The Hindu Business Line : Gainers and losers, post-MFA

THE year has ushered in a new beginning in the world trading system with a regime of quota-free trade in textiles and clothing. The textile sector has been subject to various restrictions since 1961; it has finally been integrated into the World Trade Organisation (the successor to GATT) starting January 1, 2005. From 1961-1994, the Multi Fibre Arrangement (MFA) governed this sector.

In 1995, the MFA was integrated into the WTO via the Agreement on Textiles and Clothing (ATC).

Against this background, it is likely that the changed scenario is offering significant export opportunities to the Indian textile industry.

(Binding quotas restricted India and China, especially with regard to clothing though they have the strongest revealed comparative advantage — RCA — in textile and clothing.)

A look at to what extent India will be able to exploit such opportunities.

Table 1 lists some of the items fully opened up for import into the US by 2005. These items are: 338/339 (an additional 75 per cent of the US market to be opened up in 2005 to developing countries), 336/636 (43 per cent of the US market to be opened up in 2005) and 347/348 (70 per cent of the market to be opened up in 2005).

The crucial issue is how has India performed in items under such category codes as 338/339, 336/636 and 347/348.

Table 2 presents India's market shares in each of these items that it exports to the US. As is evident from the Table, the experience is mixed. For instance, in category codes 338 and 339, India has gained in market share in 338, but lost in 339.

Interestingly, even in items like 347, where India has gained in market share, this seems to be the trend among all the Asian countries such as Pakistan (market share rose from 1.6 per cent to 2.1 per cent over the same period) and Bangladesh (increased from 2.1 per cent to 3.5 per cent). The only item where India has done very well is 336.

Interestingly, if the trends are any indication, in the first two months of 2005, a comparative performance of India and China indicates that India has lost market share in categories 347 and 348, though it has gained in 336 and 338.

However, China has been able to gain substantial market share in almost all the categories (there is already a plethora of talks going round of Chinese textile exports flooding the American market and the need to build up safeguard mechanisms accordingly).

Clearly, India needs to perform more consistently in the days to come.

If the trends are any indication, the largest beneficiaries, post-2005, are likely to be China and, possibly, India, while countries such as Mexico may lose out to some extent (for example, in categories like 338, Mexico is losing out on market share in 2005).

The largest losers may be Sub-Saharan Africa and Turkey in the case of EU and countries that are neither near the major importers nor have RCA in these products but had enjoyed quotas till 2004 (Malaysia, for example).

However, one has to recognise that these gains can be realised if the removal of the quotas do, indeed, lead to improved market access and are not replaced by other trade barriers.

India, in particular, has many domestic distortions in these sectors and which, if removed, could lead to further gains.

(The authors are with ICRA and TERI School of Advanced Studies respectively. The views are personal.)

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