| Vol. 1 No. 8 | A Monthly NewsLetter of Ministry of Commerce |
August 1999 |
Form the Editorial Desk Market access is a key issue for India in multilateral trade negotiations. Nowhere is this more evident than in the textile sector which has been subjected for many decades to the restrictive quota regime under the Multi-Fibre Arrangement (MFA). The Agreement on Textiles and Clothing (ATC) negotiated during the Uruguay Round was seen as a potential area of benefit for the developing countries, with estimates at that time even suggesting that over one-third of the total benefits from the Uruguay Round would result from the liberalisation of the world trade in textiles and clothing in the wake of the phased abolition of the quota regime and its integration into WTO/GATT disciplines. The anticipated benefits, however, have not materialised. This is largely because the integration process has not been commercially meaningful. In other words, market access for Indian textiles has not increased significantly. Compounding the problem are the various measures taken by importing countries such as anti-dumping actions, transitional safeguards and discriminatory rules of origin which nullify whatever little market access resulting from implementation of the ATC. Highlighted in this issue are some of these concerns, our approach to the problems and the ongoing efforts - jointly by the government and the textile industry - to meet the challenges of the post-quota scenario. WTO Agreement on
Textiles and Clothing The textile sector remained outside the GATT disciplines for many decades, being subjected from the early 60’s to specially negotiated rules designed to regulate trade in cotton textile products. From 1974 onwards, world trade in textiles and clothing has been governed by the Multi-Fibre Arrangement (MFA) under which many industrial countries, through bilateral agreements or unilateral actions, established quotas on imports of textiles and clothing from more competitive developing countries. MFA was to initially operate for a limited period of four years and was primarily meant to provide breathing time to the textile industries of the developed countries to make structural readjustments. However, the quota regime of MFA got extended time and again for varying periods till 1994. In fact, from 1987 onwards, the scope of MFA itself was expanded further by including vegetable fibres and silk blend products within its purview. The integration of the textile sector into the mainstream of WTO (GATT 1994) disciplines is embodied in the Agreement on Textiles and Clothing (ATC) which was negotiated during the Uruguay Round and is being implemented in stages over a period of 10 years. Indeed, integration of the textile sector into GATT had been one of the major objectives in the Uruguay Round for India, as exports of textiles account for about 36 per cent of total exports from India and represent the largest net foreign exchange earner for the country.
The key elements of the Agreement on Textiles and Clothing (ATC), which was finalised during the Uruguay Round, are as follows : i) Setting up of a time-frame for integration of textiles and clothing products into WTO (GATT-1994) disciplines – i.e. integration of textiles (or abolition of quotas) within a time frame of 10 years in four stages – abolition of quotas on specified products to be 16 per cent of the total volume of imports into the quota countries in1990 on the date of commencement of the agreement on 1st January, 1995; 17 per cent on 1st January, 1998; 18 per cent on 1st January, 2002; and the remaining 49 per cent on the final day of the transition period i.e. 1st January, 2005. ii) Progressive growth of quota limits during the period of transition preceding final integration of the textile sector into GATT. For products remaining under quota, at whatever stage, the Agreement lays down a formula for increasing existing growth rate. Thus, the annual growth rate should be 16%, 25% and 27% higher than the growth rate established for the previous MFA restrictions under MFA bilateral agreements in the three stages. iii) Application of safeguard mechanism during the transition period. A specific transitional safeguard mechanism allows members to impose restrictions against individual exporting countries if the importing country can show that both the overall imports of a product and imports from the individual countries are entering the country in such large quantities as to cause (or to threaten) serious damage to the relevant domestic industry. Setting up of a time frame for elimination of quotas is the singular achievement of the ATC given the fact that textile trade has been under a discriminating regime since the early sixties. The growth in quotas envisaged in the interim also goes beyond the MFA maximum of 6 per cent in many categories under restraint especially to the US and some categories, especially garments, in the European Union (EU). The additional access gained on account of the growth on growth rates granted under the ATC, although no substitute for the elimination of actual restriction, is also a significant improvement. Apart from the above, the ATC also recognises the need to strengthen GATT rules & disciplines through tariff reductions & bindings, elimination of non-tariff barriers etc. as part of the integration process. The ATC also provides a mechanism for supervising the implementation of the agreement by establishing the Textiles Monitoring Body (TMB). A periodic overview of the agreement before the end of each stage of integration by the WTO Council of Trade in Goods has also been envisaged. Of the above, the two most significant features of the ATC are : (i) the phase-out of restraints on a pre-determined schedule and within a stipulated period of 10 years and (ii) an improved, multilateral policing of additional restraints and other measures during the phase-out period through the Textile Monitoring Body (TMB) envisaged in the ATC and on both these counts, the operation of ATC has fallen short of the expectations of developing countries, including India.
