Textiles and Clothing (T&C) Industry

INTRODUCTION:

Textiles and Clothing (T&C) industry is one among the important industries and the major source for the trade in the both developed and developing nations. This sector is mainly depended on the skilled as well as unskilled labour with a highly innovative, design development with product quality and many competitive factors involved. To overcome the problems in the trade, an international organization which was developed named General Agreement on Tariffs and Trade (GATT)[1]. From early 1940’s it’s rooted for helping in the developing the trade between the countries and it adopted a Multifibre Arrangement (MFA) in 1974[2], especially as the textiles sector was out of the GATT rules. MFA was initiated for the development of the trade in textile and clothing and gave a chance to the restricted quota system. And it has gone through four refinements until 1994[3], after that the Uruguay-GATT negotiations leads to the end of the MFA by replacing with the Agreement on Textiles and clothing (ATC) in 1995 to eliminate the quota system with the 10 year transitional period.[4]The initiation of ATC is for the integration of GATT 1994 rules to the textile products, various products coverage and some of the implications like Anti-dumping, and rules of origin during the period of ATC to the member nations.[5]

This assignment aims critically evaluating the need of the special arrangements under the rules of WTO and the evaluation of the implications of both MFA and ATC to the member nations and the problems which arose after the phase-out of ATC.

1. ROLE OF GATT AND WTO IN TEXTILE SECTOR:

General Agreement on Tariffs and Trade (GATT) is formed in 1947 to create a platform to negotiate the world trade problems.[6] The main aim of the GATT is to promote the free trade without discrimination, reduction of trade barriers and elimination of all restrictive trade practices such as anti-dumping or counter-vialing duties.[7] Textile sector remained outside the GATT disciplines for many decades and from early 1960’s some of the rules were designed with the negotiations for the trade regulations on textile products.[8] Multilateral trading system under GATT which helps in development of economic, trade benefits and reducing trade barriers.

From the year of 1974, the world trade in textiles and clothing were under the control of Multifibre Arrangement (MFA) by which bilateral agreements or unilateral actions were initiated and the quota system on the exports and imports of the textile and clothing sector between the developed and developing nations were taken place.[9] Mainly the basic principle of GATT i.e. without discrimination which was discussed in the ‘Article 1 of GATT is Most-favoured nation (MFN)[10]’ which was not followed during the period of MFA[11].

After the GATT- Uruguay round meeting in 1994 leads to the initiation of the transitional instrument Agreement on Textiles and Clothing (ATC) were came into force for the demolition of the quotas on the restriction quantities[12].

“Textile and clothing was one among the important and economically gaining sectors in the South Asian Association for Regional Cooperation (SAARC) in terms of its contributions towards the nation’s Gross domestic product (GDP) by creating employment and the development in exports”.[13] Hence it can be said that Textiles and clothing can be eventually linked up with the technology and trade policy, as some of the developing countries like Vietnam, Bangladesh, Honk Kong, Sri lanka and India were experienced a high growth within this sector.[14]

2. Multifibre Arrangement (MFA):

The period after the world war – II was crucial and all the countries were more attentive towards the world economies. Textile and clothing sector is the path of helping some of the countries like Japan, United States and United Kingdom at the early stages of industrialization.[15] Because of its importance to the developing nations the international trade of Textiles and clothing products has been subjected to trade restrictions for many years. Japan and United States negotiated for the Voluntary export restraints (VER) in 1957 to control the quantity of textiles entering the United States markets in order to avoid the market disruption[16]. These Voluntary export restraints are developed outside the principles of GATT which was established in 1947.[17] VER’s are contrary to the principles of GATT which was mentioned in Articles XI[18] and XIII[19] which are against the export and import quotas.[20] Though these VER’s were successful for controlling the textile imports from Japan, but still United States were facing the problem of market disruptions by the exports from other countries like Taiwan, India and Honk Kong which were already in high textile production.[21]Hence these problems with some of these importing countries led to the negotiation of the Short-Term Arrangements (STA’s) under the arrangement of the GATT in 1961[22] and it was followed by a Long-Term Arrangement( LTA’s) on cotton textiles in 1962.[23]These Long-Term Arrangements was chosen to control the market disruption which was signed by 33 countries and was renewed two times for every five years up to 1973.[24] In the year of 1974, the trade in textiles and different types of apparels has been subjected to the international Trade in textiles leads to the formation of Multifibre Arrangement (MFA).[25]

