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Quota phase-out: The impact on India

A K Prasad

The quota phase-out from 2005 is an opportunity as well as a threat. Since 1974, world trade in textiles and garments has been governed by the Multi Fibre Agreement. The “ATC” is an agreement to phase out the MFA. Due to MFA, it was relatively easy for developing countries to compete in the global market. With the phasing out of quotas from 2005, in global trade in textile and clothing, the world’s markets would become more accessible to competitive players, while the ones not so competitive are at grave danger of being marginalised, if not completely wiped out. The export market would become more competitive from 2005, and the domestic turf too would be threatened by increased imports as custom tariffs fall. The impact of MFA was clearly observed - clothing exports from Thailand for example increased five-fold between 1980 and 1989. However the shift would have been greater without the continuous restrictions of the MFA. The quota system has also increased global restructuring. Outward processing by successful Asian countries, particularly Korea and Hong Kong, has been partly to advantage of unused quotas or the LDC status of other countries. Quotas often made it difficult to trace the source of finished goods. These include transshipment (making a product in one country, shipping it to another and re-exporting it as a product of the second country), sewing on false “made in” labels or falsifying documents.

In a more open market the relative competitiveness of countries depends mainly on:-

• More volume is required as small players may not reach even the breakeven point.
• For those who produce minimum 4000 garments/day will have profit
• Huge brand owners and volume buyers will decide the price
• Wage costs
• Quality of finished goods, innovation in it
• Supply of fabric, yarn and other materials
• Infrastructure for transport and marketing
• Nearness to markets.

Indian textile industry is already considering/working on following issues as a precautionary measures to get ready for the phase out of MFA in 2005: Innovation in concept, development, supply, process, packaging, logistics, process rationalisation. Interaction of retailer, big stores with the process houses and speciality chemical suppliers. Walmart wants 11 billion sourcing from India i e, 5 per cent whose further break-up is: 53% female garment, 12% kids garment, 35 % male garments.

Walmart is expected to kill all the small brands due to its huge buying capacity. India will have problems if it remains with a low volume producer.

Also we are confident that, India will have a great breakthrough based on the infrastructure of few of our Indian organisations as mentioned below. Today Welspun India is one of the world‘s largest manufacturers and exporters of terry towel. Despite the recessionary conditions in the industry, WIL has reported outstanding results and will maintain this growth in the post-2005 quota regime.

The post-2005 quota regime will help leading Indian manufacturers to have a better access in the international market. As an example, Ashima group is at present exporting products worth Rs 200 crore per annum. With the dismantling of the quota regime, the company expects to export goods worth Rs 1500 crore in the coming years.

Arvind Mills has targeted exports of Rs 750 crore in the coming years. India will get a direct entry into the world market. Exports which were routed through other countries such as Bangladesh, Sri Lanka and Pakistan will now be routed through India.

(The author is vice-president, Clariant India).