Published: Shanghai Daily, August 16, 2004,

By Pradeep S Mehta

THE demise of the quota system in the Agreement on Textiles and Clothing (ATC) at the end of this year may not be smooth for several reasons.

First, the clamor by many countries and their businesses to extend the quota system and, second, the European’s Union threat of bringing back a social cause may create several obstacles. Thus, the possible gains to textile-competitive countries such as India, Indonesia, the Phillipines, Pakistan and China will be thwarted if any of these moves succeed even partially.

Speaking at the WTO public symposium in Geneva, Switzerland, in May Pascal Lamy, the EU trade commissioner, said “We failed to bring in social issues at Doha and will launch a compaign soon after the end of this year when the quotas under the agreement on textiles and clothing comes to an end.” This is just a tip of the iceberg.

A few months ago, the EU launched a major salvo, which, if implemented, could become a nightmare in the international trade arena. A discussion paper on Collective Preferences was released, which goes far beyond the issue of labor standards. Perhaps to pacify possible reactions, Lamy admitted that the paper was still being discussed, but stressed that countries should have a holistic approach towards trade (just like the EU does). The paper envelops a series of of non-trade concerns such as the environment, gender, forests, industrial and agricultural restructuring and cultural amalgamation. It suggests that international trade will need to harmonized with these concerns.

Being a labor-intensive sector, textiles and clothing are an extremely important industry for developing countries. Exports of textiles and clothing account for 50 to 70 percent of developing countries’ trade.

The EU is not the only one worried about Asia’s bigwigs taking over the textile market. Anxiety over the January 1, 2005, deadlines for the phase-out of textile quotas is strongest among non-Asian producers, who fear the end of quotas will allow major producers, such as China and India, to clutch previously protected markets in the US and the EU.

When China’s accession negotiations were taking place, the last country with which it had to bargain with was Mexico – the latter would have lost a substantial share of its NAFTA- protected markets in the US.

In a new development, 70 textile industry associations in about 34 countries including Turkey, Mexico, and a dozen sub-Saharan African countries, are puttting pressure on their governments to act by signing on to a declaration that calls for an extension of quotas until 2008. China is considered to have an advantage in textiles and clothing due to low wages and Hong Kong’s established financial and marketing expertise.

China being the ‘textile’ super power of the world, along with India and Pakistan, will benefit the most from elimination of quotas. But if the EU keeps clamoring for labor standards to be includedunder WTO, the day is not far off when China’s export may be restricted due to so-called poor labor standards.

The million-dollar question of whether development will lead to better labor standards or the reverse remains unanswered. After all, developing countries are under-developed and thus labor standards are not low, but different and consonance with their levels of development and socio-economic culture.

Labor standards are just one of several non-tarriff barriers that can be put in place to prevent countries, like India and China, to acheive their full potential. Other issues include the environment, anti-dumping, safe-guards and rules of origin. Countries can refuse or restrict 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 mechanism since the acceptance of the Protocol of Entry into the WTO ofn December 10, 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, advise on WTO Textile Issues at the Shanghai WTO Affairs Consultation Centre.

Therefore, it is evident that even if quotas are phased out, rich countries will find unfair ways to prevent nations to maximize their capacity. All said and done, quotas under the ATC are the easiest to deal with whereas coping with non-tarriff barriers would require more time and money.

At the same time, an extension on ATC is difficult since it can only be done with the approval of all WTO members – China and India will never agree to an extension.

At this point it is difficult to say whether the road to elimination of textiles quotas will be smooth or full of roadblocks. But, it will be interesting to see if the US and EU will use their armory to stop the Chinese dragon and the Indian tiger.