How the textile and clothing market will shape up in a quota-free world after January 1, 2005 is a matter of great anxiety and speculation for the developing country exporters but a study says it is China
, India and Pakistan which will ultimately dominate it by 2010.
Although much will depend on how WTO negotiations in important areas, also scheduled to conclude by the end of this year under Doha mandate, proceed but not much optimism is being entertained about the textile trade to become free in true sense if the developed country importers' past attitudes are any guide.
Their past attitudes are conspicuously marked by crude exercise of protectionism, refusal to abide by gradual phasing out of quota (they were obliged to end 16 per cent quotas from 1995 to 1998 in the first stage set by the Agreement on Textiles and Clothing (ATC), 17 per cent in second stage from 1998 to 2001 and 18 per cent from 2002 to 2005), and their frequent resort to anti-dumping charges and subsequent investigations only to cause harassment and declines in developing country exports.
A positive developent, meanwhile, is the letter the European Commission sent to Mr Andras Szepesi, Chairman, Textile Monitoring Body, WTO, on March 15 saying that pursuant to Article 2 of the Agreement on Textiles and Clothing (ATC), the EC will integrate into GATT 1994 all textile and clothing products to which the ATC applies from January 1, 2005.
Accordingly, the European Community will eliminate all remaining restrictions under the ATC on these products. Similar letters were sent to Mr Szepesi by Canada on February 9 and by the United States on February 6. It shows they are going to end the quota system.
But in a signal somewhat out of tune with its intention to liberalize its textile and clothing import regime, the European Union has announced that its new members - The Czech Republic, Estonia, Cyprus, Lithuania, Latvia, Hungary, Malta, Poland, Solvenia and Slovakia - will adopt their quota system and restrict imports from developing countries during the eight months before the trade becomes quota-free.
It raises doubts about rich states' readiness to say good-bye to the quota regime they have always cherished. As a result, existing quota levels for EU-15 will now increase to make up for EU-25 from May 1. Pakistan will benefit from this increase to the extent of 8,000 tonnes in various categories and 500 extra 1000-per cents in other categories.
Meanwhile, a study conducted by SSKI India, an investment consultancy firm, says that China, India and Pakistan are likely to rule global home textiles market which is likely to expand to $23 billion by 2010.
The dismantling of trade barriers and quota restrictions, as expected, will throw open a rare export opportunity to Asian players and one such major opening is the export trade in home textiles, which currently (year 2002) stands at nine billion dollars and is expected to grow by ten per cent annually.
The study states that the main reason for this is the increasing inviability of local manufacturers in the US and the EU, the biggest home textile markets, accounting for 70 per cent of the world's home textile imports. The Asian players are expected to get stronger due to the cost advantages in manufacturing.
China, India and Pakistan will gain market shares on the strength of their cost-competitiveness; Italy, Turkey and the US are likely to lose out, the study points out. China, India and Pakistan are dominating the non-quota countries too. The three countries account for 44 per cent of the quota countries' imports of made-ups, but their share is as high as 82 per cent in the non-quota countries, as per the study.
Meanwhile, media reports say that India is set to become a major outsourcing centre in the textiles and apparel sector as well, in addition to the IT sector, in the coming years. Indian textile and apparel industry, according to Financial Express, a member of Indian Express group of newspapers, is gaining in strength with growing investments and modernization to meet the surging worldwide demand.
With world class plants to make fibres and yarns, heavy investments, continuous innovations, new product mix and strategic marketing, India is all set to emerge as a major Business Process Outsourcing (BPO) centre for textiles and apparels.
Chairman, Synthetic & Rayon Textiles Export Promotion Council of India, Rakesh Mehra, says that India exports more than 100 garment product categories along with its customary yarn and fabrics. Many of the world's leading brands like Banana Republic, Tommy Hilfiger, Gap, Liz Claibome, Polo etc. are already sourcing goods from India. In view of the growing relationship with major global brands, the post-quota era would find India as a global outsourcing destination.
According to another study conducted by McKinsey, China is expected to gain the biggest share in the textile and apparel trade and that India could be the second largest supplier to the EU and the US markets in the post-quota regime. Since the market share after 2005 would depend on various safeguard measures to be adopted by the US and the EU, these are likely to affect China, restricting its growing market share in the global market.
