Jul 17, 1984
RETURNING TEXTILE AND CLOTHING TRADE TO GATT PRINCIPLES WILL BENEFIT BOTH IMPORTING AND EXPORTING COUNTRIES.
GENEVA, JULY (IFDA/CHAKRAVARTHI RAGHAVAN) – Returning international trade in textiles and clothing to the rules of GATT would benefit both importing and exporting countries, but the impact on industry in the OECD countries is more difficult to predict, according to GATT secretariat.-Currently, international trade in textiles and clothing is governed by the Multifibre Arrangement (MFA), which is a derogation from the GATT rules and principles, and enables imposition of discriminatory quota restrictions on third world exports. In 1982, the GATT Ministers called for a study of this issue on a priority basis, and for an examination of the "modalities for further trade liberalisation in textiles and clothing including the possibilities for bringing about the full application of GATT provisions to this sector of trade".- The issue is to be considered by the GATT Contracting Parties at their annual session in November 1984.- The GATT study underlines that at present the textiles and clothing trade is subject to a variety of restraints and restrictions under the MFA, articles of GATT, and otherwise.- Applying GATT provisions to this trade, it suggests, should imply bringing the trade under the liberal precepts of GATT - change of policies to reduce tariffs to "reasonable" levels, combined with strict observance of conditions for recourse to provisions of GATT, like article XIX (for protective safeguard actions).- These liberalisation measures should amount to an overall reduction in the level of protection of textiles and clothing and gradual elimination or discrimination, and not a search for conventional "legal cover" for existing protection, the study suggests.- It underlines that what happens in the textiles and clothing area would be influenced not only by policies specific to these two industries, but also by general trade policy development in the Industrial and Third World countries.- Should a decision be made to bring trade in textiles and clothing under GATT, it was for governments to decide how the transition could be made and what interim measures would be needed.- The study itself does not outline any transition measures but adds: "the experience with 23 years of 'temporary' measures in the form of the long-term textiles agreement and the MFA suggests that, if there is to be any real change, particular attention would have to be paid to the credibility of the transitional measures".- On the possible effects of bringing this trade under GATT, the study says that in the importing countries prices of clothing would decline or increase less fast.- The share of domestically produced clothing in domestic consumption in importing countries would decline, but the final outcome would depend on the pace of automation and corporate strategies (like decisions to move into high fashion, etc.) in the industrial country clothing industries.- Employment in the clothing industry in the importing countries would also decline faster, as the impact of automation would be reinforced by increased import competition.- Due to increased import demand in the Industrial countries, some increase in Third World production costs might be possible, but this is likely to be small.- This is because relative wage structures are unlikely to change significantly, and the international mobility of capital would reduce the likelihood of capital costs in Third World rising sharply relative to capital costs in the Industrial countries.- However, changes in world level of interest rates could influence the cost of capital, and thus the ability of the Third World to take advantage of opportunities created by trade liberalisation in this sector.- The impact of liberalisation on the textile industry in the Industrial world would be more difficult to predict, and would depend on the extent to which corporate strategies (such as outward processing trade) would be affected by the phasing out of the MFA.- But much more important would be whether Industrial country textile producers are able to increase their sales to the Third World where the expansion in clothing production would occur.- This in turn would depend on their underlying competitive advantage vis-a-vis Third World textile firms, as well as whether there was a reduced reliance on import-substitution policies in a number of Third World countries.- But in general it would not be implausible to assume that more international specialisation in textile production could involve the Industrial countries concentrating on those textiles that could be produced relatively more cheaply in capital-intensive factories, and third world countries specialising in textiles whose production is relatively intensive in low-skilled labour.- Output and employment in activities in which the Industrial countries are internationally competitive would expand more quickly than otherwise, and overall economic growth would accelerate due to efficiency gains from increased international specialisation.- In the exporting countries, there would be a substantial increase in clothing production and exports, at least in the standard items.- There is likely to be a redistribution of clothing production and exports among Third World countries in accordance with relative costs, marketing skills and so forth.- There would be a more competitive exporting marketing structure within each exporting country. New firms wishing to get established in textiles and clothing production would not be restrained by the need to obtain quota licenses.- There may be a terms of trade loss on textiles and clothing trade reflected in a reduction in average unit values of exports of textiles and clothing to the Industrial countries.- But this would be only for firms that currently get quota licenses free of charge. Firms that currently have to purchase licenses would not experience a decline in net prices.- Developments in the textile industry, not only in the importing countries but also in the exporting countries, would depend, among other things, on whether the exporting countries' trade policies would be changed.- To the extent that the exporting countries' clothing firms are forced to purchase inefficiently produced higher-cost fabrics, their ability to compete with innovative Industrial country clothing firms would be reduced or continued to be circumscribed.- There would be a substantial reduction, in the longer-term, in the degree of uncertainty facing potential investors in textiles and clothing production in Third World countries.- There would be an increase in overall imports from the Industrial countries due to higher foreign exchange earnings and higher rates of economic growth in the Third World countries.- This would be a particularly crucial factor at the present time for those exporting Third World countries suffering from severe debt service or balance-of-payments problems.-