Opinion - Editorials

Adjusting to the new textile order

It is just over a year since the quotas under the Multi-fibre Agreement of 1974 were done away with. Countries with a strong tradition in textiles such as India and China, constrained by the discriminatory trade agreement, were unable to export to their full potential to important, but quota-restricted markets of Western Europe, Canada and the United States. Their quota regime favoured some less developed countries, such as Bangladesh, Sri Lanka and Mauritius. Under the 1995 Agreement on Textiles and Clothing (ATC) entered into by all members of the WTO, the developed countries committed themselves to phasing out quotas in three stages over a 10-year period. Thus from the beginning of 2005, the WTO rules are applied to the textile trade as well. Less developed countries, who made a last minute bid in late 2004 to save the quota regime, also fell in line. A freer trade in textiles was expected to benefit developing and developed countries alike: countries such as India and China through greater and easier access to the developed markets, and the industrialised ones through lower consumer prices. However, those countries that were overly protected were expected to undergo a painful process of adjustment.

One year on, despite all countries having been put on notice, the scenario has not worked out quite that way. Contrary to the pessimistic forecast, less developed countries have not fared badly at all, with some of them such as Bangladesh and Cambodia posting significant gains in their trade with the U.S. The expected winners, China and India have done well, with the preliminary data from the two countries placing the former far ahead. China's already booming textile exports received a further boost in the new regime. Exports to the U.S. alone grew by 48 per cent during the first 10 months of the year. India's performance too has been creditable in one way. Textile exports to the U.S. went up by 23 per cent till October. However, the performance in many other markets has been uneven. According to official data, India's textile exports actually fell by 0.6 per cent during April-September 2005. Although the data are tentative, a few broad conclusions are possible. Indian textile exporters have apparently concentrated their efforts on the recently opened markets such as the U.S., possibly neglecting what were previously non-quota countries. There could be many explanations for this. The inability of the largely fragmented Indian textile industry to scale up, despite the abundant notice given, is one factor. Low degree of mechanisation, obsolete technology, and paucity of capital are the other causes. Compared with China's, the Indian textile industry has not enjoyed the benefits of large-scale production. In the coming years, the country's known strengths — a relatively inexpensive and skilled workforce, abundant supply of quality raw material, and design expertise — can be expected to bear fruit.

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