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ITMA birmingham 2003

Textile business: Current scenario and post-MFA changes

Rakesh Mehra

Under the WTO framework, exports of textile and apparel products will be quota-free and will only be based on market considerations namely product attributes, pricing, promotion such as advertising, brand building and other sales promotion techniques, physical distribution - its cost and logistics decisions. Since the 90s, the WTO members have embarked on liberalisation and economic reforms programmes with a view to bring about rapid and substantial economic growth and move towards globalisation of the economy.

In accordance with WTO policies, there have been substantial changes in policies such as reduction in import tariffs, binding of import tariffs, phasing out of quantitative restrictions and pruning of the negative list of imports. The new policies have substantially released restrictions on foreign investment, industrial licensing, foreign exchange controls, etc. The capital market has been opened to foreign investment, banking sector controls have been eased and private investment encouraged. The exporting community of textiles and clothing are continuously putting their effort in assessing the world trade situation beyond the quota regime, when the Multi-Fibre Arrangement (MFA) will be fully integrated into the general WTO rules and regulations. With the present strength and potential of the Indian textile industry, the question that often arises is whether India has a satisfactory world share in the textile and clothing trade. India accounts for about 21 per cent of the world’s spindleage (second largest after China), 58 per cent of the world’s loomage and 15 per cent of the world’s cotton production. India stands 11th amongst the exporting nations of apparel and clothing.

However if we look at countries like Sri Lanka and Bangladesh, their export performance of textile and clothing, especially the apparel and garment exports, is more than satisfactory and impressive if compared to their industry strength. Such performance in garment exports by Sri Lanka and Bangladesh is basically due to the quota-free access given to them by the EU, the US and Canada, whereas India’s export potential is restricted by the imposition of quota from these developed nations.

At present, international trade in textiles and clothing is governed by the quota regime, wherein countries like the EU, US, Canada, etc, have given quotas to different countries for different textiles and clothing products. These quotas are generally based on the historical exports to these countries and bilateral relationships. Hence despite India having a strong manufacturing base and high export potential, it does not have enough quota to these countries. On the export side, the most important development of the quota regime is the planned end of textile quotas, which may provide a safe niche to the Indian textile industry.

WTO, with phasing out the quotas, moves towards globalisation, but the developing countries like India will face new challenges. For instance, doing away with the multi-fibre arrangements in the textile and apparel sector would only benefit those countries who had export potential, but quota restrictions stood in their way. Those countries to whom quotas provided a shield against their low competitive ability would lose out. The message for developing countries is clear. In the new environment they can only go forward through greater competitivenes. In the post quota regime, the Asian majors of textiles like South Korea, Taiwan, Indonesia, Thailand, Hong Kong, etc are expected to reap maximum benefit due to their respective positioning in the textile trade. Countries like India may enjoy very little benefit due to the overall competitiveness. With its entry into the WTO, China, too, is all set to give a very tough competition to India’s textile marketing in the European Union and in USA.

When we talk of competitiveness, we should concentrate more on product quality, service quality with lower cost elements. Quality and cost competitiveness are both required for making room at the international trade scenario especially when the quota regime will be over. The qualitative issues actually have impact on the efficiency in the supply chain and business stability. Thus these are going to gain more prominence once ATC would be integrated into WTO rules and regulations.

If we look at the Indian textile industry, leaving the spinning sector, the weaving and the apparel sectors are lagging behind as far as the updated machinery and technology is concerned. Indian weaving sector is dominated by traditional grey fabrics produced in handlooms and powerlooms. The apparel sector is largely in the small scale sector, as it does not attract big investments. This has resulted in an “orthodox” way of doing business, which implies that we in the apparel trade are not as professional as our counterparts and competitors. To be in the forefront and to be leaders in the textile trade during the quota free regime, the quality and cost part must be considered more seriously. This is because, more market share would move to those countries who can provide quality products at very competitive prices when the whole international market will be “free for all”.

The quality in the textile sector is to be built into the products through quality of designs, quality of processes, quality of human resources, quality of management, quality of leadership and above all quality of strategic response to turbulent external environment despite which businesses are expected to perform the world over. Therefore, to survive in such an environment we need to go for modern technology and should emphasise on the quality of finished products. The government should emphasise and introduce the global quality standards like ISO 9000 and ISO 14000 in the production of textile products.

