K.P. Ravichandar

 

Department of Textile Technology

K.S.Rangasamy College of Technology

ravichandarkp@gmail.com

 

P.Ganesan , S.Hariharan & M.Thirumoorthy

 

Department of Textile Technology

PSG College of Technology

ganeshg007@rediffmail.com & shariharan108@gmail.com

 

Abstract

The textile industry is the largest industry of modern India. It accounts for over 20 percent of industrial production and is closely linked with the agricultural and rural economy. It is the single largest employer in the industrial sector employing about 38 million people. If employment in allied sectors likes ginning, agriculture, pressing, cotton trade, jute, etc. are added then the total employment is estimated at 93 million. The net foreign exchange earnings in this sector are one of the highest and, together with carpet and handicrafts, account for over 37 percent of total export earnings at over US $ 10 billion. Yarn, cloth, fabrics, and other products not made into garments. Alone, account for about 25 percent of Indias total forex earnings.

 

The need of management policies were to develop the economic growth of the country and to create a better working environment for the both workers and the management. In this paper certain management policies like Multi Fiber Agreement (MFA) and Agreement on Textiles and Clothing (ATC) were discussed and some suggestions are given for the future development also.

 

INTRODUCTION

India's trade in textiles and its share in world trade at past can be categorized as follows:


2. PRESENT SCENARIO

After the successful conclusion of the Uruguay Round in 1994, the MFA was replaced by the Agreement on Textiles and Clothing (ATC), which had the same MFA framework in the context of an agreed, ten year phasing out of all quotas by the year 2005. The section that follows takes a brief look at the history of these protectionist regimes as also a more detailed look at the MFA and the ATC.

 

 

3. MULTIFIBRE AGREEMENT (MFA)

 

On January 1st, 1974, the Arrangement Regarding the International Trade in Textiles, otherwise known as the MFA came into force. It superseded all existing arrangements that had been governing trade in cotton textiles since 1961. The MFA sought to achieve the expansion of trade, the reduction of barriers to trade and the progressive liberalisation of world trade in textile products, while at the same time ensuring the orderly and equitable development of this trade and avoidance of disruptive effects in individual markets and on individual lines of production in both importing and exporting countries. Though it was supposed to be a short-term arrangement to enable the adjustment of the industry to a free trade regime, the MFA was extended in 1974, 1982, 1986, 1991, and 1992. Because of the quotas allotted, the MFA resulted in a regular shift of production from quota restricted countries to less restricted ones as soon as the quotas began to cause problems for the traders in importing countries. The first three extensions of the MFA, instead of liberalizing the trade in textiles and clothing, further intensified restrictions on imports, specifically affecting the developing country exporters of the textile and clothing products. Increased usage of several MFA measures tended to further erode the trust which developing countries had originally placed in the MFA.

 

The MFA set the terms and conditions for governing quantitative restrictions on textile and clothing exports of developing countries either through negotiations or bilateral agreements or on a unilateral basis. The bilateral agreements negotiated between importing and exporting countrys contained provisions relating to the products traded but they differed in the details. The restraints under the MFA were often negotiated, or unilaterally imposed at relatively short intervals, practically annually. The quotas could be either by function or fibre. Under the MFA, product coverage was extended to include textiles and clothing made of wool and man-made fibres (MMF), as well as cotton and blends thereof. With regard to applications of safeguard measures, import restrictions could be imposed unilaterally in a situation of actual market disruption in the absence of a mutually agreed situation. However, in situations involving a real risk of market disruption only bilateral restraint agreements were possible. The Textile Surveillance Body (TSB) was set up to monitor disputes regarding actions taken in response to market disruptions.

The MFA permitted certain flexibility in quota restrictions for the exporters so that they could adjust to changing market conditions, export demands and their own capabilities. The MFA also provided for higher quotas and liberal growth for developing countries whose exports were already restrained. The MFA asked the participants to refrain from restraining the trade of small suppliers under normal circumstances. In general, developed countries, under MFA, chose not to impose restrictions on imports from other developed countries. The TSB ensured compliance by all parties to the obligations of bilateral agreements or unilateral agreements. It called for notification of all restrictive measures. A Textiles Committee established as a management body consisting of all member countries was the final arbiter under the MFA and worked as a court of appeal for disputes that could not be resolved under TSB.Unsatisfactory experience with several extension protocols of the MFA, retention clauses, such as good will, exceptional cases, and anti-surge and other trade related factors led the developing countries to press for the inclusion of the textile issue in the agenda of the GATT Ministerial meeting. The eventual outcome of prolonged negotiations was the Agreement on Textiles and Clothing. Agreement on Textiles and Clothing (ATC)The ATC calls for a progressive phasing out of all the MFA restrictions and other discriminatory measures in a period of 10 years. In contrast to the MFA, the ATC is applicable to all members of the WTO.

 

Top 10 Exporters (Textile)

 

 

 

4. Post-MFA / ATC Scenario

It is generally believed that quota phase-out can only be beneficial for the industry. In 1993, a study of seven countries found that the price of cotton yarn per kilo, was cheapest in India at US$ 2.79, compared to US$ 3.30 in Brazil, US$ 4.19 in Japan, and US$ 3.10 in Thailand. This was because overall labour and raw material costs are cheaper in India.