3. IMPLICATIONS OF MULTIFIBRE ARRANGEMENT:

3.1. Exporting countries:

Multifibre Arrangement (MFA) was effective from 1974 to 1994 which was extended for 4 times, and which was taken chance of restricting the trade of bilateral quotas and prices of the Textile and Clothing sector (T&C)[26]. With these issues of the restriction of quotas has a strong impact on the developed and as well as developing countries[27]. Many of the negative and positive approaches were discussed whether about the loss and gain of the Arrangement. According to the argument of Keesing and Wolf is that the economies of the countries like Honk Kong, Korea and Taiwan were affected earliest by the quota restrictions as they have the major share of exports to the developed country markets, have relatively high per captia incomes and wage rates[28].With this issue, it can said that the developing countries would not seek to the termination of Multifibre Arrangement (MFA) because of they should have to face the loss of ‘quota rents’[29].

During the early stages of MFA the major share of the Textile exporting is mainly occupied by the developing countries and it was gradually increased until the final extension of the MFA in the year 1987[30]. J Goto explained that the developing countries occupy the share of 50 percent in the Textile and clothing exports and the 18 percent in manufacturing during the year of 1987.[31]From 1967-87 the exports of Textile and Clothing (T&C) were substantially lower than that of manufacturing exports[32].So, it can be argued that the MFA restrictions are the only cause for the decline of the Textile and clothing exports as the developing countries shift towards the consumer electronics and machinery.[33]Some of the arguments which said that the exporting countries under the free trade system or a global quota system, the new and small suppliers would be squeezed out of the international markets because of the size and higher productivity of the exporters.[34]Textiles and clothing imports from the developing countries are related to the Nontariff barriers (NTB’s), as that the MFA restrictions are imposed only on the low-cost suppliers rather than the industrially developed countries.[35] UNCTAD concluded that the developing countries can increase the export of Textile and clothing to the United States, European community (EC) and Japan by US $15 billion if all the Tariff and Non-tariff barriers were removed.[36]

Because of these discriminatory restrictions by the MFA on the exporting countries, it can be argued that it has a strong impact on forgone export revenue ,quota rents and also the it didn’t gave a chance for the new Textile and Clothing exports to grow into major suppliers.

3.2. Importing Countries:

Under the Multifibre Arrangement (MFA) there is a big impact on the domestic producer in the importing countries, as the quota restrictions may give the chance to sell their products at higher prices.[37] As per the report by Jenkins stating that Canada gained US $240 million during the year of 1979 which is equal to about half the cost to consumers.[38]Hence it can be stated that the quota protection of the Textile and Clothing affects the domestic markets of the importing countries. Goto.J explained that there is loss to the consumers in the price issues and the chance of creating jobs in the importing countries was very low.[39]

Mast Industries, INC., v United States (1987):[40]

Mast industries were exporting the fabric into the United States which was produced in the People Republic of China (P.R.C) in unfinished form and then they were processed in Hong Kong before the products reaching United States. Customs of the United States disagreed with the entry visa for the goods mentioned that the products of P.R.C, claiming the lack of proper visa from which the products of ‘country of origin’. And the Judge Carman noted, during the prior case law of Mast Industries, Inc. v. Regan (1984) ‘the regulation in issue was adopted to provide guidance in the absence of judicial or legislative direction’ on the subject of “country of origin” for textile quota purposes. And Mast challenged the validity of these regulations as, inter alia and opposite to prior case law. US stated that the case, Cardinal Glove Co. v. United States (1982), was considered a threat to the future administration of the trade agreements in the Federal Register[41]. And the outcome of this case is against the Mast Industries with the interpretation of the Cardinal Glove Co. v.

United States, as the dyeing and printing is the major steps involved in the production of textiles and they were held out of the exporting country.

Some of these case laws clearly says that the Multifibre Arrangement were out of the GATT rules as the primary aim of the GATT which was stated in Article 1 of GATT principles i.e. Non-discrimination were missing.

