Pakissan.com; Textiles and clothing in the WTO regime

Textiles and clothing in the WTO regime
By Muhammad Aslam Shad

For pragmatic policy formulation in the textile and clothing sector, it is important to peep into the trade history of the world, particularly the year 1945.

Textiles and clothing in the WTO regime

As the world had just witnessed mass slaughters, destruction of economic infrastructure and disruption of free flow of trade, it was decided to restructure international political and economic order to avoid such catastrophes in future. As a result, on the trade front, the contracting parties agreed to create GATT in 1947 with the objective to regulate the flow of goods at global level.

The US initially brought about across the board reduction in tariffs and trade barriers, but after seeing how quickly Japan was rehabilitating itself, it started to pressurize GATT into dispensing with its declared objectives of removing of quantitative restrictions and ensuring of non-discriminatory treatment in relation to textiles and clothing which were virtually taken out of its ambit through the 'short-term' (1960) and the 'long-term' cotton arrangements (1962-73) and the subsequent multi-fibre arrangements (MFA) of 1974.

The perpetuation of non-tariff barriers and the erection of quota walls caused much resentment among the developing countries, who started exerting pressure on the rich countries which were not only adamant that the MFA quota regime be kept intact to a great extent, but also that trade in services and intellectual property should be included in the GATT ambit to be traded like goods.

As a compromise, the World Trade Organization (WTO) was created on 1st January 1995 in which both sides were accommodated by including services, intellectual property, agriculture and textile and clothing in its purview.

A ten years' transitional period was provided for phasing out of quotas for textiles and clothing under the new arrangement called Agreement on Textile & Clothing (ATC), which shall extinguish on 31st December 2004.

In spite of the short sighted policies of different governments in the last two decades and the shocks experienced on the economic front, Pakistan's textile and clothing sector has done fairly well, withstanding the quota walls in transacting its business.

Now that the situation is somewhat favourable, it is imperative that the all concerned including the industrial and business community and functionaries of the government, particularly from the CBR and its field formations, must re-orientate their thinking and move towards excellence in quality, pricing, timely delivery, facilitation and research.

In the last few years, the industrial community has taken commendable steps by investing $4 billion in BMR, which has pushed our cloth production by 14 per cent and synthetic fibres by 26 per cent, yielding $7.4 billion in the financial year 2002-03 as compared to $5.9 billion the year before.

As the current trend is for the establishment of air-jet looms units, open-width processing units, and in printing major strength is of 'rotary' screen printing machines, further investment should be made in the import of latest machinery for spinning, weaving, bleaching, dyeing, printing, finishing and knitting etc.

It is a good sign that the export of fabrics, bed wear, knitwear and garments has crossed billion dollars level, and the share of made-up and clothing has gone up to 57 per cent and of yarn and fabric to 43 per cent, much more needs to be done.

The industry must improve production efficiency through increased automation, re-engineering of systems, backward and forward integration of operations, moving up the value chain, strategic collaboration with foreign firms besides enhancing marketing capabilities as quota-free access of Mexico and Caribbean countries to the US market and of Central and Eastern Europe and the Mediterranean Rim, including Turkey to the European Union market, is on its way out.

As these countries will no longer have this competitive advantage, Pakistan can make effective inroads into the US and European Union markets through downward revision of prices and improvement of quality.

All concerned in this line should look into consumer preferences by collaborating with the leading design houses of the US and Europe, invest more in international marketing by establishing sales offices in world centres such as New York, Tokyo and London, and migrate from low-end to high-end products.

They also must assume higher responsibility in the logistics value chain by acquiring technology to ensure timely, error-free delivery of merchandise and start providing warehousing facility to buyers until the goods are needed.

Ways and means have to be devised to bring about horizontal and vertical integration and set up integrated production and supply lines by becoming part of the global value chain.

This includes active participation in regional textile exhibitions like the one that will take place in Dubai from March 20-23, 2005, in which leading manufacturers and decision makers from South Asia, Africa, CIS countries and the Middle East are expected to participate.

(i) Environmental concerns have assumed global proportions. There is genuine awakening in the West that more attention should be paid to check environmental degradation. But there is strong apprehension in the developing countries that this would also be used as a non-traditional trade barrier by the Western world to protect their own non-competitive industries.

Pakistan, therefore, has to move on this count cautiously and ensure that we fulfil all fundamental requirements of the environmental agreements, the agreement on technical barriers to trade, substantially improve quality of our exports and make our policies and implementation mechanism environment-friendly.

The unbridled and unethical use of spurious pesticides, must end. Pakistan should introduce eco-labelling across the board, be prepared to switch over to organic cotton growing and effectively stop the use of hazardous chemicals in the whole range of textiles and clothing.

For us, there is no policy option as 55 per cent of our exports are destined to the US and the EU, which have very high health, safety and environment standards.

(ii) Social issues such as respect for core labour standards, including child labour's minimum age, would continue to be raised.

(iii) Threat to invoke anti-dumping duties: The philosophy behind the anti-dumping law is that it clears the way for normal, healthy international competition by discouraging unfair, market-distorting trade.

The anti-dumping law acts to preserve "a level playing ground" on which domestic and foreign producers can compete on the basis of who makes the best product on the lowest cost - as opposed to the situation in which some foreign producers enjoy an artificial advantage because of government-caused distortions in their home market.

However, the law invariably is invoked, particularly in the US, in a manner that it out rightly tilts more in favour of the local industry and acts as a protectionist measure.

Now this weapon is being employed all over, so much so that in the year 2002, even China initiated 10 anti-dumping investigations on products with import value of $7 billion and another 20 investigations in 2003.

Our exporters must try to strike a balance between the compulsion to reduce prices and the threat of anti-dumping duties, particularly in the changed scenario when the U.S. has refused to repeal the Byrd Amendment (which says that companies that initiate anti-dumping and anti-subsidy complaints should receive the proceeds of any duties that are imposed which indirectly offers American firms cash incentive to clamour for protection) which has been held as illegal by the WTO.

(iv) Rules of Origin is the criterion used to define where a product was made. The Rules of Origin Agreement requires WTO members to ensure that the rules of origin are transparent; that they do not have restricting, distorting or disruptive effects on international trade; they are administered in a consistent, uniform and impartial manner and are based on a positive standard.

The developed countries have quite often flouted this agreement as was recently done by the U.S. which included made-ups with as little as 16 per cent cotton content in the category of cotton products so that the stringent rules of origin could be extended to made-ups to contain the market access of countries such as China, Pakistan, Brazil, Egypt, South Korea, India and Bangladesh. (v) Transparency of Local Laws etc

Pakistan does have a good chance as the opportunity for boosting of exports is knocking at our door but it can be availed only if we move cautiously. There is more awareness but sadly this has not translated into preparedness. And therein lies a danger: that we will repeat our past mistakes.

Our next-door neighbour, India, has embarked on an upward trajectory, propelled by its thriving software and business service industries, which support corporations in the U.S. and other advanced economies.

We, too, should try to steadily integrate our economy in a larger web through trade and investment treaties with powers such as China, Japan, the US, EU and the ASEAN countries. As a long-run strategy, it is equally important that the whole nation be made aware of different facets of the WTO through a systematic campaign.

Courtesy:The DAWN

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