The study says, China's apparel export would grow at 16.6 per cent to reach $124 billion in 2008 (market share of 50 per cent) if there were no safeguard measures against China.
As per SSKI study, the US home textile market accounts for as much as $15 billion of the global home textile market of $70 billion, and is growing at five per cent per annum. The home textile market in the EU is also estimated at $15 billion, about half of which is made up by Germany and Italy.
The growth in imports in the EU is estimated to be around 9-10 per cent. Among the non-quota countries, Japan, Australia and New Zealand are the biggest consumers of home textiles.
Last year, 18 developing countries which are also members of the International Textiles and Clothing Bureau (ITCB) submitted a paper to the Negotiating Group on Rules titled "Anti-dumping Actions in the Area of Textiles and Clothing: Developing Members' Experiences and Concerns" which said that developed countries' anti-dumping activity was badly affecting their exports of textiles and clothing.
The countries were Costa Rica, Guatemala, Hong Kong, India, Indonesia, Macao, Maldives, Pakistan, People's Republic of China, Thailand and Vietnam. The paper concluded that a particularly important aspect of the anti-dumping regime responsible for such disruptive effects was the very initiation of investigations into allegations of dumping, often prompted by protection-seeking interests.
The main conclusions of the paper, based on a detailed factual analysis of anti-dumping actions by two major developed country members (the EU and US), were generally acknowledged when the Negotiating Group on Rules considered the paper in its meeting held on February 6-7, 2003.
It may be recalled that due to the long legacy of quota restrictions, trade in textiles and clothing has often remained vulnerable to disproportionate protectionist pressures. Thus, besides quota restrictions, the sector has also seen a large number of anti-dumping actions especially affecting exports from developing countries.
A survey of these actions during the last several years reveals that during 1994-2001 the sector was targeted by one developed country member (the paper did not name it but it referred to the EC) for as many as 53 new initiations of investigations into allegations of dumping placing it the third among all sectors.
The other sectors witnessing higher numbers of initiations by this member were iron and steel, and chemicals. Significantly, of these 53 initiations, 46 or 87 per cent involved imports from developing countries.
It is interesting to note that most often the investigations were prompted by motivated complaints lodged by industry associations and then followed by a series of complaints at the same time targeting the lion's shares (60 per cent) of total imports in the products concerned.
In several instances, investigations into the same products were revived back-to-back, extending over long periods. In the case of one product (cotton fabrics), these were continued for five years. In the case of another product (bedlinen), these have been going on in one form or the other since January 1994.
These investigations resulted in significant disruptions for the exporting countries concerned, causing large declines in their import shares: In one product from 59 per cent before the initiation of investigations to 38 per cent when the investigations were finally dropped; in another from 52 to 45 per cent.
According to the paper, in virtually all cases the investigations or measures adopted proved to be unjustified because these were either dropped by the investigating authorities themselves or the very methodology used by the importing member in its dumping determinations was found by a dispute Panel and the Appellate Body to be inconsistent with WTO obligations.
The cases revealed that the exporting firms from developing countries were generally small or medium-sized. They accounted for small export volumes, raising a question as to whether such small enterprises could at all be capable of dumping. It is difficult to conceive that these small enterprises could muster the economy of scale to engage in price discrimination.
Although the anti-dumping activity involving textile and clothing products in the other major importing member (here too, the paper did not name it but it referred to the US) had been less pronounced, the measures adopted by it have remained in place for long periods (11 to 19 years) even when there had been no imports in the product from the exporting member concerned.
The paper expressed the fear that since the developed countries have left the bulk of quota restrictions to be eliminated only at the end of 2004, it is bound to exert downward pressure on prices.
"A sudden fall in prices is feared in turn to encourage the domestic industry to cry dumping and spark political pressures for greater recourse to alternate forms of protection, especially anti-dumping, exacerbating the problem created by the postponement of any effective liberalization of the sector to the very end of transitional period. In this context, it may be noted that the industry interests are prone to equating any declines in prices with dumping."
In this context, one may recall that in recognition of the problem brought about in this paper, the ministers in Doha decided that "Members will exercise particular consideration before initiating investigations in the context of anti-dumping remedies on textile and clothing exports from developing countries previously subject to quantitative restrictions under the Agreement [on Textiles and Clothing] for a period of two years following full integration of this Agreement into the WTO". They also "pledged to reject the use of protectionism".
