Non-quota Barriers Could Hit Textile Exports Post 2004

New Delhi, July 28 | Updated: Jul 29 2004, 06:16am hrs
Sources in the ministry of textiles indicate that quotas on textile trade would surely go on January 1, 2005, as the EU and US have notified the World Trade Organisation (WTO) about this. This lays to rest any speculation about a postponement of this deadline, due to intense lobbying by the textiles sector in developed countries.

However, industry fears that non-quota barriers like preferential and free trade agreements with certain countries that provide for a 10-12 per cent tariff differential along with trans-shipment rules and environmental and social conditionalities could be used to restrict imports.

The US for instance has, besides others, preferential agreements with the Carribean and African countries and a bilateral agreement with Vietnam for textiles on the sensitive list. On the social front, discrimination on the grounds of produce by sweat shops and such like issues could be raised.

The other issue that can be raised is that of subsidies. For instance, government sources indicated that the duty entitlement pass-book (DEPB) scheme may not pass muster at the WTO. It appears that the scheme may need to be scrapped or modified to conform to the guidelines.

The industry, though, is pleased with the governments recent move to abolish the excise duty on textiles and they believe it will help increase investment, especially in the high-value-add processing segment. Their only regret being that the move to create a level playing field comes a little too late for industry to make optimum use of it as the quotas will be abolished in less than six months from now.

The government expects that the recent incentives would lead to an investment of Rs 60,000 crore and would create 1 million job opportunities over the next three years. Industry sources, however, indicate that a Rs 70,000 crore investment over five-to-six years with a similar increase in turnover seems a more realisable expectation. Provided ofcourse that the government does not again tinker with the existing policy.

Thus while the textiles sector may be currently ill-prepared for 2005, the general belief in industry is that the phase-out of quotas will be positive. Growth and investments, though, are likely to start kicking in only by 2006-07.

However, some of the organised players have already initiated investments with the phase-out in mind. Key among these players are: Alok Textiles, Arvind Mills, Ashima Syntex, Nahar Group, Vardhman Group and Welspun.

These companies hope to cash in on the opportunities thrown up by the abolition of quotas. Says SP Oswal, chairman, Vardhman Group,We plan to invest close to Rs 1,000 crore over the next 3-5 years in the spinning, weaving and processing segments. In the current year we intend to spend close to Rs 200 crore on expansion, expected to be completed by October 2005.

The other important point to note is that imports too are likely to rise. As an industry expert points out,The import intensity will increase, but we should not develop an alarmist attitude on the subject.

He cites the growth in China, which is both a large importer and exporter of textiles, as an instance of managing free trade to enhance domestic capabilities.

The only big issue that remains to be addressed and stands in the way of consolidation and growth in the industry today is the existing labour laws, claim industry players. Greater flexibility on this issue could be a big boost for the sector.