Removal of safeguards on the exports of
Chinese textile products to different countries would land the Indian exports of
textile and clothing in deep trouble.
The Indian exports of textile and
clothing would continue to flourish as long as safeguards on Chinese products
According to a working paper titled
"The Impact on India of Trade Liberalisation in the Textiles & Clothing
Sector" prepared by IMF staffers Prasad Ananthakrishnan and Sonali
Some major textile importing countries
have imposed restrictions on the imports of textile and clothing and India
appears major beneficiary of this development.
The Working Paper analyses the impact
of the elimination of textile and clothing (T&C) quotas in 2005 on India.
The paper claims that Indian exports of T&C will continue to expand in the
presence of the safeguards on China, but they will be affected adversely once
these safeguards are lifted.
The paper further said that India could
emerge much stronger and expand its trade in T&C at a much faster pace, if
some of the key domestic structural weaknesses are overcome.
The IMF paper further said the textile
and clothing items have been significant in India's export basket, accounting
for nearly 20 percent of total exports during the 1990s.
In 2003, T&C exports were the
largest export group, accounting for 23 percent of Indian exports (or $13
billion), said the report, adding this sector is the second largest generator of
employment (35 million or around 10 per cent of the workforce), a significant
earner of foreign exchange, and contributes 4 percent and 14 percent to GDP and
value added in manufacturing, respectively.
The removal of quotas on textiles and
clothing in 2005, under the Agreement on Textiles and Clothing (ATC) is expected
to have a substantial impact on major exporting countries.
A quota free regime represents an
opportunity-as India has been constrained by quotas-as well as a challenge as
there will be increased competition and no guaranteed markets. India has a
competitive advantage stemming from its large and relatively low-cost labour
force, a large domestic supply of fabrics, and the industry's ability to
manufacture a wide range of products.
India has a very strong and diverse raw
material base for manufacturing natural and artificial fibres.
Furthermore, India also has
capacity-based advantage in textile and spinning, and India's textile industry
covers the entire supply chain, it said.
According to the working paper, despite
these advantages, whether India can benefit from the quota elimination will
depend on the degree to which the existing constraints are removed.
These constraints include stringent
labour market regulation, inadequate investment, and unfavourable government
policy in the past.
The implementation of the ATC, meant as
a transition period to full integration of the T&C sector, occurred in a
back-loaded fashion. Before the ATC took effect, a significant portion of
textile and clothing exports from developing countries to the industrial
countries was subject to quotas under a special regime outside normal rules of
the General Agreement on Tariffs and Trade (GATT).
These former Multi-Fiber Agreement
(MFA) quotas, when carried over into the ATC on January 1, 1995, represented the
starting point for an automatic liberalisation process. Liberalisation was to be
in four stages, with half of the integration to take place in the first three
stages (from 1995-2005) and the second half to take place in the final phase in
However, importing countries have had a
great deal of flexibility over the elimination of quotas and items for which
quotas were not binding which were liberalised earlier.
The Indian National Textile Policy
targets textile and apparel exports of $50 billion by 2010. With comprehensive
reforms, India expects to increase its exports by 15-18 percent annually and win
5 percent of the global apparel export market by 2008 and to earn $25-$30
The removal of quotas on the most
restrictive categories was back loaded by importing countries until the end of
the transition period. Only 20 percent of the products subject to quotas were
integrated in the first three phases of the ATC. This implies that the removal
of quotas on the remaining 80 percent in 2005 has the potential to lead to sharp
shocks including job and income losses in some developing countries.
Report said that the mass retailers in
developed countries, especially the United States, require flexibility and a
fast turnaround. This implies that some developing countries are better poised
to gain than others.
It further said, India's market share
increased only marginally in both sectors between 1995 and 2003 whereas China's
share increased significantly. India has gained larger access to the United
States and Canada since 1995, but has lost market share in the European market.
India's market share in Japan is negligible.
While India is an important player in
T&C imports into the United States, China remains the dominant source of
Furthermore, China increased its share
in the US market of T&C to 20 percent and 17 percent, respectively, in 2003.
The final stage, beginning on January
1, 2005, witnessed the removal of 701 quotas by the United States, 167 quotas by
the European Union (EU) and 239 quotas by Canada.
The paper estimates that developing
countries as a whole would have income gains of about $24 billion a year, export
revenue gains of about $40 billion, and generation of $27 million jobs.
A study by the U.S. International Trade
Commission predicts that China is expected to become the "supplier of
choice" for most U.S. importers (the large apparel companies and retailers)
because of its ability to make almost any type of textile and apparel product at
any quality level at a competitive price.
However, the extent to which China
continues to expand its shipments following quota elimination in 2005 will be
tempered by the use of textile-specific safeguard provisions contained in
China's protocol of accession to the World Trade Organisation (WTO).