Trade in textiles has been actively managed by the western countries for more than 40 years now. By the time the 5th GATT Round (Dillon Round) of multi-lateral trade talks was held in 1960, the western countries had already laid the ground for exemption of textile trade from GATT rules.

In the 1950s, some Asian countries notably Japan, Hong Kong and India were able to appreciably expand their textile exports to western countries. Japan’s performance was particularly impressive. She increased her share by 155 per cent during the period of 1953 to 1960. Faced with increased import penetration, UK and some other countries negotiated voluntary export restraints with Japan, Hong Kong and India.

In 1961, however, unilateral action was replaced by a multi-lateral arrangement to deal with immediate problems on short term basis. This was known as the short-term arrangement on cotton textiles (STA) in which 19 countries participated. The objective was to maintain orderly access to Western markets and to secure from exporting countries, where necessary, a measure of restraint in their export policy so as to avoid disruptive effects in import markets.

Any sharp and substantial increase or potential increase in exports of particular product from a particular country was identified with the market disruption causing serious damage to the local industry. In the later case, the importing country could unilaterally impose quota restrictions. This Short Term Agreement made significant departure from GATT principles. It sanctioned unilateral action on the part of importing countries. Furthermore, the action could be discriminatory also.

The STA was superseded, after one year, by the long-term arrangement regarding international trade in cotton textiles (LTA). It had more elaborate provisions than the STA. It extended the scope of management by including the provisions for control over the growth of imports. The countries invoking the disruption clause were obliged to report annually to the cotton textile committee of the GATT. Although LTA was negotiated for five years and was viewed as an exceptional and transitional measure, it was renewed in 1967 and 1970, ultimately expiring in Sept. 1973. Some 29 countries had endorsed the LTA.

When the LTA expired, it was replaced by the multi-fibre arrangement (MFA) which came into force in Jan. 1974. The MFA extended the coverage to both natural and man-made fibres. Recourse to quantitative restrictions in response to market disruption was allowed. However, it also offered clearer guidance on the identification of market disruption. Textile surveillance body (TSB) was created as a forum for the settlement of disputes. The MFA was endorsed by 42 countries (EEC counting as one). It was extended in January, 1978 to cover period upto December, 1981. The extended Arrangement (MFA II) contained an additional clause i.e. “reasonable departures” which permitted more restrictive measures than those sanctioned by the original MFA.

MFA II was extended till July, 1986 (MFA III). MFA III was further extended till December 1991 (MFA IV). The latter was extended upto Dec. 1994. (MFA V). Each successive MFA was made more restrictive in nature. MFA IV covered all types of fibres - cotton, wool, man-made, silk, ramie, etc. In response to actual or perceived market disruption, the unilateral quantitative restrictions could be imposed for a period of two years. In the previous MFAs, such restrictions were valid for only one year.

At the end of 1994, the MFA was replaced with the agreement on textiles and clothing (ATC). The latter became operative on 1st January, 1995.

The textile exporting countries (31 in number) were required to enter into bilateral agreements with the importers (eight in number) on the basis of MFA rules. The basic aim of the ATC is to integrate the trade in textiles into GATT by requiring member countries maintaining the restrictions to phase them out over a period of 10 years i.e. by 1st January, 2005.

The integration process is to be carried out in four stages. At each stage, products amounting to a certain minimum percentage of the volume of the country’s imports in 1990 are to be included in the integration process. The percentages for the four stages of integration are;

i. 16 per cent of the products, on the date of entry into force of the Agreement i.e. 1st January, 1995

ii. 17 p.c. at the end of the third year i.e. 1st January, 1998

iii. 18 p.c. at the end of seven years i.e. January, 2002

iv. 49 p.c. at the end of the tenth year i.e. 1st January, 2005

The ATC also provides increase in annual growth quota of each category of product as under :

— 16 p.c. per year in the first three years.

— 25 p.c. per year in the next four years.

— 27 p.c. per year in the next three years.

When the ATC became operational on 1st January, 1995, several importing countries (USA, EU, Canada, Norway, Finland, Australia) had a total of 90 bilateral restraint agreements with exporting countries. In addition, there were 29 non-MFA agreements or unilateral measures that imposed restrictions on import of textiles.

The design and structure of the integration process is intriguing indeed. The real integration is back-loaded till the end of the 10 years’ period. Only cosmetic integration is intended in the 1st three stages. The importing countries are under no obligation to limit themselves to products subject to restrictions. In principle, that should have been the case. The only condition the agreement imposes is that each stage of integration should include products from four segments namely, tops and yarn, fabrics, made-up textiles and clothing.

