7:48 AM May 24, 1995
NO BENEFITS IN TEXTILES FOR SOUTH BEFORE 2001
by Sanjoy Bagchi* Geneva May (TWN) - Developing countries seem unlikely to benefit greatly before year 2001 in the trade in textiles and clothing sector in the WTO, but seem likely to face a proliferation of new restrictions which do not augur well for the smooth integration of this trade into the GATT. The impact of the Uruguay Round in the textile sector on the developing countries would be felt in the implementation of the Agreement on Textiles and Clothing (ATC) and fulfilment of the market access undertakings. Developing countries involved in the textile trade are mostly from Asia, Central America including Caribbean and Latin America. The ATC involves liberalisation of world trade in textiles through integration of textile products into GATT and through growth factors. The integration process requires a specified proportion of textile imports in 1990 to be integrated into GATT. The restrictions both MFA and non-MFA on integrated products will then disappear. The second route of growth factors ensure that MFA restrictions on products awaiting integration will be progressively enlarged by acceleration of growth rates to mitigate the restrictive effects of quotas. The ATC prescribes integration of 16% of total imports in 1990 on first day of its entry into force, another 17% integration after three years and a further 18% after another four years, with the balance of 49% to be integrated immediately after ATC expires. The first stage of integration by MFA restraining countries carried out on 1 Jan. 1995 did not liberalise any MFA restrictions in the EU and the USA. The EU's integration of the first stage liberalised non-MFA restrictions on jute products, benefiting, among others, Bangladesh. Canada's integration liberalised restrictions only on one product accounting for 0.8% of its integrated volume. The 16% in volume integrated in the EU and the United States, in dollar value terms, represents 8% and 5% respectively of imports from developing countries; it covered more trade of developed countries than of the developing world. There is thus no significant liberalisation of MFA restrictions in the first stage of integration and it will hardly have any effect on world trade in textiles. If the trend set in the first stage is carried forward to subsequent stages of integration, MFA restrictions are unlikely to be significantly liberalised before 2001, the seventh year of the transition period. The bulk of liberalisation are most likely to take place in the beginning of the eleventh year, 2005, on the ATC's expiry. The programme for the subsequent (2nd and 3rd) stages of liberalisation published by the US reveal that there will be liberalisation of a few marginal restrictions, mostly of the major exporting countries, at the beginning of the second stage, year 1998. The benefits of integration will depend upon the spread of the restrictions in the developing countries. The major exporting countries are restricted for a much larger number of textile products while the small suppliers are limited to a fewer number which, however, account for a much higher proportion of their total exports. The middle level exporting countries are somewhere in between. The implication of this is that the major exporting countries of East Asia will start reaping the benefits of integration on the periphery of their restrictions from the second stage. The beneficiaries in the third stage would be mostly the large and medium exporting countries. The small suppliers probably will have to wait until the end of the process -- ten years -- before deriving any advantage. The second route of liberalisation is through the application of growth reactors on the growth rates prevailing at the time of coming into force. The prevailing growth rates would be increased by 15% in the first stage, 25% in the second and 27% in the third. The application of growth factors will enlarge the market access for the restrained products awaiting integration. In this, the small suppliers will receive more favourable treatment. In their case, the growth factor of the second stage would be applied in the first stage, i.e. 25% instead of the 16%. Their quotas will grow faster than those of others. The ITCB has estimated that by 2004, the accelerated growth of the quotas would result in their expansion to the extent of 102% in Canada, 64% in the EU and 80% in the United States. This overall expansion however conceals wide differences on account of the differential rates of growth applied to suppliers. The dominant suppliers usually have been accorded a growth rate of 3% percent or less while others generally have a rate of 6% or more. A 3% growth rate would increase to 5.5% by the application of growth factors while a rate of 6% percent will increase to 11%. At the end of the period, the quotas of dominant suppliers like Hong Kong will grow by 20% in the EU and the US while middle level suppliers like Indonesia or Pakistan will grow by 88% and 132% respectively. Compared to that the increases for Sri Lanka and Peru in the EU are of the order of 204% and 104%. In the US, the growth for Bangladesh will be 168%, for Colombia 150%, and for Costa Rica and Jamaica 148%. In taking note of the differential rates of quota expansion, it should be remembered that the quota size of the dominant suppliers are very large while that of the small suppliers are very small. The third aspect of the liberalisation pertains to the tariff reductions in the Round. Tariffs on textiles have always been at a higher level compared to the average for all industrial products. Developed countries have always been reluctant to reduce textile tariffs to the same extent as for other manufactured goods. This was so in the Kennedy and Tokyo Rounds. The Uruguay Round was no exception. The pre-Uruguay Round averages for textile products in the developed countries as a group was 15% compared to 6% for all industrial products. The Uruguay Round will reduce the average to 12% as against 4% for all industrial products. The depth of the cuts is significantly less, being 22% compared to 38% for all industrial products. The reduced average for the textile sector will still be three times higher than the post-Uruguay Round average and double the pre-Uruguay Round average for industrial products. These averages also conceal wide disparities. There are significant escalations in tariffs with the degree of textile processing. The average tariff for clothing, the final product for consumption, at the end of the cuts will be 17% in Canada and the US and 12% in the EU. About 28% of textile imports will still face tariffs of 15% or more after the cuts had been implemented in the developed countries. The enlargement of the EU will have some beneficial impact in the tariff area. Austria and Finland had very high tariffs, particularly in the textile sector. These high tariffs obviated their need to resort to extensive restraints used by other MFA importing countries. These two will now be harmonising their tariffs with the common external tariff of the EU which is at a lower level. This benefit however will be offset