Textile Sector - Post 2005 era:
will the benefits reach developing countries?
By Humayun Ali
Analyst, JCR-VIS
For more than thirty years, the textile sector was governed by many
agreements: the Short Term Cotton Arrangement in 1961, the Long Term Cotton
Arrangement from 1962 to 1973, and the Multi-fiber Arrangement from 1974 to
1994. In short, efforts to liberalise trade and textiles have always met w
ith
great difficulties. As a result of protective measures developed countries
made heavy investment in the sector, and as a result textile industries in the
developed nations became one of the most capital-intensive areas within the
manufacturing sector. During the same time, developing countries were subject
to quantitative restrictions thus keeping a strong check on their textile
exports and taking the edge by keeping maximum amount of textile production in
their hands. The MFA was terminated on 31 December 1994 upon the entry into
force of the WTO and its Agreement on Textiles and Clothing (ATC) on 1 January
1995 in order to have a multi-lateral liberal system of trading by deleting
quota from textile exports by the end of 2005. Phenomenal resources have been
committed in recent years by developing nations depending heavily on textile
exports towards re-structuring and industrial adjustments for meeting the
requirements of the quota free regime. However, there is still a long way to
go as for instance 92% of the quotas in the case of the US and 76% of the
quotas in the case of EU are still in place as of May 2003.
Extrapolating from recent IMF and world bank studies on
income, trade and
employment implications for developing countries it is estimated that
developing countries would have an income gain of about USD 24b per year,
export revenue gain of USD 40b and employment generation of about 27m jobs in
the post Agreement on textile and Clothing (ATC) era. However, hopefully, the
textile quota system will be behind us effective from January 1, 2006 when the
textile sector will be reintegrated into the multilateral trading system.
Though it is yet to be seen whether it will be an integration in the true
sense, while all the WTO members states, particularly, major importers of
textiles and clothing will make every effort to resist the temptation of
continuing the protection through other imaginative protectionist ways and
means.
For a long time multi-fiber arrangements and its predecessor arrangements have diverted from the basic principle of a multilateral trading system and constituted a form of a special and more favorable treatment for developed economies by imposing discriminatory restrictions in a sector that has always been of a crucial interest to developing nations. Restricted textile exports provided developed country's textile industry and their economy with more than three decades of protection. Though elimination of textile quotas in 2005 will open trade to fierce competition, it will also open many windows of opportunities for all the countries that rely heavily on this particular sector. The benefits, however, for the developing countries may not be spread evenly. Countries that are more competitive may be able to exploit more opportunities and being competitive would mean having an indigenously integrated textile industry. Basic raw materials being available at home would be a crucial factor for greater exports of value added products but above all developing countries would have to put their houses in order, improve productivity and competitiveness and gear up for increased emphasis on quality and timely delivery requirements of the buyer. Hence, the post 2005 era offers opportunities of export markets that will be free from quota restrictions. The name of the game as mentioned earlier is "competitiveness".
Competitiveness
Many developing countries have a competitive edge in yarn and textile production and other made-ups and still others in apparel and so on and so forth. Therefore, there is something in the lifting of restrictions for everyone but there are fast changing phenomena at work in the textile industry, i.e. there are new ways of doing business, new technologies, and better fabrics. Specialization in niche products and diverse exports is probably the only way to remain in the new market. However, translating these opportunities into actual trade performance will require appropriate domestic policies in the form of political and social measures in areas such as production, technology and marketing strategies to build a competitive edge.
Price competitiveness, an important factor, would make a lot of difference in the post quota world. Although non-price factors such as quality, quick responses to changing consumer taste, fashion, development of new fabric, etc. should not be discounted either. Developing countries with developed or integrated textile production structure will be better poised to utilize the market opportunities of a quota free trade regime
Non-Tariff Barriers
The post quota regime sounds a perfect solution for ending trade disparity among textile producing developing countries, which was imposed upon them by developed countries. However, in the post 2005 scenario such restrictions may still exist in the form of non-tariff barriers such as antidumping and countervailing duties that are not only trade restrictive but also price distorting and can lead to inefficiencies in the market. It is a ground reality that once a textile manufacturer loses a buyer on account of higher prices due to such duties it is very hard for the same manufacturer to regain his share in the market later. It is ironic that the WTO committee is still debating on rules and procedures on the inadequacy of the anti-dumping law. Using the inadequacies of these laws different countries initiate investigations related to textile related products coming from other countries. From past trends it seems that the purpose behind initiation of these investigations is to simply freeze the trade transaction. These investigations linger for a year or more, and eventually yield a negative result in most cases. Mr. Humayun Akhtar, trade minister of Pakistan, has recently quoted that, "From 1994 to 2001 the EU commission has been the biggest user of anti dumping and anti-subsidy actions accounting for 64 initiations in the textile sector of these 57 were targeted against developing economies." It is interesting to know that the targeted countries of these initiations were already subject to quota restrictions. Textile exports from developing countries are repeatedly disrupted by initiation of such prolonged anti-dumping investigations that has a negative consequence on their trade. These actions strengthen the apprehension that the post 2005 quota free age may in fact prove to be a nightmare for developing countries involved in textile exports. It is feared that if such trends do not end, and further proliferation of protective measures in the textile sector in the pre and post ATC era prevail, they would nullify the benefits of the removal of the quotas.
The intervening period leading up to 2005 has also seen the emergence of regional trade arrangements (RTA) and unilateral preferential schemes of international trade in this sector. These preferential regional arrangements provide no quota restraints from some countries that are termed as preferred suppliers. To quote some examples in the US there are some Caribbean initiatives, Andean trade preference act and African growth and opportunity act, not to mention NAFTA. In the EU there are among others the Euro-Mediterranean Association agreements, preferential agreements such as the ACP-EU trade agreement. Statistics on the increase in export of preferred suppliers to the US and EU must be assessed in conjunction with the base, value, volumes and increase trade shares in order to gain a complete picture. The conclusion seems to be that real gains are more evident in these regional types of arrangements. To quote one example in the words of Fernando Canales, Mexico's economic minister, that he made at the ministerial conference in Brussels, Belgium on May 6, 2003:
There is no doubt that the liberalization of the sector, under NAFTA helped the industry to increase its production and exports. Since 1996 growth in this industry has outpaced our GDP growth. Consequently in 1998 Mexico became the largest supplier of textile goods to the US market. In 2001, our (Mexico's) textile and apparel export to the US market were 9 billion US dollars.
In the end, if the post-2005 era would not permit discriminatory quota restrictions as a matter of rule then it goes without saying that the lifting of quotas would finally unleash growth and development potential of developing countries and enable them to benefit much more from multi lateral trading system.