 

However, it should be realised that the opposite can also happen. Removal of quotas may open new frontiers but will also close captive markets. The EU and the US will no longer be restrained in buying as much as they want from the cheapest possible sources. Some argue that the ending of quotas will result in cut-throat competition between developing countries. Coupled with this is erosion in the growth of markets in industrial countries. Apparent consumption of textile products, in real terms, remained stagnant during the decade 1985-95. Purchases become discretionary and fashion-driven. As a result, fashion cycles got shorter and order-cycles compressed. Retailers order requirements on short-order cycle term and demand rapid responses to in-season ordering. Hence, they are compelled to secure their supplies of top-up orders from those in close vicinity.

 

There is, therefore, a propensity towards sourcing from low-cost countries in the neighborhood as also a growth of offshore processing by manufacturers in developed countries. Regional integration reinforces this.

 

Further exporters in India fear that freer imports could lead to dumping of low-cost fabrics from China and other Southeast Asian countries. Thus, the industry needs restructuring on all fronts. Although the policy framework can be blamed partially for its ills, internal factors are equally important.

 

Recent studies indicate that India is beginning to lose out to its rivals. In one survey of US textile and apparel imports, China and Hong Kong had higher market shares than India. In certain categories, other Asian low cost producers like Pakistan and Indonesia had higher market shares and had emerged as close competitors to India. Because many of these countries depend on imports, however, India can take advantage of home production.

 

Further, formation of NAFTA means direct competition from the Latin American countries. The United States has farmed-out offshore processing work to enterprises in Mexico and the Caribbean Base Initiative countries. Similar relocation has taken place in Europe with manufacturers shifting base to Eastern Europe, which provides similar advantages of cheap labour and proximity.

 

 

According to projections by TECS, EU imports of ready-made fabrics will double between 1994 and 2004, as a result of the elimination of quotas. US imports are expected to treble over the same period.

 

According to another prediction, apparel output could more than double (i.e. expand by 241%) between 1995 and 2005, compared to an increase of only 114%, without the agreement on textiles and clothing.

 

By increasing market access, the ATC will generate multiplier effects in the Indian economy, eventually feeding back into the textile industry itself. The rise in demand for exports could increase output and employment in the textile industry. This in turn will stimulate the agricultural sector to meet the rising demand for cotton. As profits rise, so will wages, which will act as further stimulus. The export boom in the textile and clothing industry will also generate considerable foreign exchange.

 

Given Indias high quota growth rates during the phase-out period, its competitive product niches and established links with retailers and importers in developed countries, it should experience vigorous growth in the future. The World Bank predicts a growth rate of 16% per annum in the coming decade.

 

Ultimately, the extent that India will benefit from trade liberalisation depends on its current cost competitiveness, its ability to increase productivity and upgrade quality.

5. FUTURE SCENARIO

Implications on Indian Exports (Optimistic Scenario)

Yarn

      Garment exports of Bangladesh increase leading to increase in consumption

      of Indian fabric and yarn

      Exports of Far-East & ASEAN increase further

      Rationalization in duties of MMF leading to increase in processing of fibres in India

Fabric/Made-ups

      Garmenting dereserved leading to entry of large textile players ensuring

      efficient sourcing and increase in the margins

      Increase in investment for processing

      Improvement in SAPTA trade

Garments

      Garmenting and Knitting de-reserved to allow the units to grow bigger to be

      able to service large orders and large clients

      Labor laws in India become industry friendly

      Garment parks come up in key regions giving a boost to exports

      Successful Quota Phase-out without exports getting restricted by QRs


Implications on Indian Exports (Pessimistic Scenario)

Yarn

      Change works to the advantage for S. Korea/ASEAN/Far-East

      Demand for packages increases

      EEC other garment supply countries invest in back-end processes

Fabric/Made-ups

      Environmental Clause impacts

      Investment in processing does not happen

      Blends and synthetic fabrics dominate reducing advantage of Indian cotton

Garments

      Social clause impact leading to ban on some categories, etc.

      SSA is a reality impacting exports of garments from India to USA and EU

      FTA becomes a reality

      Other projectionist measures come up

 

As opposed to the optimistic scenario, the pessimistic scenario shows a shortfall of nearly US $4000 mn of exports in year 2005 and the exports are not likely to be much higher than the present figures. It would also lead to development of textile and clothing industry in the other nations and India would lose out as a significant player in the industry. This would also stifle the domestic textile industry which would be in a very weak position to compete with imports. (These are expected to become cheaper with import duty rationalization as per international treaties and cost competitiveness of overseas players). Some of the subsidies currently extended by the Indian government to promote exports which are sector specific (TUF, 80 HHC) or region specific (EPZS, EOUS) may also need to be withdrawn.

6. Conclusion

 

To effectively tackle the situation India needs to invest in research and development to develop new products, reduce transaction costs, reduce per unit costs, and finally, improve its raw material base. India needs to move from the lower-end markets to middle level value-for-money markets and export high value-added products of international standard. Thus the industry should diversify in design to ensure quality output and technological advancement.

 

The weakest links in the entire chain are the power looms and the processing houses. The latter especially are very important because they are responsible for the highest value addition in the manufacturing line. A power loom co-operative structure could be evolved for pooling of common services and functions such as quality testing, marketing, short-term financing, etc. Further, because of the geographical proximity enjoyed, a cluster approach can be adopted.

 

The government also needs to make policy changes like dereserving the small-scale sector so that it can achieve economies of scale and adopt a synergistic approach.

 

Handlooms by their very nature can adopt a strategy of niche marketing. In this respect, export promotion, common credit and marketing facilities and more significantly publicity are important areas for co-operation. Here too, a co-operative structure would be useful though government agencies should be involved because of their outreach. Newer and more innovative forms of involvement are required where decentralization should be a key element.

 

 

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