WTO and the Indian Textile and Clothing Sector

On ATC under WTO

Before ATC, significant portion of T&C exports from LDCs to DCs was subject to quotas

Major quota imposing countries were US, EU and Canada Quotas were used using MFA provision
ATC called for liberalisation [i.e. removal of quotas] of T&C sector in four stages

 Half of the liberalisation was planned between 1995 and 2005 (in 3 stages) Remaining half was scheduled in 2005 (final phase) Removal of quotas on most restrictive items was back loaded by importing countries until the end of transition period (2005) 80% of the products subject to quotas were integrated in 2005

 Final stage witnessed removal of 701 quotas by US, 167 quotas by EU and 239 quotas by Canada Expected effect on exporting countries: significant positive change in production, job, income and exports related to T&C sector Expected effect on importing countries: positive impact on welfare through reduced consumer prices and increased efficiency following enhanced specialization

India and ATC

As quid pro quo for liberalisation of textile sector by USA and EU under ATC, India agreed to pursue liberalisation of import policies for textiles Liberalisation process began in early 1995 with removal of QRs on many textile products Import licensing on specific products was agreed to be removed in future (early 2000s) Import tariffs were promised to be reduced gradually

Indian T&C Sector Post-ATC

A quota free regime represents an opportunity (as India has been constrained by quotas) as well as a challenge (as there will be increased competition and no guaranteed markets) Indias ability to benefit from quota elimination depend on domestic conditions facing the T&C sector Studies concluded that China and India will be the major beneficiaries of quota elimination How does India fare?

Country-wise Share in World Textiles Exports (%) Country

EU China Hong Kong, China

1980 1990 2000

4.6 3.2 6.9 7.9 36.2 10.3 8.6

2005
33.5 20.2 6.8

2008
32.1 26.1 0.2

USA
Japan India

6.8
9.3 2.4

4.8
5.6 2.1

7
4.5 3.6

6.1
3.4 3.9

5.0
2.9 4.1

Source: International Trade Statistics, WTO (Various Issues)

Country-wise Share in World Clothing Exports (%) Country China EU Hong Kong, China 1980 4 12.3 1990 8.9 14.2 2000 18.2 28.4 12.2 2005 26.9 29.2 9.9 2008 33.2 31.1 0.8

Turkey
Bangaladesh India

0.3
0.0 1.7

3.1
0.6 2.3

3.3
2.6 3

4.3
2.3 3.0

3.8
3.0 3.0

USA

3.1

2.4

4.4

1.8

1.2

Country-wise Share in US Imports of Textiles (%)

Country China EU Canada India Mexico Pakistan Top 5 2000 12 17.4 12.5 7.4 10.2 59.5 2005 26.9 14 9.1 9 7.8 66.9 2008 34.1 12.6 6.6 10.4 7.0 70.7 Country China Mexico

Country-wise Share in US Imports of Clothing (%)

2000 13.2 13.6 7.1 4 3.8 3.1 2005 26.4 8 4.7 4.2 4 2008 34.7 5.2 4.1 5.3 6.7 3.3 41.7 3.2 47.2 4.4 56.2

Hong Kong, China EU Korea, Rep. of India Indonesia Viet Nam Bangaladesh Top 5

Source: International Trade Statistics, WTO (Various Issues)

Note: Figures in italics indicate top 5

Country-wise Share in EU Imports of Textiles (%)

Country-wise Share in EU Imports of Clothing (%)

Country
EU China Turkey

2000
63.1 3.8 3.9

2005
67.5 7.5 5.3

2008
66.7 9.9 5.8

Country
EU China Turkey

2000
38.9 9.4 6.4

2005
44.9 17.9 7.9

2008
47.6 22.4 6.7

India
Pakistan US Top 5

3.7
3 77.4

3.8
2.3 86.4

3.7
2.6 88.8

Hong Kong, China

Tunisia Romania India

5.5
3.1 2.9

3.5 3.4

3.6

Source: International Trade Statistics, WTO (Various Issues)

Bangaladesh
Top 5

2.8
63.4

3.4
77.6

3.9
84.2

Note: Figures in italics indicate top 5

Country-wise Share in Japanese Imports of Textiles (%) Country China EU 2000 2005 2008 41.2 13.9 52.3 12.4 55.8 9.9

Country-wise Share in Japanese Imports of Clothing (%) Country China EU 2000 2005 2008 74.7 7.5 80.9 82.8 7.1 6.2

Indonesia
S. Korea Taipei, Chinese US Top 5 India

6.5
8.1 7 76.9 3.5

6
5.6 5.2 81.5 2.7

5.8
5.1 5.3 81.8 2.5

Viet Nam
S. Korea US Thailand Top 5 India

3
4.8 2.4 92.3 0.7

2.7
1.9 1.3 94 0.6

3.3
0.9 1.2 94.4 0.7

Export and Import of Textiles - Growth (%)

