Brussels sprouts a challenge

Written by Malcolm Subhan | Updated: Oct 16 2004, 05:30am hrs
Developments which really matter to Indian exporters and economic operators in general have been taking place right here in Brussels. Given that textiles and garments account for one-third of Indias exports to the 25-nation European Union (EU)*, the most important of these developments was the announcement by EU trade supremo Pascal Lamy of his strategy for helping the European textile and clothing industry fend off the challenge from China and India after January 1.

The other development of great importance to Indian exporters was the green light the European Parliament gave to the nomination of Peter Mandelson, the former trade and industry minister in Tony Blairs government, as EUs new trade commissioner. Mr Mandelsons role in the formulation and implementation of EU trade policy will be of crucial importance, for the simple reason that this policy is formulated in Brussels by the trade commissioner, adopted by the EU council of ministers and implemented by him. Peter Mandelson will, therefore, be the EUs chief trade negotiator in the WTO Doha Development Round and will be responsible for implementing the vast free trade area, incorporating the EU and 13 of its immediate neighbours in north Africa and Eastern Europe, which is even now taking shape.

Compared to these two developments, the fifth India-EU summit, rescheduled for November 8 in The Hague, pales into insignificance. Mr Mandelson is likely to attend the summit, as he is to assume office on November 1.

To get back to the EU strategy for safeguarding its textile and clothing industry from Asian competition after January 1 next, when the last of the 1973 MFA quotas are abolished. Presenting the strategy to the press, Mr Lamy declared: The European textile and clothing industry is not a sunset industry, and my role is not to manage its rundown. On the contrary, the European industry is fully competitive because it is creative, innovative and productive, thanks to its growing recourse to the latest technology. Its competitive advantage, Mr Lamy pointed out, lies in the production of medium to high-quality products, fashion items and technical textiles, for the auto industry, for example. The competitive advantage of countries like India lies in the production of cheap, medium to low-quality products, an advantage they can fully exploit from next January 1.

Even while Mr Lamy was speaking the industrys EU-wide lobby, Euratex, was announcing the launch of a four-year, 23 million euro** project aimed at achieving a breakthrough in clothing technology. The project will increase productivity, quality and cost efficiency in the garment manufacturing process through radical re-engineering and intelligent automation of this process, according to Euratex. No fewer than 35 companies and research institutes are taking part in the project, for which the EU is providing 14 million euro. The strategy outlined by Mr Lamy seeks to draw up and implement a strategic R&D agenda, promote eduction, training and employment and ensure the rapid completion of the pan-Euro-Mediterranean free trade area.

This area in fact is a key weapon in the EUs efforts to meet the challenge from low-cost Indian and other Asian producers. It will allow European industry, including the textile and clothing industry, to outsource production to those countries in the free trade area with lower production costs. Tunisia and Morocco already play this role. The other important elements of Mr Lamys strategy are:

(1) a concerted drive to get developing countries like India to reduce their import duties through the WTO round of trade negotiations and

(2) monitor imports from China more effectively, so that safeguard measures can be taken quickly if necessary.

Peter Mandelson, the incoming trade supremo, made it clear to the European Parliament that he will implement the policies already put in place by Mr Lamy. He told MEPs that they will play a larger part in the formulation of EU trade policy. But as trade commissioner, Mr Mandelson will also (1) bring forward legislation to implement the WTO agreement on generic drugs; (2) pursue a pro-development trade agenda and, to this end, (3) help change WTO rules to allow developing countries to play a more important part.

However, he is also likely to go along with Mr Lamys proposals to exclude India and China in particular from the duty-free benefits of the EUs generalised system of preferences (GSP). The revised GSP scheme will come into effect on January 1, 2006. Bangladesh, meanwhile, enjoys both duty-free and quota-free entry into the EU for its exports under Mr Lamys everything but arms initiative - provided its exporters can meet the stringent rules of origin!

* Textile and clothing exports amounted to nearly 4 billion euro in 2003.

** One euro is currently worth $1.20.