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Topic:    GATT, MFA & WTO in Textile – India’s Perspective 
Author: S. Dasgupta
Date:    30th Sept 2005
Archive
6th May 2005
3rd March 2005

Background & Genesis of WTO Regime
 

In the post World War II era, different countries started having bilateral trade agreements. In the late fifties, dialogue started between the countries to evolve a general agreement on trade and tariff involving many countries for governing the international textile trade on sound footing. The initiative, however, as was felt from the developed nation to put control and restrictions on the trade inflow from the developing countries in the name of free trade. Around 1961, some regulatory mechanisms started getting evolved in the general name GATT. The mechanism of governance started through Short-term agreements (STA) in April 1961 followed by Long Term Arrangement (LTA) in February 1962.
 

During that period, some South Asian Countries like Korea, Taiwan, and Hong Kong started concentrating on Textile Exports made of man made fibers. Developed countries mainly USA started imposing restrictions on Textile Import from such countries. This led to birth of Multi Fiber Agreement (MFA). In 1982 for 4 years ending July 1986. The MFA- III was negotiated in an atmosphere of increasing concern among developing countries as to the undesirable impact on their exports in the past. Thus it was decided that safeguard measures would be evolved by the importers only if there was a market disruption or risk there of due to imports.

Then came MFA- IV and this was characterized by features like discrimination, low price imports and market disruption, market imperfection, unsatisfied consumer burden, restriction intensifier etc.

The developing countries were in general in favor of more or less quicker abolition of restrictions on their textile and clothing exports.

After series of discussions, the agreement on Textile and Clothing provided a legal frame work for the phasing out of MFA, leading to the integration of the textile sector in to the integration of the textile sector in to GATT at the end of 10 years transition period beginning from 1995. All World Trade Organization (WTO) members will have to phase out their existing restrictions during the specified 10 years period from the date of the new agreement. i.e. 1995.

With the phasing out of the MFA – IV beginning from January 1995, during 1993-94, a multilateral trading system was evolved through the Uruguay round and Marrakesh Agreement. The final act was signed on 15.04.1994, which decided to start the World Trade Organization (WTO) in January 1993. 100 representatives from different countries sign the final act.

Thus, from 1st January 2005, according to terms of agreement, there will be no restriction and tariff in International Textile Trade among the various countries and blocks. These regimes have been popularly known as WTO regime.

The overall textile sector can be grouped in following sub sector

Fiber Production – Natural / Agricultural & Manmade / Chemical
Yarn Production – Cotton Yarn, Blend Yarn & Non-cotton Yarn. Also the Yarn can be classified as span and Filament Yarn
Fabric Production – Woven & Knit / Non-woven/ Industrial Fabrics
Made up Textile / Apparel Production Sub Sector

Over the years since independence, India has elegated its position from raw cotton supplier to the developed countries graduated to Yarn manufacturing and now poised for emerging as a major prayer in all position with the value chain activities including apparel sector in the present day World scenario.

Strength of India in Textile sector may be listed as below:


Large pool of Technical Manpower backed by Premiere Institutes like IITs and others.
Relatively inexpensive, skilled workforce abundant in supply.
No. of design expertise backed by Institutes like NIFD, NIFT etc having strong present in ethnic values and exclusiveness.
World’s largest producers of yarn and fabrics
Wide range of apparel: considered a competitive source for home textile
Large, stabilized, growing domestic market
More or less friendly Business Climate
Opportunity to grow in commodity segment through cost competitive manufacturing structure & with cost competitive manufacturing, Indian companies well placed to cater to domestic & Asian demands.
Presence of all levels of technology from hand crafted to latest state-of art sophisticated technology.
Quicker adoptability.

The Weaknesses can be summed up as under:

Cotton, still a major fiber in the textile production activities, which is still dependent on nature
Technology gaps still persists in the value chain activity from Fabric to Garment
Uncertainty in maintaining on time bulk supply in the international market of the value added items by un-organized / decentralized sector
Possible disruption of the domestic market through likely Import of low price value added textile items
Organizational constrained and past legacy including multiparty democratic set up standing in the way for taking pragmatic economic decision in right time in various socio political compulsions

However, Indian Textile in a strength exceeds the aforesaid weaknesses, which are all of controllable in nature and can be converted into challenges leading to steady growth of all segment of textile industry.

India’s position in World Textile Economy:

Spinning- spindles (cotton system) 1st
Spinning- spindles (cotton and wool) 2nd
Weaving- shuttle looms 1st
Weaving- handlooms 1st
Raw cotton production 3rd
Cellulosic fiber/ Yarn production 2nd
Silk production 2nd
Jute production 1st
Span Yarn and Fabric production 2nd
World Trade Related to Textile & Clothing Exports (2002) 7th

The recent research in the field of textile has found new application area. The expansion of the demand base has positive impact for this sector.