In the post quota scenario, it will become important that our industry focus more on the production of fine quality processed cloth. A major portion of good quality yarn should be utilised domestically in the organised mills sector for the production of high value-added fabric of better quality. And then later this fabric should be used in the production of garments. As garments provide the highest value-added product among the textile items, maximum focus should be towards the units producing garments. A market-oriented strategy must be introduced to capture a good share of the international market. Product differentiation must also be done through the promotion of brand names and advertising. Infrastructure in terms of communication services, export procedures, appropriately trained manpower, material inputs and transport facilities, as well as stable enforceable contracts with foreign investors are also needed. Otherwise, any increase in the share or the maintenance of the current share in the global market would be difficult.

It is heartening that India currently exports more than 100 garment product categories along with its customary yarn and fabrics. Many of the world’s leading companies like Banana Republic, Tommy Hilfiger, Gap, Liz Claiborne, Polo, etc are already sourcing goods from India. With traditional relationships with the world’s major producers, we hope that our exports would achieve new heights in the post quota regime.

Coming back to the synthetic textiles industry, it is getting stronger and stronger and India’s share in the world trade of synthetic textiles has marginally improved to 3.50 per cent over the previous years. India’s export of synthetic and rayon textiles has been increasing steadily over the past decade and reached an all-time high of Rs 7630 crore during 2002-03. The export growth is more than 29 per cent during 2002-03 as compared to 2001-02 and the Synthetic and Rayon Textiles Export Promotion Council (SRTEPC) is expecting the export growth to continue even in the post-quota regime. Currently, Indian MMF spun and blended fabrics (grey and processed) and blended yarn are exported under quota (Cat. 3, Cat. 3a and Cat. 23) to the European Union. It is worth-mentioning that category 3, 3a and 23 account for only around eight per cent of the total exports of MMF textiles. So in the quota-free regime, India has to compete with rest of the world for this eight per cent of it’s total export, which would not be difficult.

As far as USA is concerned, it is one of the most important markets for Indian textile products. In the textile category, USA is the major buyer of MMF textile items, as the share of MMF textile imports in the total textiles accounted for more than 51 per cent during 2002. The share during January-June 2003 has risen to 52.52 per cent, whereas the share of cotton textiles declined marginally from 37.77 per cent in January-June 2002 to 37.08 per cent in January-June 2003. The share of wool and silk textiles constitutes 7.86 per cent and 2.88 per cent in 2002 and in the current year the same trend is maintained.

Quota is one of the major impediments for Indian MMF textiles to make a big impact in the US market at present. It has been observed that Indian export growth has been impressive for major MMF textile items, which were removed from the quota regime.

When all the products would be integrated into WTO rules and regulations (49 per cent of the products to be integrated in Phase-IV on January 2005), then India’s exports to USA would further increase with a higher market share.

With the phasing out of quotas, the process of tariff and non-tariff negotiations at the WTO is also getting streamlined by January 2005. Under the tariff negotiations of WTO, all the member countries should finalise the bound rates of import tariff. Since earlier the domestic markets were given protection through high tariff rates, the WTO mandate for tariff negotiations now would not allow the imposition of import tariffs beyond a certain limit. It is therefore expected that the non-tariff barriers would be more prominent in the post-quota regime. Thus, though, the new global trading system would reduce the chances of developed countries adopting protection measures unilaterally, they can still use their economic clout to their advantage by imposing non-tariff barriers.

Currently Indian exports are affected by a series of non-tariff barriers also from the developed countries including anti-dumping measures, unilateral rules of origin, disproportionate phasing out of quotas, banning the use of various dyes, etc. As we have already mentioned that the non-tariff barriers would be more prominent even in the WTO regime, the Indian textile industry should be prepared to handle there NTBs properly, so that exports should not be affected much.

With all this anticipation, the government must play a big role. The government should also be fully prepared to give, whatever facilities are necessary, to exporters so that they can counter the challenges posed by the WTO regime. In brief, global competitiveness in terms of quality and cost is the only alternative for survival in the WTO regime i.e. the post MFA era.

(The author is chairman, The Synthetic & Rayon Textiles Export Promotion Council)