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Count down to post-MFA regime

Rakesh Mehra

In about nine months, the quota regime will come to an end, when the Multi Fibre Agreement (MFA) will be fully integrated into the general WTO rules and regulations. The Indian textile community is fully aware of the challenges and opportunities in the wake of the phasing out of the MFA for the various textile sectors as a majority of the textiles and clothing trade is currently controlled by the quota system. However favourable factors like huge domestic market, cheap labour, cheap and abundant availability of raw materials, strong spinning sector, skill adaptability, facilitating and proactive attitude of the government, etc, should help in converting the challenges into opportunities in the post-quota regime.

Scope to increase market share

As of now, India’s share of world textile and clothing trade is around three per cent. However, if we compare the exports of countries like Sri Lanka and Bangladesh, especially garment exports, it is definitely more impressive than ours in the context of the overall strength of their industries. Such performance in garment exports by Sri Lanka and Bangladesh has been made possible due to the quota free access given to them by EU, US and Canada, whereas India’s exports is restricted by the imposition of quota by these developed nations. Therefore, I am of the view that in the post-quota regime, India would be able to eat into the existing market share of Bangladesh and Sri Lanka. The Asian textile majors like South Korea, Taiwan, Japan, Hong Kong, etc are expected to reap substantial benefit due to their respective positioning in the textile trade. However, the major competition for India will come from China, especially in markets like European Union (EU) and US.

Decisive role of quality and price

Markets forces of supply and demand along with product quality, pricing, brand building, etc would play the decisive role in the post-quota regime. The country which would able to fulfill the buyers expectation in terms of quality and price will benefit the maximum.

The weaving, processing and the apparel sectors of the Indian textile industry still lag behind as far as the modern machinery and technology is concerned. The Indian weaving sector is dominated by traditional grey fabrics produced on handlooms and powerlooms. As we had boxed the garment industry in the small-scale sector for so long, it did not attract big investments. This has resulted in ‘orthodox’ way of doing business, which implies that in the apparel sector, we lack economies of scale and professionalism.

As the cost of production will be a deciding factor in the textile and garment trade in the post-MFA period, cost cutting at all stages is imperative to be in the business. Our power cost is one of the highest in the world and logistic cost has a huge incidence in the total cost due to inadequate infrastructure and delay in shipments arising out of congestion in major ports. Better quality and competitive price can only make India leaders in the textile trade in the quota-free regime. This is because greater market share would go to those countries who can provide the better quality products at more competitive prices when the global textile trade will witness a ‘Free For All’.

The quality in the textile sector is to be built into 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 not expected to perform world over. Therefore, to survive in that environment, India needs to go for modern technology and should emphasise on the quality of finished products. A concerted effort should be made by the industry in partnership with the government to emphasise and introduce the global quality standards like ISO 9000 and ISO 14000 in the production of textile products.

Focus on made-ups

In the post-quota scenario, it is important that our industry focus more on the production of value-added items and made-ups. The developed countries have been outsourcing made-ups from the developing countries and it is likely to go up in future. According to a McKinsey study estimates, by 2010 more than 80 per cent of all made-ups used in the EU and US would be globally outsourced. Therefore, it is the opportune time to strengthen our made-up and garment sector. We are already moving in the right direction in this regard. The work on apparel parks has been initiated in various fabrics manufacturing centres. It is going to be win-win situation for both the apparel manufacturers and the producers of the fabrics. The garment industry requires latest fabrics and this will compel the fabric producers to go in for innovations and introduction of new fabrics in tune with global trends. This will be the start of a new, mutually beneficial relationship and both would benefit from the shared vision.

Growing share of Indian synthetic textiles

Dwelling on the Indian synthetic textiles industry, it is getting stronger and India’s share in the world trade of synthetic textiles has increased to 3 per cent at present. Indian exports of synthetic and rayon textiles which have shown steady growth over the past decade, have touched an all time high of Rs 7812 crore during 2002-03. The growth in exports is more than 30 per cent during 2002-03 as compared to 2001-02 and the council expects the export growth to continue even in the post-quota regime. Currently Indian MMF spun and blended fabrics (grey and processed) and viscose spun yarn are exported under quota (Cat. 3, Cat. 3a and Cat. 23) to the European Union. However, it is worth-mentioning that exports under this category account for only around 8 per cent of the total Indian exports of MMF textiles.

Exports to USA set to increase

As far as the US is concerned, it is one of the most important markets for Indian textile products. The US is a major buyer of MMF textile items as the share of MMF textile import in the total textile import of the US accounted for more than 51 per cent during 2002. The share during January-June 2003 has risen to 52.52 per cent, and it is estimated that by 2004 the share would be more than 55 per cent. In the export of Indian MMF textiles to the US, quota is one of the major impediments that prevents us from making a big impact on the US market at present. It has been observed that India has been able to achieve substantial growth for major MMF textile items, which were removed from the quota regime. This gives an indication that when all the products would be integrated into WTO rules and regulations, India’s export of MMF textiles to the US would further increase. With current Indian exports to the US growing over 90 per cent, I am confident that Indian MMF textiles would capture a much better market share in the US in the post-quota regime.

Non-tariff barriers

With the phasing out of quota, the process of tariff and non-tariff negotiation of WTO is also getting streamlined by January 2005. Under the tariff negotiation 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 negotiation now would not allow to impose the import tariff 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 protectionist measures unilaterally. But still they can use their economic clout to their advantage by imposing non-tariff barriers.

Currently Indian exports of MMF textiles are adversely affected by a series of non-tariff barriers from the developed countries including anti-dumping measures, unilateral rules of origin, disproportionate phasing out of quota, stringent ecological measures etc. As I have already mentioned as the non-tariff barriers are likely to become more prominent in the post-quota regime, the Indian textile industry should be prepared to handle these NTBs properly, so that the growth of our exports are not adversely affected.

Role of the government

With so much at stake, the government must play big role as a facilitator. In brief, global competitiveness in terms of quality and cost is the only alternative for survival in the post-quota regime. The government should provide an enabling policy framework, hassle-free procedures, pro-active and exporter-friendly bureaucracy, world-class infrastructural facilities, conducive labour environment, competitive financing and banking facilities etc, for the exporter so that they can go out and compete on the global stage on a equal footing and with confidence. q

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