The Hindu Business Line : EU offer of textile quota enhancement — Will riders outweigh benefits for India?

THE latest offer by the European Union to raise its 2004 textile and clothing quota levels by a hefty 30 per cent to India with some conditionality has given rise to differences in perceptions by some segments of domestic industry and trade.

The EU offer of enhancement in quota levels to India was discussed here at an inter-ministerial meeting of the Textiles, Revenue and Commerce Ministries presided over by the Secretary (Textiles), Mr S.B. Mohapatra, with trade and industry representatives here on Monday in two-part meetings.

Sources in the Government told Business Line here that the enhanced quota would also encompass corresponding increase in the use of flexibilities extended by the EU. But, in return, New Delhi would need to bind its tariffs across the board in this sector at a maximum of 20 per cent.

To cushion the tariff cuts, the EU is reported to have assured New Delhi that it would be "open to the idea of excluding certain limited number of tariff lines from the deal and allow maintenance of slightly higher bindings if such tariff lines were not of great economic significance to EU."

Other riders include revision of the specific duties to ensure that they do not exceed the ad valorem equivalent applied to average EU export prices into countries in the region.

The EU also demanded guarantee on non-tariff barriers in the form of no discriminatory additional duty, recognition of EU laboratories for certification and publication of information on these issues and on customs valuation in a user-friendly way.

Officials in Indian mission in Brussels contend that the EU's assessment of a benefit of 500 million euros (Rs 2,800 crore) appears to be specious with the total value of the offer of the EU having additional positive value if account is factored in the form of additional quota accruing due to increase in flexibilities. India's exports of textiles and clothing to EU are roughly some 3.25 billion euros.

The sources said that as per officials in Brussels, there has been a declining trend in India's textile and clothing exports to EU in the last three years, which are now at a level lower than in 2001.

The EU offer would therefore help in stemming the decline and stabilising the trade at a pace necessary for future growth.

This is particularly so from January 1, 2005 when Pakistan would not get any GSP (Generalised System of Preferences) concession for its clothing exports, whereas India would continue to enjoy a reduction of 2.48 per cent in the EU's most favoured nation (MFN) rate of 12.4 per cent. But, there is no GSP concession on textile exports for both Pakistan and India.

In the event of New Delhi acceding to the overture of the EU, the sources said that India could demand that as a part of the bilateral deal the base level of quotas of 2004 should be hammered out as if no carry-forward from 2004 had been utilised in the year 2003 and 30 per cent increase should be effected over such a quota base.

However, a moot issue is "the ability and the readiness of our industry to withstand the binding of the tariffs at the existing applied rates as the EU has asked" and "the concomitant constraints on our negotiating positions in the WTO."

Preliminary reaction from textile trade reveals that the increase in quotas might generate additionality in exports of the order of Rs 2,200 crore. As the EU quotas for 2004 have been overbooked, it would immediately ensure that the quotas are available to service the demand.

This would also impart a head start for making foray into the quota-free regime of EU market, which is expanding, and strongly growing, the sources added.

Set against these advantages, it is surmised that it would be difficult to pass all the stages in next two-three months and as such the EU's concessions would be available only for a short span.

On the contrary, the tariff binding concessions by India would run in perpetuity and to be available to all the countries on MFN basis, which meant free ride for other trading partners. While the impact of duty cut would be borne by the domestic industry, the benefits would accrue mostly to the exporting units.

The Indian Woollen Mills Federation, for instance, said the EU proposal might be accepted with a rejoinder seeking reduction in import tariff for certain items of interest to India such as wool which is entirely dependent on import of raw material and capital goods from Europe.

Alternatively, it said India might agree to reduce bound tariff for cotton-based textiles and clothing products where quota enhancement might yield some swift benefit.

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