Trans-Pacific-Partnership (TPP) agreement may shrink India's textile exports of around USD 40 billion over the medium-term, India Ratings and Research (Ind-Ra) today said.
Trans-Pacific-Partnership (TPP) agreement may shrink India’s textile exports of around USD 40 billion over the medium-term, India Ratings and Research (Ind-Ra) today said.
The US, Japan and 10 other Pacific-Rim nations recently reached a final agreement on the largest regional trade accord in history dubbed as the Trans-Pacific Partnership (TPP) deal.
“The key nations out of the 12 countries which India exports textile and apparels to are US, Japan and Canada. The value of India’s textile and apparel exports to these three countries stood at USD 11.5 billion in FY15 which is likely to reduce due to the TPP,” Ind-Ra said.
The TPP-member nations led by the US account for 40 per cent of world trade and the deal gives them duty free access to each other, thereby making imports from other countries uncompetitive.
However, the lack of TPP members’ backward integration into yarn and fabric will constrain members from taking full benefit and hence limit the negative impact in the short-term. The impact will depend upon how fast these countries are able to set up captive capacities, Ind-Ra said.
This may lead to an overall pricing pressure which will weigh down the garmenters’ margins. Ind-Ra maintains an overall stable outlook for the country’s textiles sector.
India exported USD 41.4 billion of textiles (including raw cotton) out of which USD 18 billion was apparels in FY15.
US is a key destination for textile and apparel exports, and US import duties range between 15 to 50 per cent, depending upon woven or knit textile, or type of raw material used, which can lead to loss of export sales for India, especially detrimental to companies which are exporting majorly to the US, Ind-Ra said, adding that companies with superior geographic diversification are better placed.
Amongst Asian peers, Vietnam would be a key beneficiary of the TPP, while India, China, and Bangladesh would be negatively impacted.
Vietnam is the second-largest garment exporter in the world with garment exports worth USD 24 billion in 2014 and would thus be able to increase its textiles export market share strongly to TPP countries by being able to sell at zero duty.
However, India has in edge in value added garmenting, which should remain partly insulated due to the lack of readily available similar capabilities in TPP countries. China which houses 40 per cent of global apparel capacity (USD 165 billion exports) is not a part of TPP, which is a breather for India.
Also, amongst TPP countries, Vietnam is the only key manufacturer of garments, hence capacity to serve the entire demand will be limited.