4. Agreement on Textiles and Clothing (ATC):

On January 1, 2005, the role of quantitative restrictions which had been limiting the Textiles and Clothing (T&C) has come to an end with the Uruguay round of negotiations which held in 1994 with the establishment of World Trade Organization (WTO)[42] and initiation of the Agreement on Textiles and Clothing (ATC).[43] MFA was replaced by the World Trade Organization (WTO) Agreement on Textiles and Clothing (ATC), which was setup a 10 year transitional period for the quota phasing out.[44] ‘Agreement on Textiles and Clothing (ATC) is not an extension of the MFA’.[45] Rather, it is a transitory regime between the MFA and the full integration of the Textile and Clothing into the multilateral trading system.[46] The stages of quota elimination were outlined in the Article 2 of Agreement and from then textile sector was fully integrated into the GATT rules, so that there is no scope for the discrimination between the exporters.[47]In order to monitor the implementations of the Agreement, Textile Monitoring Body (TMB) was set up with the panel of 10 members which was outlined in the Article 8 of the ATC.[48] TMB looks after all the functions and the consultations for the bilateral agreement reports between the member nations will be organized[49].

5. IMPLICATIONS OF AGREEMENT ON TEXTILES AND CLOTHING:

Agreement on Textiles and Clothing (ATC) was not effective during the initial stages of the quota elimination as the choice of products which they want to integrate into GATT rules were left to the choice of importing countries according to the Article 2[50] of ATC.[51]According to the Baughman it can be argued that the liberization of items such as dolls, clothes parachutes and seat belts were listed in the initial stages of ATC in USA.[52]So, that the high valuable products were kept on hold for the final stages. USA published the product details which they going to eliminate were listed in the final stage and after that they initiated the protective measures like Transitional Safe-guards, anti-dumping and the rules of origin.[53] During the early stages of ATC the textile trade in the developed countries was occurred from the specific countries through their regional trade agreements like Mexico (NAFTA) and Caribbean basin (CBI) by the United States.[54] According to the report of the 2002 World Bank, says ATC received great expectations from developing countries, especially from which the exports are restricted, and it was even expected that the transition period can create at least 20 million new jobs due to the trade liberization.[55]

5.1. Transitional Safe-guard measures:

According to the Article 6[56] of ATC and under the Article XIX[57] of GATT, members were allowed to use the Transitional safe-guard measures when they observe any serious damages in the importers domestic markets. During the early years of ATC, there is an evidence of abuse of Safe-guard mechanism by the United States and from then it was diverted to the Latin American countries.[58] And some of the cases which involved in the implementation of safe-guard provisions were between the India and United states regarding the measures implemented on the imports of women’s and Girl’s wool coats in 1996. This case reached the DSB for the settlement and the measures were been withdrawn on India by the mutual understanding (DS 32).[59]Case between India and United States regarding the measures implemented on woven woolen shirts and blouses from India. Consultations between both the countries were not successful leading case towards the Appellate Body and advised United States to withdraw the measures on India (DS 33).[60]In December 1998, United States requested for the consultation with Pakistan regarding the importing of combed cotton yarn and they fail to reach the final stage of mutual understanding. After the case was before the Textile monitoring body and after reviewing the case, they were no sources saying that the domestic markets were affected with the exports of Pakistan. United States were failed in demonstrating the affects and TMB advised United States to withdraw the measure Pakistan in June 1999. Even though, united States were still restricting the exports so that the Pakistan approached the Dispute Settlement Body of WTO. And the final conclusion of the panel was in favor of the Pakistan[61]. According to the Kim S, United States is the only abuser of Transitional safe-guard measures on the exporting countries which recorded 8 cases and 3 of them approached the Dispute Settlement Body.[62]Hence, it can be argued that the USA transitional safe-guard measures were violating the Article 2[63] and 6[64] of ATC.

