It is aimed at curbing quota trading and better utilization of available ceilings to enhance proceeds from export of textile products

By SHABBIR H. KAZMI
Jan 03 - 16, 2000

The Ministry of Commerce has announced the Textile Quota Policy for the year 2000 with special focus on allotment of quota on performance basis and curb trading of quotas. The new policy envisages some changes in the mechanism of flexibilities. Commerce Minister, Abdul Razzak Dawood said that the government is planning to formulate a long-term textile policy to face the challenges of globalization and the impending quota free trade regime.

Reportedly the policy for the year 1999 has worked satisfactorily and it should be continued for the next year. However, exporters were not in favour of auctioning the growth quota. The practice was opposed on the ground that auctioning will cause speculation and enable non-exporters to make exorbitant profits without actually exporting the merchandise. Trading in quota affects the competitive ability.

Long-term and stable policies are the basic requirement of businesses which have to make strategic decisions for investment with the expectation of earning a reasonable profit on it. Many business ventures in the country have failed because of frequent changes in policies affecting the economic fundamentals.

Individual exporters, however, will only be allowed use of these flexibilities after physical shipment of at least 70 percent of their quota entitlement in each category. It means that during the year the performance will be the basis for utilizing flexibilities including swing and shifts, etc., and not the entitlement. In case of the European Union, use of exceptional flexibilities by exporters will be subject to shipment of at least 70 percent of their quota by September 30, each year at the latest. The flexibilities will be calculated on the basis of quota available in the passbook on the day it is requested for by the individual exporter and not the entitlement at the beginning of the year. The transfer of quota will be taken into account while calculating the flexibilities of individual exporters after deducting quotas transferred. The actual entitlement of flexibilities will be calculated on the basis of quota in the passbook at the time of application of which at least 70 percent must have been shipped by the exporters.

First-come first-served (FCFS) policy will be followed for allocation, both for reservations as well as postshipment, in the following ratios: 70 percent in each category placed on the FCFS will be allocated to exporters after they have made shipments and balance 30 percent of quota in each category placed on the FCFS will be available for reservations. This will be based on the following conditions and rates of bank guarantees. These are: a) for shipment within 60 days provided an irrevocable Letter of Credit/contract is produced, the bank guarantee equal to two percent of the FOB value of the quota being reserved, b) for shipment within 90 days, bank guarantee equal to five percent of the FOB value of the quota being reserved, (c) for shipment in 120 days bank guarantee equal to 7.5 percent of the FOB value of quota being reserved. No extensions will be granted. The last date for shipment in each case will be October 31. At the expiry of the reservation period or the deadline of October 31, whichever comes earlier, the bank guarantee will stand forfeited and the quota would revert to the FCFS pool.

Exporters who are given new category passbook with the transferred quota will have to ship at least 90 percent of the quota transferred-in. Transfer-out from new category passbook in such cases will not, in any case, be allowed above 10 percent of the total quota.

To make Textile Quota Management Policy effective and efficient, the number of textile associations handling quota categories will be reduced. Effective from 2001, only those textile associations which handle 15 percent of the quota in any category will be allowed to operate in these categories. Any association which does not handle 15 percent or above of quota in particular category will cease its functions in that category. The exporters in such a case would have to process their cases through those associations which will be permitted to handle quota categories under the revised criteria. The government may also consider allocation of quota for value-addition in 2001.

The actual percentage of such quota, the criteria for eligibility of exporters to such quotas and other terms and conditions will be notified by the government through separate public notices which will offer equal opportunity to all exporters to become eligible for additional quota under this scheme. To check any malpractices in quota allocations, distributions and utilisation, audits will continue and will be made more effective under the supervision of the government.