In the present day the world “Technical Textile” is also very familiar which defines as textile materials and products used primarily for their technical performance and functional properties rather than their aesthetics or decorative characteristics. Statistics indicate that the volume of business in Technical Textile Sector by 2010 will be around 23774,000 tons valuing US$127288 Million. Depending on the technical textile products are grouped into 12 sectors namely:
 

  Agrotech Buildtech Clothtech Geotech
  Home tech Indutech Meditech Mobiltech
  Oekotech Packtech Protech Sporttech

Comparatively, India is latecomer in this vast sector. However, having the strong knowledge base in the research area and with the active partnership approach among Industry & Research Institute in a meaningful way., it would not be difficult to penetrative into this growing segment of textile in the world trade, which will be less competitive in nature since smaller developing countries will find it difficult to enter into this techno-savvy textile segments with their relatively inadequate knowledge base. The superiority of Indian knowledge workers in an well established fact and do not need any validation.

On the expiry of MFA from 1st January 2005, India’s prospect in the world textile trade will continue to at a faster pace during the 1st 10 years of operation of WTO regime and ten stabilize at an optimum level. USA observation in their research report prepared by US International Trade Commission (January 2004) on “Textile & Apparel: Assessment of the Competitiveness of Certain Foreign Suppliers to US Market” is worth mentioning here:

…………….”India is regarded a major alternative source to China once quotas are removed for apparel and made-up textile products. Retailers and apparel suppliers acknowledged that India is likely to remain competitive after quota removal because of its large, relatively low cost labor force, a large domestic supply of fabric and the industry’s ability to manufacture a wide range of products. Retailers described Indian firms as innovative, particularly in design function. Poor infrastructure and an inefficient bureaucracy were cited as concerns, but not as factors that will necessarily determine investment and sourcing decisions. Pakistan provides a more limited range of products that India, but is considered a competitive supplier of cotton goods, particularly men’s apparel, home textile products and fabrics”……………..

Large domestic market stand as a strong cushion against the vagaries of the international market uncertainties due to various extraneous factors not related to trade and commerce. Traditionally India has focus on natural fiber, which is in abundant supply. This is continuing from pre-independence period. The perception of the people favors use of natural fiber not only for health consideration but also for socio-economic factors. This perception has crossed the national boundary and the demand for natural fiber has comfort material in increasing everyday as a choice of the richer section of the society and there lies the inherent strength of the India’s Textile Sector.

However, India needs a cautious approach and enter in the world trade without any complacency on their predominant position. The initial resistance to overcome by softening approach and tactics to prevent non-trade barriers by the developed counties. They should not have the role play of a dominant partner but take others as partner in progress and maintain the elevated position.


INDIA’S POSITION IN WORLD TEXTILE ECONOMY
( SUMMARIZED VERSION )

 

 

Unit

World

India

India as % of World

India’s Ranking

1st Rank Country

Installed Capacity

A. Spinning - 2002

Spindles (Cotton System)

Mn. No

159.05

38.64

24.29

1

India

Spindles (Wool)

Mn. No

15.76

1.04

6.60

3

China

Spindles (Cotton & Wool)

Mn. No

174.81

39.68

22.70

2

China

Rotors

Mn. No

8.29

0.46

5.55

5

Russia

 

B. Weaving – 20020.46

Shuttle Looms

Mn. No

4.00

1.80

45.00

1

India

Shuttle-less Looms

Mn. No

0.76

0.02

2.63

9

China

Hand Looms

Mn. No

4.60

3.90

84.78

1

India

Total (Weaving)

Mn. No

9.36

5.72

61.11

1

India

 

Production Capacity

Fiber / Yarn

 

 

 

 

 

 

Raw Cotton (2001-02) (Aug-July)

Mn. Kg

21505

2686

12.49

3

China

Cellulosic Fiber / Yarn (2002)

Mn. Kg

2118

286

13.50

2

China

Synthetic Fiber / Yarn (2002)

Mn. Kg

27959

1759

6.29

5

China

Wool (Greasy) (2001-02)

Mn. Kg

2262

51

2.25

8

Australia

Silk (2002)

Mn. Kg

81

15

18.52

2

China

Jute (2001-02)

Mn. Kg

3119

1890

60.60

1

India

Total

Mn. Kg

57044

6687

11.72

 

 

 

Spun – Yarn – 2001

Cotton Yarn (Prel.)

Mn. Kg

20087

2216

11.03

2

China

 

Fabrics – 2001

Cotton fabrics (Prel.)

Mn. Kg

11985

1761

14.69

2

China

 

World Trade

Total Textile & Clothing Exports

Bn. US $

364.4

11.41

3.13

7

China

Source: Compendium of International Textile Statistics 2004, Ministry of Textile, Gol.

Reprint from THOUGHT – A Socio Technical Round Up a quarterly organ of Forum of Scientists, Engineers and Technologists, Volume – IX, Issue – I, April –June 2005.
 

 

 
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