5.2. Anti-Dumping:

The Agreement on implementation of Article 6 of GATT 1994 is said to be the Anti-dumping Agreement.[65] In the early stages of ATC, European commission has been the highest user of anti-dumping provision.[66] There are almost 72 investigations in between 1994-2004 which involved in restricting the exports from developing countries[67]. Case between India and European commission went to settlement to the Dispute settlement Body (DSB), challenging the bed linen from India causing the market disruptions with the prices. And the panel report was in supporting the India stating that the measure was illegal. By that time the export market in India had fallen from $127 million to $91 million during 1998-2002. According to the Oxfam report of 2004 stating that, It result in the 1000 jobless in the southern part of India, where the place of major production of Textiles.[68]

5.3. Rules of Origin:

‘Rules of Origin’ are laws, regulations and the administrative procedure which helps in finding out the origin of the imported products.[69] Some of the cases stating that the exports from different countries has been restricted due to the lack of proper origin place of textiles. During the early stages of ATC these cases were in between the developed countries and it came to developing countries gradually. First case on Rules of Origin was registered between European community and United States in 1997, stating that the European exports were affected by the rules of origin implementation by the United States. Both the countries accepted for the mutual consultation and they mutually agreed for the exports (DS 85).[70] ‘Rules of Origin’ are used as an instrument in protecting the domestic markets in the countries like United States it has been widely used.

6. PROBLEMS AFTER THE PHASE OUT OF ATC:

On January 1, 2005 the quantitative restrictions which had been limiting the trade in Textiles and Clothing (T&C) from the past 40 years has been eliminated. Trade liberization mostly took place in the beginning of 2005, which may helpful in gain of profits in the future.[71]

6.1 Flow of Global trade varies:

According to the statistics of the International Trade given by the WTO says that India and china will almost double their market share after the phase out of ATC and also stated that the china is the single largest exporter of Textiles to the European Union.[72] Turkey occupies the 13 percent market share in textiles before the ATC phase out and china with 12 percent in the European Union[73]. After that china occupies the first place with 12 percent in Textiles and 29 percent in Clothing.[74] Even the market share after in exporting of Textiles and Clothing (T&C) were occupied by china in the United States with 18 percent and 50 percent after the ATC phase out.[75] The list of exporters remained the same but the market share they occupied after the phased out have been changed. Factors which helping in taking the china to the top in Textiles and Clothing (T&C) is because of the low cost wages when compared with the labour costs in other countries and a strong productive capacity in man –made fibers.[76] WTO report of 2006 says that the Textile exports from Asia to Africa, Europe and North America increased by 14percent to 20 percent after the quota expiration. According to the Adhikari, numerous studies told that the re-imposition of quotas even after the quota system phasing out by some developed countries as well as some developing countries on the Textile and Clothing (T&C) on china by accessing the temporary safe guard measures during the accessing to WTO.[77] Some developing countries like Morocco, Dominican Republic, EI Salvador, Guatemala and Honduras which have the market access to the United States with some bilateral trade agreements have recorded the fall of export rate in 2005.[78]

6.2. Human development impacts:

During the period of 2006, small exporters from the Asia- pacific region were highly in deep troubles with the expiry of quotas. It can be argued that the readymade garment manufacturers in Fiji islands were hardly hit and it shows the negative impact on the employment of 6000 workers lost their jobs according to the report of Asian development bank in 2006. [79]Some of the countries like Maldives, Mongolia and Nepal were hardly hit by the quota phasing out as the investments form the foreign investors were decreased and the industries in those countries were closed.[80] According to the Adhikari and Yamamoto the closure of factories in small countries due to problems with supply and as a result thousands of jobs was lost in Fiji, Maldives and Mongolia.[81] Unemployment rates in the small countries were gradually increased especially in Maldives, as the flow of investments was sharply decreased according to the report of Ministry of Planning and National Development. In Bangladesh in the post ATC the working hours were gradually decreased in the Readymade garments industry and the demand was high which were in negative to the workers were the food supplements which they get during the working hours were reduced due to the legalization of the working hours with the pressure from the buyers.[82]

