The Hindu : Business : New phase in global textile trade

Online edition of India's National Newspaper
Monday, Oct 25, 2004

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Business

New phase in global textile trade

Discrimination in the textiles trade has existed for a long time, much before the Multi Fibre Arrangement (1974). With the final phasing out of quotas by the end of this year, India has both threats and opportunities.

THE DISCRIMINATORY quota regime under which India, China and many other textile exporters could never achieve their potential is all set to be dismantled by the end of the year. A last ditch effort by some smaller countries which have benefited from the quota regime to extend the transition period (beyond the agreed ten years) did not succeed. Thus a new phase in the global trade in textiles is set to commence from January. Will India, China and other major textile nations now reap their potential?

Contrary to perception, discrimination in the global textiles trade goes back in time, says C. Raghavan, a senior journalist based in Geneva, who specialises in global trade. "The textiles and clothing quota regime is mistakenly presented as a 30-year old arrangement. The EC media and the U.S. generally use this to make it appear that the issue only began with MFA-1 and ended with the WTO beginning.'' This is not so, says Mr. Raghavan. According to the International Textiles and Clothing Bureau (ITCB), an organisation of developing countries, international trade in textiles and clothing was managed, since 1961, under a separate set of rules, deviating from the basic principles of GATT/WTO.

Actually, discriminatory restrictions in the trade, as a departure from GATT, began even earlier, says Mr. Raghavan. Way back in 1957, as a price for entry into the GATT, Japan agreed with the U.S. bilaterally for voluntary restraints. Later during the Nixon-Kennedy elections, the protection lobby in the U.S. turned its attention on countries such as India and Pakistan.

Actually, as far as India and others are concerned, the textiles and clothing quota regime began on October 1, 1961 during the Kennedy presidency with Short-Term Arrangement regarding International Trade in Cotton Textiles (STA), after a GATT Council working party meeting.

Later this then became the LTA (Long-Term Arrangement....) covering `Textiles' and not merely `Cotton Textiles' and was extended twice in 1967 and 1970. By then the EC and other European countries as well as Canada had joined the U.S. camp on this. In 1974 it became the Multi-fibre Arrangement (MFA) which got repeatedly extended through protocols, the last just on the eve of the Uruguay Round launch in September 1986, and with stringent restrictions imposed by the U.S. Thus what was intended to give a breathing space to the developed countries became a quasi-permanent arrangement for restricting exports from the developing countries. Confined to cotton products in the beginning, these restrictions were extended — by 1986 — to practically every fibre in existence.

Although MFA was structured as a temporary arrangement to enable the developed countries to achieve a level playing field with the developing countries it continued to be renewed several times and was eventually replaced by the Agreement on Textiles and Clothing (ATC) at the WTO on January 1, 1995. Under the ATC, the developed countries agreed upon a three-stage phase out of quotas over a ten year period ending 2004. By January 1, 2005 the quotas will be phased out and the trade in textiles will be integrated into the rules of the WTO. In the interim phase, member countries are required to integrate 51 per cent of their textile products. The ATC however allowed members to choose a flexible schedule for integrating the products.

For India, China and a few other countries the end of the quota regime will mark the beginning of a period that will have plenty of opportunities as well as a few threats. The recent RBI Annual Report (2003-04) points out that countries such as India with competitive textile industries could benefit in terms of increased exports. On the other side, those countries whose textile industries are overly protected will suffer during the process of adjustment.

For the South Asian region alone the gains from the abolition of the MFA are estimated at about $2 billion a year. Industrialised countries too stand to benefit through lower consumer prices and adjustments. However, there is always the possibility that they may resort to other forms of restrictions such as higher tariff rates, when the quotas run out.

Textiles account for almost a quarter of India's merchandise exports. India's strengths in the post quota regime will be a: relatively inexpensive and skilled labour force, abundant supply of quality raw materials and design expertise. Major international chains are already outsourcing textiles from India.

On the other hand, the industry is highly fragmented with a low degree of mechanisation and obsolete technology. It requires substantial capital infusion — according to some reliable estimates, more than Rs. 98,500 crores. How the industry shapes up in the run up to the end of quotas is going to be the biggest story for the rest of the year.

C. R. L. Narasimhan

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