Since January 1, 1995, international textiles and clothing trade has been going through fundamental changes under the 10-year transitional programme of WTO's Agreement on Textiles and Clothing (ATC). Before the agreement took effect, a large portion of textiles and clothing exports from developing countries to the industrial countries was subject to quotas under a special regime outside the normal GATT rules.
Under the agreement, WTO members committed themselves to remove the quotas by January 1, 2005 by integrating the sector fully into GATT rules.
MULTIFIBRE ARRANGEMENT 1974-1994 Up to the end of the Uruguay Round, textile and clothing quotas were negotiated bilaterally and governed by the rules of the Multifibre Arrangement (MFA). This provided for the application of selective quantitative restrictions when surges in imports of particular products caused, or threatened to cause, serious damage to the industry of the importing country.
This was a framework for bilateral agreements or unilateral actions that established quotas limiting imports into countries whose domestic industries were facing serious damage from rapidly increasing imports. On January 1, 1995 it was replaced by the WTO agreement on textiles and clothing which sets out a transitional process for the ultimate removal of these quotas.
WTO AGREEMENT - 1995-2004 The ATC is a transitional instrument, built on the following key elements:
(a) The product coverage, basically encompassing yarns, fabrics, made-up textile products and clothing;
(b) A programme for the progressive integration of these textile and clothing products into GATT 1994 rules;
(c) A liberalisation process to progressively enlarge the existing quotas (until they are removed) by increasing annual growth rates at each stage;
(d) A special safeguard mechanism to deal with new cases of serious damage or threat thereof to domestic producers during the transition period;
(e) Establishment of a textiles monitoring body ("TMB") to supervise the implementation of the agreement and ensure that the rules are faithfully followed.
Since 1995, WTO's Agreement on Textiles and Clothing (ATC) has taken over from the mulltifibre arrangement. By January 1, 2005, the sector was to be fully integrated into normal GATT rules. In particular, the quotas came to an end, and importing countries no longer are able to discriminate between exporters.
Products brought under GATT rules at each of the first three stages must cover the four main types of textiles and clothings: tops and yarns; fabrics; made-up textile products and clothing. Any other restrictions that did not come under the multifibre arrangement and did not conform with regular WTO agreements by 1996 have were made to conform to them or phased out by 2005.
If further cases of damage to the industry arise during the transition, the agreement allows additional restrictions to be imposed temporarily under strict conditions. These "transitional safeguards" are not the same as the safeguard measures normally allowed under GATT because they can be applied on imports from specific exporting countries.
But the importing country has to show that its domestic industry is suffering serious damage or is threatened with serious damage. And it has to show that the damage is the result of two things: increased imports of the product in question from all sources, and a sharp and substantial increase from the specific exporting country.
The safeguard restriction can be implemented either by mutual agreement following consultations, or unilaterally. It is subject to review by the Textiles Monitoring Body.
The agreement envisages special treatment for certain categories of countries - for example, new market entrants, small suppliers, and least-developed countries.
A Textiles Monitoring Body (TMB) supervises the agreement's implementation. It consists of a chairman and 10 members acting in their personal capacity. It monitors actions taken under the agreement to ensure that they are consistent, and it reports to the Council on Trade in Goods which reviews the operation of the agreement before each new step of the integration process.
The Textiles Monitoring Body also deals with disputes under the Agreement on Textiles and Clothing. If they remain unresolved, the disputes can be brought to the WTO's regular Dispute Settlement Body.
In the post-ATC era that started in 2005 there would be threats and opportunities for the textile industry of Pakistan in the international market place. Pakistan is the greatest sufferer from the quota regime as it has the highest percentage of textiles and clothing exports among all developing countries.
Pakistan can, therefore, benefit greatly from the freer trade in textile and clothing and this agreement provides for possibilities of expansion of its quota-bound exports annually by 10 percent. However, Pakistan has not always been able to utilise existing quotas due to the problems in quota administration but there is opportunity for sustained expansion in quota-free exports provided by the Uruguay Round.
Pakistan's export of textile and clothing is marred by another factor, as we are on a lower end of quality and unit prices for almost all textiles and clothing exports. That dichotomy ie almost 71% of total exports and globally at the low end, does not bode well for the future.
