D. Murali

A COUPLE of days before Christmas, there was a communiqué from the Central Board of Excise and Customs advising Customs field formations about the end of "the textile quota regime" on January 1.

"From this date, there shall be no requirement of Quota Certificate/ Visa/ Export Certificates from the Apparel Export Promotion Council (AEPC), the Cotton Textile Export Promotion Council (Texprocil) and the Synthetic and Rayon Textile Export Promotion Council (SRTEPC)," reads the Notification. Well, now that textile quota is gone, if you have a nagging question what it was, we need to start from zero base.

It is too simplistic to assume international trade to be a simple question of demand and supply, plus the right price and so on. For, there are regulations and barriers, as in the case of textiles and clothing, at least till recently.

These walls to trade arise essentially out of the importing country's interest to protect its own industry; and one such blockade was the specification of quotas that limited how much could be imported from a certain country.

Though the General Agreement on Tariff and Trade (GATT), at times criticised as the `general agreement to talk and talk', operated for almost half a century in the post-Second World War era, aiming at free trade, textiles were governed by special arrangements outside GATT, for nearly four decades.

These were the Short Term Arrangement Regarding International Trade in Cotton Textiles (STA), the Long Term Arrangement (LTA) and so on.

Then came a biggie, in the form of the Multi-Fibre Arrangement, or the MFA, that ruled the scene for two decades, during when textiles quotas were negotiated bilaterally.

The MFA allowed imposition of selective quantitative restraints, and annual growth rates for quotas.

Each country had its own method of distributing the available quotas among the myriad exporters. Thus, India used different systems of allocations such as Past Performance Entitlement (PPE), First Come First Served Entitlement (FCFS), Manufacturers Exporters' Entitlement (MEE), Non-Quota Entitlement (NQE), Powerloom Exporters' Entitlement (PEE), New Investors' Entitlement (NIE) and so on.

The MFA ended in 1994, and was followed by the Agreement on Textiles and Clothing (ATC), born along with the establishment of the World Trade Organisation (WTO) a decade ago.

The basic aim of the ATC was to secure the removal of restrictions applied by developed countries to imports of textiles and clothing. The ATC ruled the scene for ten years, and terminated a few days ago, performing its due role of dismantling the MFA regime, and integrating textiles into `GATT 1994' in four steps. (GATT 1994 is the new version of the General Agreement, incorporated into the WTO, which governs trade in goods.)

Thus, on January 1, 1995, members were required to integrate no less than 16 per cent of the total volume of 1990 imports.

Three years later, another 17 per cent was to be integrated, followed by 18 per cent in 2002. The balance, a whopping 49 per cent, happened when we were busy saying Happy New Year, a few days ago.

The real impact is more because, as a document on the WTO's site informs, only 20 per cent of the products integrated into WTO rules in the first three phases of the ATC were subject to quotas.

The remaining 80 per cent of quotas eliminated at the end of 2004, consisted of "239 quotas maintained by Canada, 167 quotas maintained by the European Union and 701 quotas maintained by the US."

There is some flexibility, because a member country chooses what products to integrate, but there should be at least one product of each of the four groupings tops and yarns, fabrics, made-ups, and clothing.

The magic of integration into GATT is that any quotas imposed on them will be removed. Don't forget that on textiles battles have been pitched during trade talks.

For many developing countries, the idea of ending the quota system became the carrot to get them around which to discuss issues such as intellectual property, services and investment.

Textiles are important in trade because they account for almost 10 per cent of world manufactured goods exports.

Though estimates vary on the effect of unshackling trade by removing the fetters of quota on the value of trade in textiles, India and China are bullish about the new scheme of things, if the past is any indication.

For instance, Texprocil informs that during January-September 2004, exports to quota countries were $1.21 billion against $1 billion the previous year, achieving an increase of 21 per cent.

China has been the major player in the textile market; it holds a 22 per cent share in fabric exports and almost a third share in garment exports, and is now looking at 50 per cent!

Removal of quotas does not mean `happily ever after' for trading partners, because there can be bickering on new forms of protectionism.

One such move, however, met with a roadblock on New Year's Day when a judge of the US Court of International Trade in New York barred the Bush administration from considering petitions seeking restrictions on imports of clothing and textiles from China.

Shall we say, textile quota is dead, long live... trade!

ZeroBase@TheHindu.co.in

(This article was published in the Business Line print edition dated January 5, 2005)
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