Published: The Financial Express, June 19, 2004,

By Pradeep S Mehta

Yesterday, I wrote about the importance of the textile sector for developing countries as well as European Union’s (EU) threat to launch a campaign on social issues when the quota system comes to an end. However, the EU is not the only one worried about the Asian bigwigs taking over the textile market.

Anxiety over the January 1, 2005, deadline for phase-out of the textile quotas is strongest among non-Asian producers, who fear that the end of the quotas will allow major producers, such as China and India, to clutch their previously protected markets in the US and the EU.

When China’s accession negotiations were going on, the last country with which it had to bargain hard was Mexico, because the latter would have lost a substantial share of its NAFTA-protected markets in the US. Many other countries have also benefited from preferential treatment over and above the quota arrangements through preferential trade concessions with both the US and the EU.

Less developed countries, like Bangladesh, do stand to lose out as far as their garment industry is concerned as they will find it difficult to compete. In the past they had suffered the brunt of labour standards through consumer boycotts in the US. Over 50,000 children were thrown out of their jobs. Thus, labour standards in the WTO will not exactly help LDCs.

In a new development, 70 textile industry associations in about 34 countries, including Turkey, Mexico, and a dozen sub-Saharan African countries, are putting pressure on their governments to act by signing on to a declaration that calls for an extension of the quotas by three years, i.e. 2008. The industry bodies argue that the extension is needed to counter the unfair trading practices of major producers, China in particular. China is considered to have an undue advantage in the field of textile and clothing due to low wages and Hong Kong’s established financial and marketing expertise. China being the ‘textile’ superpower of the world, along with India and Pakistan, will benefit the most from elimination of quotas. But, of course, the way things are heading, if the EU keeps clamouring for labour standards to be included under the WTO, the day is not far when China’s exports may be restricted on the basis of poor labour standards. The million dollar question of whether development will lead to better labour standards or the reverse remains unanswered. After all, developing countries are under-developed and thus labour standards are not low, but different and in consonance with their levels of development and socio-economic culture.

Labour standards is just one of the several non-tariff barriers that can be put in place to prevent countries, like India and China, to achieve their full potential. Other issues are: environment, anti-dumping, safeguards and rules of origin. Countries can refuse or restrict the imports from a particular country based on the claim that the dye used in the production of that cloth is hazardous to the environment or humans.

In the case of China, they have a WTO-plus obligation. “We have committed to a unique mechanism since the acceptance of the Protocol of Entry into the WTO on 10 December, 2001, i.e. product-specific transitional safeguards that leaves discretion to be used by an importing member when there exists a so-called market disruption caused by importation from China. The threshold is much lower than the usual trade remedies under the WTO”, says Li Yueyin, Advisor on WTO Textile Issues at the Shanghai WTO Affairs Consu-ltation Centre, Shanghai.

Therefore, it is evident that even if the quotas are phased out, the rich countries will find unfair ways and means to prevent nations, including China, with a comparative advantage in textile and clothing to maximise their capacity. All said and done, quotas under the ATC are the easiest to deal with whereas coping with non-tariff barriers would require a lot of time and money.

At the same time, an extension on ATC is difficult to come by because that can be done only with the approval of all WTO members, and China and India will never ever agree to an extension. Second, the transition period for the product patenting system under the TRIPs agreement also ends this year. Any likely extension of the textile quotas would mean a ‘delay’ in the TRIPs implementation. That will be as difficult as milking a tigress.

Hence, at this point it is difficult to say whether the road to elimination of textile quotas will be smooth or full of roadblocks, or the US and EU would use their armoury to stop the Chinese dragon or the Indian tiger. But, for the time being, ATC seems to be nearing its demise.