7. CONCLUSION:

The trade in Textile and Clothing (T&C) were being the major source for developing countries in the revenue generating for almost 40 years. Such trade of T&C plays a crucial role in developed and as well as developing countries. GATT rules were provided for the trade and then as the scope of textile sector has been observed and it gave a chance to ‘Multifibre Arrangement (MFA)’. Restriction of the Textile and Clothing (T&C) exports from developing countries were observed for almost 20 years by the way of quota system, and it was completely out of the GATT principles such as ‘Most favored nation (MFN)’. During the period of MFA both the developing as well as the developed countries suffered with the quota system of restrictions. After the Uruguay round of negotiations World Trade organization (WTO) adopted the Agreement on Textiles and Clothing (ATC) to fully integrate the GATT rules and the elimination of the quota system and for the purpose of Trade liberization. ATC was somehow successful as some of the important products were kept on hold until the last stage of elimination. Even though some measures like Transitional Safe guard provisions, Anti-dumping and rules of origin were in force at that time in order to protect the domestic market of importing countries.

During the period of ATC, European community is the highest user of ‘Anti- dumping’ measures, United States were the major user for ‘Safe-guard measures’ and ‘Rules of Origin’ to control the excessive flow of T&C products. After the phasing out of quota system, china became the world leader in T&C exports to different countries occupying the major share of markets. Some developed countries like United States and European community used the Safe guard measures on the China exports and even bilateral agreements have been taken place between china and developed countries. So, the way of discrimination can be seen even after the phase out of quota system with the china issues. With this it can be clearly observed that loopholes in the rules and regulations of the GATT and WTO which gave a chance for many countries to restrict trade of T&C products.

It can be argued that even some countries did well after the quota system elimination but some of the countries suffered a lot and should need to be improved in the human development prospective. WTO must revise all the rules and regulations and should make a path to fair trading system. Developed countries and the international systems should give a chance for the developing and least developed countries to grow in trade without discrimination.

9. BIBLIOGRAPHY:

Official materials:

Adhikari, R., and Y. Yamamoto, “Sewing thoughts: how to realise human development gains in the post-quota world”, (2006) Tracking report (April), UNDP RCC APTII, Colombo.
GATT (General Agreement on Tariffs and Trade).1984, Textiles and Clothing in the World Economy, Geneva, p 68.
India & the WTO, ‘Market access & meaningful integration – key issues for India’, (Aug 1999), Vol.1, No.8, Ministry of commerce (India).
Keesing, D.B., and Martin Wolf, ‘Textile Quotas against Developing countries’, (1980) Thames Essay No.23, London: Trade Policy Research Centre.
Oxfam, “Stitched up: how rich country protectionism in textiles and clothing prevents the poverty alleviation”, Briefing Paper 60(2004).
Training module on Trade and Textiles and clothing; ‘The post – ATC context’, United Nations Conference on Trade and Development (UNCTAD)(2008).

< http://www.unctad.org/en/docs/ditctncd200519_en.pdf > accessed on May 10 2011

UNTCAD (United Nations Commission on Trade and Development, 1986, Protectionism and Structural Adjustment, Geneva: United Nations.

Books:

1. Paul J, ‘International business’, 4th Edition (August 2008)

2.M Sharma, ‘Textile industry of India and Pakistan’, S.B Nangia and A.P.H, (2006, New Delhi)

Journal articles:

Baughman,L., R. Mirus, M. Morkre and D. Spinager, ‘Of tyre cords, ties and tents: window dressing in the ATC’, (1997) vol 20(4), World Economy: p 407-437.
J Goto, ‘The Multifibre arrangement and its effects on developing countries’, (1989) vol 4(2) World Bank Res Obs, p 203-227.
Kim, S.J, ‘Agreement on Textiles and clothing: safeguard actions from 1995 to 2001’, (2002), JIEL, 445.
McClenahan W, ‘The growth of Voluntary Export Restraints and American Foreign Economic Policy’, Business and Economic History, (1991) 2nd Series, vol 20, Business History Conference.
Malaga.J, Mohanty.s, ‘Agreement on textiles and Clothing: Is It a WTO failure’, (2003) vol 4 no1, The Estey centre JILTP, P 75-85.
Susan B. Hester, ‘The impact of international Textile Trade Agreements’, (2007), International Marketing Review, p 31-41.
Heron T, ‘the end of Multifibre arrangement: A development boon for the south’, (2006) vol 18 No1, EJDR.

Websites:

www.imf.org
www.unescap.org
www.wto.org
www.unctad.org