by the extension of EU's extremely restrictive system to new members. The relatively high tariffs in the textile sector together with the continuation of the bulk of existing restrictions until the end of the transition period makes this sector the most heavily protected one in the developed countries. Also, the benefits of the tariff reductions for the developing countries are likely to be eroded by the proliferation of preferential arrangements. The EU has arrangements with the countries in transition which would remove tariffs and quotas on their trade exchanges. These countries are competitors of the developing world, and would benefit from the preferential access. It could be argued that the developing countries would continue to benefit from the GSP tariff preferences. However, the GSP has undergone considerable transformation from the original concept. It is now severely circumscribed for the textile sector and do not provide duty free access. The GSP is also being frequently used by the developed countries as a tool for political purposes. Because of these reasons, the GSP would not compensate the developing countries for the disadvantage they face by the new extensions of free trade areas. In terms of market access, the developing countries have made substantial contributions in the textile sector during the Uruguay Round. Almost all of them have made significant reductions of textile tariffs and several of them have also liberalised their import regimes autonomously. Most of the ITCB members and the ASEAN countries have bound 100% or near about of their tariff lines for textile products. It has not been possible to assess the depth of their cuts since their bound rates are sometimes higher than the applied rates. But in some cases the depth of the cuts has been as high as 52% -- compared to the 22% made by the developed countries. The tariff bindings of all the ITCB members together with the ASEAN countries cover 29% of their imports. In the unbound area, 60% of their imports enter duty free. This brings to 95% the total of their imports. The market access negotiations had been a contentious issue up to the close of the Uruguay Round and even thereafter. The major developed countries had insisted on their pound of flesh in return for their so-called liberalisation of the textile sector which would take effect only after 10 years. They refused to take into account the chronic balance of payments difficulties of the developing countries. Indeed, a major developed country has gone to the extent of imposing new restrictions on a developing country facing endemic BOP problems with a view to ensuring fulfilment of that country's market access commitments. It should be remembered that the developed countries had not paid any price to the developing countries when they had instituted the system of textile quotas. The textile markets of several ITCB members are now more open than those of restraining countries. And while the liberalisation commitments of developing countries are being fulfilled from the day WTO was established, those of the restraining countries would only come into effect at best not before another seven years. Apart from the costs in market access, the developing countries were forced to accept further extension in time of discrimination in transitional safeguards. The ATC is meant to dismantle MFA restrictions. The ITCB had, therefore, proposed that while these restrictions are progressively eliminated, the need for new safeguard actions should be met by recourse to global measures under Art. XIX of the GATT. It was consistent with the concept of the sector's integration into the GATT. But the restraining countries had insisted on retraining the discriminatory safeguard system of the MFA. They merely conceded that such actions would be taken in actual situations of serious damage and not for avoiding real risks of market disruption as was provided in the MFA. Thus we are left with a paradoxical situation of new discriminatory restrictions being imposed under the ATC while those under the MFA are being dismantled. This is borne by recent developments. During the short period of the existence of the WTO, the United States has initiated 20 actions to institute new quotas. Some of the recent ones are directed against several small suppliers with minuscule shares in total imports. There is hardly any economic justification for the recent actions and indeed, in some cases, its domestic industry is opposed to the calls. But the US administration's approach appears directed towards piling up new restrictions on top of existing ones. This is in spite of the US having agreed in the ATC to use transitional safeguards sparingly. The EU has taken the opportunity of its enlargement to extend its comprehensive and extremely restrictive textile regime to the new members. In this process, several developing countries which were not restricted in the new members are now heavily restricted. The new members used to restrict a few clothing items from a few suppliers. They were forced to accept the EU's wide ranging quotas from yarn, fabrics, made-ups to practically all the important items of clothing. Among the new entrants into the EU, Sweden had dismantled its quotas in 1991 and has had to accept the regressive situation of a much larger number of restrictions. Japan had never used the MFA. It is now considering the application of transitional safeguards. It would perhaps be used to replace the grey area measures which are required to be phased out. The existing restrictions are unlikely to be removed before the seventh year. On top of it, there is every likelihood of proliferation of new restrictions. This development does not augur well for a smooth integration into GATT for the textile products. The most important challenge facing developing countries in the near future is to ensure that the ATC is properly implemented. It is an instrument for dismantling current restrictions. It should not be allowed to become another protectionist devise. It is probable that the importing countries would probe its frontiers and try to misuse its provisions. The developing countries will have to jealously protect their rights and legitimate interests. They should be ready to use for this purpose the institutional mechanisms, including the dispute settlement procedures, available in the WTO. Another challenge for them is to get ready for increased competition in their external markets as well as in their own domestic one. The quotas will vanish in ten years. There will be supplies coming in duty free from the free trade partners of the importing countries. Every exporting country will have to identify is competitive strength and would need to make structural adjustments to improve efficiency and productivity. It is the only way they can retain their presence in the foreign markets. It would also help them in facing competition in their own markets which have opened or are being opened. The transition period is the proper time to begin this exercise. (Sanjoy Bagchi is the Executive Director of the International Textiles and Clothing Bureau - an alliance of Third World exporting countries)