Indias Textile Exports May Benefit By Euro 500 Mn

Written by Malcolm Subhan | Updated: May 22 2004, 05:30am hrs
What better asset can India hope for, in an age of rampant globalisation than a prime minister with a Ph.D in economics from Cambridge University and a long practical experience of international economics, as both civil servant and finance minister Hacks can only imagine a close encounter over, say, market access between Man-mohan Singh and Pascal Lamy, the trade supremo of the 25-nation European Union (EU). It will be up to his commerce minister to take on the European Trade Commissioner, as the latter redoubles his efforts to rela-unch the Doha Development round of trade talks before he leaves his present assignment in October for pastures new.

Meanwhile, the new comm-erce minister will have to solve the dilemma of what to do with the offer of a 30 per cent inc-rease in Indias textile quotas, made by Mr Lamy in March. Mr Lamys staff has estimated that Indias textile and clothing exp-orters would benefit this year to the tune of euro 500 million.

A tempting offer, given that Indias textile and clothing ex-ports to the EU are running at about euro 4 billion a year. And it would go some way towards off-setting the drop in exports - estimated at roughly euro 350 million - experienced by India as a result of the concessions Pakistan enjoys under the EUs programme to fight drug trafficking, which is embedded in its generalised system of preferences (GSP) scheme.

A tempting offer, yes - but with a catch to it. India must bind its import duties on textiles and clothing at a maximum rate of 20 per cent. And as this would be done on a most-favoured-nation basis, all WTO members, including the US, would benefit from the tariff reduction - without having to concede anything in return!

This conundrum must be solved by the commerce minister - with the help of some soph-isticated econometric analysis by the PM - in the light of two key developments which take place on January 1, 2005. The first is the loss of GSP benefits for Pakistans clothing exports - but not Indias.

The second is the elimination of all remaining quotas on textile and clothing exports by developing nations under the provisions of the 1994 Agreem-ent on Textiles and Clothing. A number of EU countries, including Spain and Portugal, and the EU textile lobby, Eurocoton, want the quotas extended for a few more years.

And smaller developing countries, like Sri Lanka, would welcome such a move which would be opposed by the large developing countries, notably China and India. Mr Lamy is preparing for the total elimination of quotas and any suggestion that alternatives are under consideration by the EU are strongly denied here.

So the question is: What will happen come January 1, 2005 The evidence points see-mingly in only one direction as far as the EU is concerned. The fact is that in 2001 and 2002, Chinese exports of items liberalised by the EU doubled in value and quadrupled in volu-me. And given that EU imports have remained steady, Chinese gains were at the expense of ot-her countries, including India.

But at what cost to Chinese exporters Their prices, which were higher at the start, fell by some 60 per cent over this two-year period. EU sources here ex-pect prices to fall sharply at the start of next year, given that demand in the EU is stagnant.

Even so, they feel that China has several advantages as it gears up for next years free-for-all, some of them quite unfair. They include dual pricing for raw materials and multi-tier exchange rates, both of which favour Chinese exporters. Also unfair, especially when viewed against the situation in the EU, are Chinese wages, working hours and working conditions.

But EU sources here also point to the roughly euro 5 billion a year that China is currently spending on the import of machinery for its textile and clothing industry. And to the heavy influx of FDI, as a result of which between two-thirds and three-quarters of clothing companies in China are now in the private sector.

The Chinese government cannot discourage foreign inv-estment, given the number of jobs it is creating. On the other hand, with the big European and US distribution chains forcing down prices, there is a suspicion here that many Chinese firms are making losses, even though they are very efficient.

The UK publication, Textile Outlook International, has cast doubts on Chinas ability to maintain the momentum in its textile and clothing exports. In its latest issue, it notes that despite the unprecedented FDI level and imports of new mach-inery, in the weaving sector, for e.g, only 20 per cent of looms are of the shuttleless type.

Moreover, much of the huge increase in Chinese exports has been based largely on cheap, low quality items. These are the very items that attract defensive measures in the importing countries. In this connection it is worth noting the EUs continued refusal to grant China market economy status.

How will Indian exporters fare on the 25-nation EU market after January 1 Accepting the 30 per cent quota increase offered by Mr Lamy will help them build up a strong market presence ahead of that date. Or will it, given stagnant demand in the EU The trade could ask the PM for advice.