With regard to the agreement on textiles and clothings, especially with reference to the dismantling of the quota regime, price competitiveness would not be the only determining factor for commanding a market position in this large global market.
With the abolition of quota, Pakistan will have greater access to the world market, in general, and to the US market, in particular. The new era will give a push to our textile exports of those products, which are limited due to quota constraints. At the moment, many Pakistani exporters are manufacturing and exporting textile products from countries, which have plenty of unutilised quota or countries which are quota-free like Myanmar and Bangladesh.
When the all quota system will disappear, these Pakistanis may come back to the country. However, they may move to countries where they could find tariff advantages.
In this forthcoming scenario, the Pakistan government can provide incentives to these entrepreneurs to move to Pakistan. Under quota-free environment, Pakistan can get benefit in the export of textile raw material also.
IMPLICATIONS As by January, 2005 the quota system has come to an end but the following are the implications for that:
1. The quota system covering about 2,400 specific products or two-thirds of all varieties of clothes, yarns, fabrics and household linen in its current form was introduced in 1974 called the 'Multi-Fibre Arrangement' (MFA). Operationally, it works by dividing textile and clothing products into large groups by basic materials and type of goods.
There are 147 such groups, each including anywhere from ten to several dozen products. Geographically, it extends to 58 countries, ranging from very poor nations to large middle-income countries but developed countries remained out of the ambit of the quota system. Today 130 countries are producing textiles and clothing for export markets comprised of about 30 nations.
2. The net impact will be positive for developing countries as a whole. This is backed by the fact that during the 20 years since the MFA was established the industrialised countries (ICs) lost as much in market share as the listed developing countries (DCs) gained (ICs lost 17.7 percentage points; DCs gained 16.7 percentage points). This shows that a reallocation took place between the listed developed and developing countries.
3. The Uruguay Round finally came into effect in 1995 in Geneva and decided on the integration of the textile and apparel into the mainstream by the removal of all quotas over a 10-year phaseout.
Three stages have been already completed of the total quota elimination. The fourth stage is due on December 31, 2004 where all the popular or 'hot' categories will be phased out.
4. The abolition of quota in textile and clothing is a key victory for efficient exporters of textile and clothing like Pakistan. This country and other major developing countries' exporters have been seeking the abolition of quota for a long time.
The MFA guaranteed a market for a wide range of poorer countries even though they were not competitive. These marginal countries are likely to be squeezed out in the post quota world.
POLICY OPTIONS: Following are some policy options which can play an important role in the quota-free environment.
1. Pakistan is importing different kinds of textile machineries and other spare parts of these machineries .It is a sad fact that Pakistan has no machinery-making capacity worth the name whereas the main competitors of the future, China and India, have huge capacity in the field.
Therefore, the cost of equipment of these two countries will be much less than ours because we are dependent on imports of textile machinery which will certainly put our expansion programme at a disadvantage and will greatly increase our cost of production.
Therefore, the government should invest in the textile sector in order to produce the latest machinery. This will decrease our cost of production and ultimately will increase competitiveness of our exports in the international markets.
2. The Pakistan textile sector is capital-intensive as well as labour-intensive. Labour is the crucial input in the progress of this sector. Unfortunately, the literacy rate in Pakistan is miserable. Due to this factor, the efficiency of workers is not up to the mark. It is universally accepted that if a person is educated, he can deliver more.
It means efficiency of any factory or mill is directly proportional to the education of its workers. The government should start some vocational training programmes in order to train workers to carry out different activities efficiently and quickly.
3. Awareness is another crucial factor for the betterment of any firm or organisation. The government should make such policies to aware the exporters about all the threats and opportunities which they might face in this compelling free trade. Awareness may be through seminars, media or newspapers.
4. Finally, we have to change our basic economic philosophy of revenue-based economic strategy to survive in the post-WTO era. We need to move on to the universally-accepted long-term stable policy based on Productivity Enhancement Strategy.
The availability of raw materials should be ensured at zero rates to promote industrial activity in the country. Also we need to effectively take care of the ever-increasing utility charges and surcharges, which are obviously pushing our cost of production on the higher side, thus making our national products uncompetitive in the international markets? This measure will also ensure development of Small and Medium Industrial sector.
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