The list of textile products to be integrated constitutes the annexure to the agreement. It contains all the textile items irrespective of the fact whether or not such items were under quota restrictions. The year 1990 was taken as the base year to be used for integration. By the end of 1990, the percentage of imports of products not covered by restrictions was around 34 p.c. in case of USA and 37 per cent in case of the EU. For other countries, the percentages for non-restricted products were much higher.

It was, therefore possible for the developed importing countries to meet their obligations to integrate the textile trade in the first two stages without removing any of the then existing restrictions. By the end of the third stage i.e. 1st January, 2002, a total of 51 per cent integration of textile products is supposed to have taken place. However, in real terms, there is hardly any difference in the product coverage of the pre-ATC and the current quota regimes.

The implementation of integration process has been more or less an eye-wash. For example, at the end of the 3rd stage, the USA integrated bar mops and pile towels. Bar mop is the low end product of cheap towel material. In their use, bar mops compete with the paper napkins. The generous quota ceilings for bar mops were seldom utilized by Pakistan in full. Similarly, EU and Canada integrated bath robes and part category of T-shirts respectively. Thus all restrictions on major categories of fabrics, made-ups and garments would remain operative till the end of year 2004.

What are the implications of this back-loading and how far our textile industry is geared to face the open competition environment after 1st January, 2005?. Some facts are indicated here to facilitate serious analysis of the issues involved;

i. Historically, the country’s textile sector has enjoyed high protection and for longer periods than necessary. In the absence of genuine competition, the quality improvement and value-addition was seldom accorded a serious consideration. The industry flourished primarily at the cost of consumers of captive domestic market.

ii. The restrictive regimes indirectly protect inefficient and weak producers by assuring market share in the importing countries. Pakistan’s quota management policies were also not used as an instrument of value-addition. The cardinal principle of these policies has been the linkage of quota entitlement of the exporters with quantities shipped irrespective of the quality of the product. In order not to lose quota entitlement, the manufacturers/exporters generally accorded priority to quantity rather than quality. The quota manipulation by the vested interests also encouraged rent seeking tendency in the industry.

iii. Pakistan has never been able to fully utilize quota available to it. On an average, 25 per cent quota remains unutilized. The percentage utilization of quota during the years 2001 and 2002 was as under:

2001 2002 USA 84pc 85pc EU 78pc 76pc Canada 79pc 74pc Turkey 32pc 47pc Total — —

Average 75pc 74pc

In 2002, a total quantity of 4646 million square meters equivalent (SME) were available to Pakistan from the above mentioned four countries. A quantity of 1147 million SME remained unutilized. On the basis of average unit price fetched in 2002, the unutilized quantity translates into $600 million.

iv. Cotton yarn and fabrics have the largest manufacturing base. During the last few years, the segments of knitwear, bed linen, towels and selected items of ready made garments have shown an appreciable rising trend in exports. However, Pakistan’s textile sector is relatively weak in synthetic fibre products, women garments and fancy apparels. The export of value-added products depends heavily on quota imposing markets as indicated below;

Knitwear 93pc

Ready made

garments 84pc

Bed linen

& made-ups 80pc

Fabrics 40pc

Yarn 5pc

The impact of full integration is likely to hit these segments hard. Because of back-loading, the restrictions would remain in place till end of 2004. Consequently, no adjustment period would be available to the industry. This sudden switch-over from restricted to free environment would certainly add to the adjustment difficulties of un-prepared units.

The safeguard and anti-dumping measures are effective tools in the hands of developed importing countries to block exports of developing countries. Pakistan’s bed linen export has been repeatedly subjected to anti-dumping proceedings. Export of shop towels has invited counter-veiling duties from USA.

Cotton yarn is, likely to have relatively smooth sailing as its dependence on quota markets is insignificant. However, increased frequency of anti-dumping proceedings can not be ruled out as Pakistan’s exports consist mainly of simpler counts fetching low unit prices. In the past, cotton yarn had invited maximum anti-dumping proceedings both from quota and non-quota countries.

Based on their past behaviour, there is strong possibility that the developed importing countries would resort to these and other escape clauses including linkage of trade with preservation of environment and wildlife, labour standards, human rights, etc to thwart export promotion efforts of the developing countries.

Pakistan must take stock of the emerging situation and devise appropriate strategy to minimize negative effects on our exports of this switch-over from protected to open market environment. For this purpose, a committee comprising of experts and representatives of the relevant textile associations should be constituted on priority basis for undertaking comprehensive analysis of the issues involved. The committee should, inter alia, suggest a feasible plan for market and product diversification for soft landing. The stakes are too high. The country can hardly afford inaction or complacency.