Integration Process – tardy implementation The process of integration of items has been very reluctant and tardy, especially in the case of the US & EU. In effect, commercially meaningful integration has not been done. An analysis of the integration process in the first two stages initiated by the US & EU shows that it has not led to removal of restrictions on any item under specific restraint from India. Canada & Norway, on the other hand, who are also operating quotas under the ATC have significantly reduced the restraints under the phase-out programme during the first two stages. While Canada has removed restrictions on several clothing products in1998, Norway has removed all restraints on clothing by 1998 and on bed linen with effect from 1999. Norway currently operates restraints only on fishing nets in a few countries. The developed countries appear to have adhered to the strictly ‘legal’ requirements of the integration process, without taking into account commercial considerations. The Council for Trade in Goods of the WTO in its review report on the eve of the second stage of integration (July 1997) also concurred that a large number of quotas remained in force, with the members fulfilling only the minimum legal requirement.
The TMB is the only legitimate body within the ATC which can interpret the different provisions of the ATC and ensure that these provisions are properly implemented by the Members. But the track record it has created during its brief period of operation is not very encouraging. The functioning of the TMB has not given any indication of the commitment of the WTO itself to the implementation of the ATC. The structure of the TMB is such that in any issue, it tends to get divided into two distinct blocks of importing country members and exporting country members. The result is that on many disputes they end up issuing a finding rather than making a recommendation. And in some of the serious disputes, they are not even able to issue a finding and merely admit that they have no consensus to say anything about the dispute. The apparent division of the TMB into two blocks and its tendency to wash its hands off serious disputes would tend to erode its relevance, and also convert it into a sort of ‘deal-making’ body. And in case where the parties refuse to make or accept a ‘deal’, the dispute goes to a WTO Panel. In fact, dispute settlement in the textile sector may become a lot more smoother if the disputes are handled directly by the Dispute Settlement Body (DSB), as in the case of the other sectors.
Safeguard and other anti-import actions A tendency to replace QRs (Quantitative Restrictions or quotas) with other disguised anti-import measures has been evident in both the US and EU, especially after the finalisation of the ATC in December 1993. The EU pre-empted the impact of the ATC by accelerating the anti-dumping drive in the textile sector during 1994. Repeated action was initiated by EU in the case of imports of unbleached cotton fabrics from India. Duties were imposed on Cotton type bed-linen. Anti-dumping and anti-subsidy action was also initiated by EU on imports of PTFY from India. The United States proposed as many as 26 new restraints globally during the first year of the ATC. The ostensibly social "new" issues such as those relating to child labour, labour standards, wages and working conditions / workers’ rights, environmental and ecological standards and even fire safety standards have been invoked both by the EU and the US, and linked to trade, as thinly veiled protectionist measures, all too frequently in the textile sector. An important element of the ATC is the linkage of the integration process to the issue of market access. Article 7(i) of the ATC mandates members to achieve improved access to markets for textiles and clothing products through measures such as tariff reductions and bindings as part of the integration process and with reference to the specific commitments undertaken by the Members as a result of the Uruguay Round. With the unequivocal commitment to phase-out MFA restrictions within a definite time period of 10 years, it is not surprising that the developed countries imposing quantitative restrictions on imports of textiles and clothing products should seek reciprocal market access in the textile sector by seeking reductions in tariffs and removal of non-tariff barriers in the developing countries. India has granted access for textile products under the MOUs signed with the US and the European Commission (EC). The market access has been granted by calibrating the removal of quantitative restrictions and tariff reductions over a 10-year period, coinciding with the 10-year integration period of textile products into GATT. The peak tariff levels on textile items have been progressively reduced to 25 per cent for yarns, 35 per cent for certain made-ups by 1999 & 35 per cent for priority garments by the year 2000. Quantitative restrictions have also been removed for a large number of textile products and will be removed for most of the remaining products by 2002. An analysis of the profile of imports of top 20 H.S. lines accounting for nearly two thirds of total textile and garment products shows that import of these items in 1994-95 was about Rs.1721 crores which has increased to about Rs. 2026 crores during 1997-98, marking an increase of 17.72 per cent in three years. Most of the imports appear to have taken place from the countries in the South-East Asian region. In order to ensure that low cost and poor quality imports of textile products do not unduly distort the domestic market, a scheme of specific duties has been envisaged along with the ad valorem duties in the MOUs signed with the US & EC. Apart from the above, the transition period has also seen: (i) Unilateral changes in the Rules of Origin (by the US) restricting market access. (ii) Delay in prompt approval of special flexibilities committed under the India-EU MOU. (iii) Growing preference for regional parts/Customs Union in order to circumvent meaningful liberalisation of textile trade. With the developed countries showing varying degrees of commitment to the process envisaged in the ATC, developing countries like India will come under increasing pressure to liberalise trade by removing restrictions. There is thus a need to remain vigilant during the remaining years of the operation of ATC and renew efforts to resist attempts to restrict trade by recourse to new methods of protectionism.
(* Source : Ministry of Textiles) |
In this issue WTO Agreement on Textile and clothing
Frequent anti- dumping probes against India’s textile exports Concerns Relating to Rules of Origin Four Stages of Integration : Phase-out of MFA Proposals Regarding the Anti - Dumping Agreement Preparations for the 1999 Ministerial Conference Textile Industry Gearing Up to Face Post-MFA Challenges - Initiatives and Approaches G-15 Ministerial Meeting in Preparation for the Third Ministerial Conference of WTO at Seattle Monthly update from PMI/Geneva * (15th July – 15th August, 1999) Schedule of Meetings at the WTO, Geneva : September 1999*
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