocfair/goat.htm

"Hairy and horny." The Economist, August 20, 1994:54.

Harris, John. "Cashmere Goats."
http://www.ics.uci.edu/~pazzani/4H/Cashmire.html

Lubove, Seth. "As the worms turn." Forbes, May 19, 1990: 76-79.

Marcom, John, Jr. "$1,600 sweaters, anyone?" Forbes, May 14, 1990:
116-117.

Rasin, Steve. "Off and Running." The China Business Review,
September-October      1991: 34-38.

"Scientists to Clothe Goats in Cashmere Coats." New Scientist, July
23, 1987:18.

Taylor, Ian Lance. "Black Locust Farm."
http://www.cyprus.com/~ian/black-locust-     farm.html

"Textile Export Announcement." Beijing Review, March 18-24, 1991:
40.

United States Agriculture Department."Cashmere Goats."
    
http://www.inform.umd.edu:8080/EdRes/Topic/AgrEnv/ndd/goat/Cash

United States Agriculture Department. "Feeding."
    
http:/www.inform.umd.edu:8080/EdRes/Topic/AgrEnv/ndd/goat/Feed1

"Who Put Cash in Cashmere?" Newsweek, December 1, 1986: 70.

Yuan, Zhang. "Better Management of Cashmere Exports." Beijing
Review, September      23-29, 1991: 42.

                           References

1.   Economist, 8/20/94, 54.
2.   http://www.ics.uci.edu/~pazzani/4H/Cashmire.html; Economist,
8/20/94, 54. 3.   Marcom, 5/14/90, 116-117.
4.  
http://www.inform.umd.edu:8080/EdRes/Topic/AgrEnv/ndd/goat/Cash 5. 
 http://www.cyprus.com/~ian/black-locust-farm.html
6.   ibid.
7.   http://www.ics.uci.edu/~pazzani/4H/Cashmire.html
8.   http://www.cyprus.com/~ian/black-locust-farm.html
9.   http://www.cyprus.com/~ian/black-locust-farm.html; Newsweek
12/1/86, 70. 10.  http://www.cyprus.com/~ian/black-locust-
farm.html; Marcom, 5/14/90, 116-117. 11. 
http://www.inform.umd.edu:8080/EdRes/Topic/AgrEnv/ndd/goat/Cash;N
ewsweek      12/1/86, 70.
12.  Newsweek 12/1/86, 70.
13.  ibid.
14.  Lubove, 76.
15.  Marcom, 5/14/90, 116-117.
16.  Economist, 8/20/94, 54.
17.  ibid.
18.  Marcom, 5/14/90, 116-117.
19. 
http://www.inform.umd.edu:8080/EdRes/Topic/AgrEnv/ndd/goat/Cash 20. 
Rasin, Steve, China Business Review, Sept./Oct. 1991, 34-38. 21. 
ibid.
22.  Beijing Review, 9/17-23/90, 40.
23.  Yuan Zhang, Beijing Review, 9/23-29/91,42.
24.  Beijing Review, 9/18-24/91, 40.
25.  Yuan, Zhang, Beijing Review, 9/23-29/91,42.
26.  New Scientist, 7-23-87, 18.
27.  Economist, 8/20/94, 54.
28.  Beijing Review, 9/9-15/91, 38-39.
29.  Marcom, 5/14/90, 116-117.
30.  http://www.infopages.com/ocfair/goat.htm
31.  http://www.cyprus.com/~ian/black-locust-farm.html
32.  Economist, 8/20/94, 54.
33. 
http://www.inform.umd.edu:8080/EdRes/Topic/AgrEnv/ndd/goat/Feed1
34. 
http://www.inform.umd.edu:8080/EdRes/Topic/AgrEnv/ndd/goat/Cash