Textile Ind Likely To Face Non-quota Barriers Post 05

Mumbai, July 25 | Updated: Jul 26 2004, 05:51am hrs
With just five months to go for the quota regime in textiles to be dismantled, Indias textile industry is gearing up to face the competition and is expecting level playing field from January 2005.

However, the most worrisome fact is whether India will face barriers that would be indirect in nature from other countries that would jeopardise the visible benefits likely to sharpen Indias edge in global textile trade post-quota regime.

There is enough empirical evidence to suggest that India may not be completely safe after the quotas are done away with. It must be recalled that the North American Free Trade Association (NAFTA) treaty allowed Mexico duty-free and quota-free access to the lucrative US market in 1997. As a result, US production shifted to Mexico and as a cascading result, Asian exports to the US shrunk by about one-tenth during that year. Consequently, Indian exports were hurt.

The World Trade Organisation (WTO) textile division delegate at the India Textile Summit organised by the Confederation of Indian Industry in New Delhi early-November 2003, reiterated that member nations were committed to dismantle the quota regime.

However, it should be noted that despite the delegates reiteration, there is mounting pressure within the US, with as many as a 100 congressmen writing to the President to extend quota phase-out for another few years.

The concern is that China could capture a 50 per cent share of US and EU markets within a few years at the cost of local jobs.

The US and EU can levy quota restrictions on China under a special provision, which is exclusive to China until 2008. Given the doubling in Chinese textile exports to US in the past two years, the US recently re-imposed a 7.5 per cent growth limit for import of three products which were removed from quota restrictions - Chinese-made brassieres, dressing gowns and knit fabrics.

Non-tariff barriers such as rules of origin could be imposed which could act as an irritant to Indian exporters. The US has sought removal of export incentives given by India to the exporters. The removal of 50 per cent income-tax rebate on export income and duty-free import of raw material for exports. If these are implemented or accepted by the government, the competitive edge might be blunted to an extent.

However, on the brighter side lower prices are inevitable as quotas currently constitute nearly one-third of garment FOB prices. Moreover, quota removal will result in vendor rationalisation and could lead to sourcing from 8 - 10 countries compared with 40-50 countries currently.

This will encourage economies of scale and drive down prices. Countries such as Taiwan and Korea and small-scale producers in India, who currently enjoy high quota allocation but do not have a significant cost advantage, will lose share. Industry expects the US to extend quotas on China till 2008 to appease one million textile-related workers in the US prior to the elections during the current year. These measures, if imposed, would allow Indian textile exporters to carve a share ahead of Chinese exporters, after quotas are dismantled.