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Some observers anticipate that by 2005-06, major textile and clothing buyers will reduce by half the number of countries they source from.
The biggest challenge for exporters is to remain an important source for these buyers. |
The textile and clothing industries are important industrial sectors for Pakistan and to a large number of developing countries. The WTO Agreement on Textiles and Clothing, which replaced the MFA during the transitory phase (1st January, 1995 to 31st December, 2004) also became ineffective w.e.f. 1st January, 2005. Textile and clothing are now treated like other goods under the GATT/WTO framework.
With effect from 1 January 2005 no WTO member country can maintain restrictions on imports of textiles, unless it can justify them under the provisions of Article XIX of the GATT as interpreted by the WTO Agreement on Safeguards to be applied to imports from all sources, and not on a discriminatory basis to imports from one or two countries as was the case with restrictions under MFA and ATC.
The international trade in textile and clothing is undergoing substantial and fundamental changes. In quota free regime tariffs and trade remedy laws will be the measure and control to market access. As such only tariffs would remain as a market entry mechanism. A shift in market fundamentals will considerably affect exports from many developing countries and economies in transition, where national incomes depend to a large extent on exporting garments.
Countries which were competitively and effectively utilizing quota restrictions will determine whether the removal of these restrictions will be advantageous to them in the long run. Countries whose industries have improved their competitive edge by adopting up-to-date technology may benefit fully from this removal. Other exporting countries, particularly those which were not able to utilize their allocation of full quotas, may draw only marginal benefits unless they immediately take steps to assist their industries to become more competitive.
Textile industries need to modernize their technology, rationalize production methods, and carry out market research to identify the textile products in which they can compete effectively in international markets on the basis of quality and price.
In the past Pakistan had mostly concentrated on markets in developed countries.
A number of developing countries have unilaterally reduced the high tariffs that they previously applied to imports of textile products under the Uruguay Round. As such a vast market now exists for increased trade with these developing countries as well. In adopting programmes and strategies for export development in the post-ATC scenario, the potential that now exists for increased trade with other developing countries should also be adequately taken into account.
It would be difficult to speculate the future of the respective stakeholders and predict a precise picture and assessment of the global textiles and clothing market in the quota free regime. There are a number of parameters and indicators for the potential winners and losers of the quota free regime. Countries which were fully using their quotas in the years preceding 2005 will probably increase their exports in the quota free system. Countries which were not able to full fill their quotas are unlikely to benefit from the regime. China greatly increased its exports to the US market, in some cases up to several hundred per cent. While other countries increased exports in some categories, only China did so across the board.
Major international buyers are unlikely to source from a country where only a few companies serve the world market. Some developing country garment manufacturers are of the view that the United States and the EU might reintroduce quotas on China’s textile and clothing exports, a move that is possible under China’s WTO accession protocol.
Trade will no longer be regulated by quantitative restrictions and, as a result, there will be a large and growing market waiting to be conquered. Europe and America will remain the most important garment markets, attracting two-thirds of the world clothing imports. In the quota free regime many smaller countries will lose guaranteed markets. Studies by the US Department of Commerce in its report to the Congress showed that major buyers will reduce the number of countries they source from by half in 2005-06 and by another third by 2010. The challenge is to remain an important source for garment buyers.
The oversupplied and liberalized market is expected to result in a continuous fall of prices and is likely to adversely effect the developing countries’ trade terms. There is likely to be a rise in antidumping and countervailing duty cases, which will pose a real threat to successful developing country exporters. The use of antidumping measures could sharply reduce the benefits of liberalization as they are non-transparent and unpredictable. The developing countries are expressing the fear that US and EU industry lobbyists are advocating for liberal use of anti-dumping duties against the imports from developing countries. As they are of the view that many products are simply dumped on the market. The International Textiles and Clothing Bureau’s web site (http://www.itcb.org) has the case studies on how antidumping cases have affected developing countries’ textiles and garment exports.
Moreover, the textile and clothing manufacturers will be subjected to random checks by customs officials, to check and control trans-shipment activities. There is also a widespread concern about child labour in the market. Western non- governmental organizations, media and labour unions are emphasizing this aspect. Textile and garment manufacturers from developing countries will also increasingly be confronted with the need to adapt to eco-labeling requirements.
Pakistan’s textile industry needs to professionally and tactfully prepare for the new market mechanism as it is possible that the changes in the textile and clothing sectors will bring more risks and challenges than new opportunities, particularly for smaller exporters. Comprehensive preparation is a must to manage these challenges and take action to secure existing and additional markets. The industry should closely interact with the government to develop a strategic and effective policy in this regard. A collective monitoring of international trade in textiles and clothing is also necessary for the exporters to continue as an interesting source for international buyers.
Enterprises need to develop a mechanism to compare performance with the competitors in other countries. One of the impediments of the quota regime was that many manufacturers had no comparison with competitors. Many companies especially SMEs in developing countries lack a clear understanding of their ability to compete successfully in a quota-free regime.
Investment in human capital and machinery can increase productivity and lead to reduced costs and prices. Training institutions and schemes, which exist in many textile and clothing producing developing countries, need to enhance their training capacities to improve workmanship.
The industry should focus and target niche markets more than the crowded and mass markets with value-added products. This can be achieved by developing design and fashion skills. Export Promotion Bureau can play a vital role in assisting the textile and clothing industry in achieving greater market access and in overcoming the structural changes in the market mechanism, resolving issues like generalized system of preferences, encouraging and facilitating the industry to produce competitively and qualitatively high value added products.