Period 1987-88 to 1994-95 1995-96 to 2004-05 1995-96 to 2007-08 2005-06 to 2007-08 Export 11.79 5.62 7.14 8.45 Import 6.32 16.96 18.07 9.41

1995-96 to 2002-03

4.98

14.22

Source: Instructor's calculation based on Handbook of Statistics of the Indian Economy, 2008-09 (RBI)

India's Exports of Textiles (As % of Total Exports)

28.00 26.00 24.00 22.00 20.00 18.00 16.00 14.00 12.00 10.00 87- 88- 89- 90- 91- 92- 93- 94- 95- 96- 97- 98- 99- 00- 01- 02- 03- 04- 05- 06- 0788 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 24.9 21.7 22.5 23.9 26.2 27.0 24.6 27.0 25.2 25.8 25.8 26.6 26.6 25.3 23.2 22.0 20.0 16.2 15.9 13.7 11.9

2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 8788 8889 8990 9091

India's Imports of Textiles (As % of Total Imports)

9192

9293

9394

9495

9596

9697

9798

9899

9900

0001

0102

0203

0304

0405

0506

0607

0708

0.84 0.95 0.96 0.58 0.71 0.68 0.98 1.15 0.98 0.92 0.98 1.08 1.08 1.18 1.45 1.58 1.61 1.41 1.37 1.16 0.98

Production of Textile Products (Growth %) Cotton cloth 1990-91 to 94-95 1995-96 to 99-00 2000-01 to 04-05 2005-06 to 08-09 3.54 -0.91 0.01 3.94 Mixed/blended cloth 10.20 9.23 -1.39 2.16 Man-made fibre fabrics 11.68 6.89 3.59 Spun yarn 5.45 4.12 0.24 1.37

Source: Instructor's Calculation based on Economic Survey (Various Issues)

Constraints Facing Indian T&C Sector Indias T&C sector has been dominated by small producers and hence is fragmented

Delivery times from India are longer than from other comparative countries Indias exports in T&C have been characterized as low technology intensive compared with many other competitors

 While labor costs in India are one of the lowest in the world, this is offset by low labor productivity Poor quality (or perceptions about poor quality)
RTAs signed by US & EU Fall in the prices Absence of labour market flexibility Absence of an effective exit policy

 Low economies of scale Administrative/ bureaucratic hurdles (such as delays at customs and other red tape)

Strategy to Overcome the Constraints

(i) Technological development (ii) Minimize lead times (iii) Focus on quality (iv) Focus on manmade fibers (v) Improve cotton yield (vi) Develop services related expertise (vii) Focus on technical textiles segment

Indias Comparative Advantage

World's Leading Exporters of Agricultural Products - Top 5 (Share in world exports)

Country
EU USA Canada Brazil China

1980
17 5 3.4 1.5

1990
14.3 5.4 2.4 2.4

2000
41.7 12.9 6.3 2.8 3

2007
43.3 10.1 4.3 4.3 3.4

Russia (8th Rank)

India (13th Rank)

0.8

1.4
1.1

2.1
1.4

Source: International Trade Statistics, WTO

World's Leading Exporters of Manufactures - Top 5

Country EU China 1980 0.8 (Share in world exports) 1990 2000 2007 1.9 42.8 4.7 44.7 11.9

USA
Japan Hong Kong, China India (Ranked 14) Brazil* Russia* * - Ranked above 15

13
11.2 1.6 0.5 -

12.1
11.5 3.2 0.5 0.67 -

13.8
9.6 4.1 0.7 0.67 0.53

9.6
6.7 3.5 1 0.80 0.73

Exports of Commercial Services (Share in World Exports) Country India China Brazil 1997 0.68 1.87 0.42 2000 1.08 2.04 0.61 2005 2.24 2.99 0.58 2007 2.73 3.70 0.69

Europe USA
Japan Canada

48.43 17.82
5.32 2.35

48.25 18.81
4.70 2.66

51.75 14.62
4.13 2.18

51.75 13.86
3.86 1.87

Source: International Trade Statistics, WTO

Leading Exports of Commercial Services* (Growth 2000-2007)

* - Includes Transportation services; Travel; Construction; Royalties & licence fees; Business, professional & technical services; Audiovisual services; and Other commercial services

Source: International Trade Statistics, 2008 (WTO)

Exports of Individual Commercial Services - 2006

(Share in Top 15 Economies) Country Comm Tel Constru Insurance Financial Computer & Information Computer Royalties & licence fees Personal, cultural & recreational

India

3.7

2.4

0.7

1.9

17.8

20.7

0.7

China
Brazil Russia Europe USA Japan

1.2
1.4
62.7 11.1 -

1.6
65.5 13.6 -

5.1
5.6
53 10 16.5

1
0.6 0.7
53.6 16.2 2.7

0.4 0.3
58.6 20.8 3

2.5
0.5
58.3 8.4 0.8

0.6
59.5 6.1 -

0.1
0.2
33.4 41.8 13.5

0.7
43.7 34.2 -

Canada

3.9

0.9

3.4

3.5

2.2

7.1