The Hindu : Business : Failed bid to extend textile quota regime

Online edition of India's National Newspaper
Monday, Oct 11, 2004

Business

Business

Failed bid to extend textile quota regime

The real problems faced by a number of the small economies are due to the Rules of Origin and the tariff escalations by importing markets.

A YEAR-LONG, orchestrated campaign by the U.S. and EU textile industry lobbies for continuing the 30-year old textiles and clothing quota regime of discriminatory protection against developing countries, by extending in effect the 10-year transition period of the Agreement on Textiles and Clothing (ATC), appears to have fizzled out, at least for now, though the protection lobbies will not give up and will try to find other ways — such as initiating anti-dumping actions, as well as raising social and environment issues against competitive producers like China and India.

Nevertheless, with the clear signal that the WTO system will not intervene, the buyers of clothing in the principal markets, a trade dominated by giant retailers, will begin to look for suppliers in countries that have been so long hobbled by the quota system, and begin the long overdue process of restructuring on the basis of comparative advantage, and the pains and costs that go with it.

Extension move fails

At the WTO, the U.S. and European textile and clothing industry lobbies, despite their forecasts to the media, failed to get one of the developing countries, benefiting from the quota regime, to propose an extension of the ATC regime for a further `transition' period (after the 10-year transition under the ATC ends on December 21, 2004).

Even a move (by Mauritius, Bangladesh, Nepal, Sri Lanka and 59 others) to have a study and work programme on the post-ATC adjustment-related issues, which might have sent a wrong market signal that WTO legitimised protection would continue, failed.

The debate on this at the October 1 meeting of the WTO Council on Trade in Goods (CTG), found a sharp division of opinion — with China, India, Pakistan and several others which have long been the victims of discrimination, and countries like Brazil on one side, and a large number of developing countries now benefiting from the quota regime, Mauritius and others on the other.

While expressing sympathy over problems that would face the least developed and small economies, and openness to productive and constructive suggestions, China, India, Pakistan, Hong Kong China, and some others subject so far to discriminatory restrictions, and Brazil and others (facing a similar situation in agriculture) insisted on strict adherence to the legal commitments under the WTO and the need to steer clear of new distortions or revising the agreed parameters of ongoing trade negotiations.

The U.S, and EC made it clear that they would carry out their commitments and phase out all remaining restrictions at the end of 2004, as provided in the WTO and ATC, and fully integrate the trade into GATT 1994.

Anticipating these kinds of pressures and moves, the Marrakesh Treaty in ATC provides in its Article 9 that the ATC itself and all its restrictions shall terminate on January 1, 2005, and that "there shall be no extension of the Agreement."

In retrospect at least, it is now clear that the Indian negotiators were wise enough not to take assurances of the phase-out of the MFA seriously, and had inserted in the Uruguay Round schedules, a footnote: "If the integration process envisaged in sub-paras 6 and 8 of Article of the Agreement on Textiles and Clothing does not materialise in full or is delayed, duties shall revert to the level prevailing on 1.1.90"

Transition strategy

The ATC envisaged that the industrialised countries with quota restrictions would undertake a gradual, but measured phase-out process, so that the adjustment could take place over 10 years. But the U.S. and EU decided before the entry of the WTO to `backload' all the phase-out of restrictions and quotas — using the transition to `integrate' products not under restraint at all. This provided the textile lobbies of the U.S. and EU, 10-years of rentier quota incomes, during which in order to enjoy preferences a number of these economies had to import costlier fabrics from the US and EU, make them into clothing, and export the products — rather than be able to import yarn and fabrics from cheaper sources and try to establish some processing and production lines. This has now produced the problems for these small countries.

A WTO staff study, published in August (responding to the pressures and lobbying of the industry), using a partial equilibrium analysis and a faulty model and data (from the Global Trade Analysis Project), and omitting some parameters, projected an overnight crisis for the LDCs and small suppliers, and the prospect of China and India overwhelming the global trade. Just a few weeks later, the same division of the WTO secretariat, in its World Trade Report, said that for example the problem of Mauritius was due to the preferences — its neighbouring LDCs like Lesotho are able to use fabrics from any source and make them into clothing to export to the U.S., while Mauritius could do so and benefit only by use of costlier U.S. fabrics. Similar problems are faced by Sri Lanka and Bangladesh vis-a-vis the EU.

A study by the global textile alliance of the developing countries, the International Textiles and Clothing Bureau, has put the issue in better perspective, and so has the UN Conference on Trade and Development (UNCTAD) — which has brought out for example that the U.S. is the second leading Textiles exporter, just behind China, and that the picture of global dominance by China and India is projected by the WTO by ignoring intra-EU trade (textiles and clothing exports of EU members to each other). The UNCTAD study also brought out that while on January 1, 2005, the quotas would go, a number of the smaller economies and LDCs would still be enjoying the trade preferences and tariffs in the principal markets and will continue to have some advantages.

Thus the effort to pitch one group of developing countries against the other, in a classic Imperial divide-and-rule game, by the U.S., Europe and others to advance their own mercantilist interests (in stark contrast to their preaching of free trade) is counter-productive.

Other studies have brought out that while Bangladesh, Sri Lanka, Mauritius and some others could all join to present a front of poor economies that would suffer by the end of quotas, and their labour in clothing sectors would lose jobs, countries like India and China, also have very large and poor populations depending on textiles and clothing. Also, the real problems faced by a number of the small economies are due to the Rules of Origin — both the most-favoured-nation (MFN) rules and preferential rules of origin of the major importing markets for purposes of tariffs — and the tariff escalations (on value added products) they apply. And as the UNCTAD study has brought out, the view that everyone participating in trade negotiations and liberalisation would gain in all sectors, and there would be no losers, is erroneous. All that one could ensure is that in any bargain, there will be an overall benefit for everyone, and overall no one will end losing out completely.

Chakravarthi Raghavan

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