The loud objective of "free trade" has been a figment
of imagination of some policy formulators or even the professed objective of
setting up well-intentioned international organization like World Trade Organization,
but the world apparel trade has been anything but fair. While prior to
dismantling of Multi-Fibre Agreement, which was based essentially on quotas
being decided between the parties concerned, the period thereafter cannot be
treated as one ensuring "Free Trade" as was the objective enshrined
in the constitution of WTO.
It has not taken much long for the Western governments to understand that "Free Trade" does not preclude discriminatory attitude and policy, suited to what are to be called their national interest. They also know fully well the preponderating role that the textile and garment industry plays in their economies and exports. Therefore, anything that affects the garment exports from the developing countries would make huge and even disproportionate impact on their governments and trade. This has obviously made developed countries somewhat inconsiderate, at times, even harsh in single-minded pursuit of their political and economic objectives. Their actions in several cases bear no relationship with the cause.
It is in this context that one needs to examine as to how and why the European Union has decided to cut off GSP+ from Sri Lanka for alleged human rights violations in the war against the Tamil Tigers. It is because the EU knows that garment exporters are any far the largest industrial employer in Sri Lanka, since 41 % of their total exports consists of garment exports and nearly 50% of these exports are being shipped to the European Union. This has been made possible because of the EU having granted Sri Lankan exports the status of dutyfree imports. This can simply spell disaster for the Sri Lankan economy. If viewed in the proper context, Sri Lankan garment industry is one of best and most forward looking in the world, as would stand corroborated by the fact that two Sri Lankan factories Brandix and Hirdaramani have recently built factories that leave zero carbon footprint. The Sri Lankans have also been hot pursuing and legitimately proud of "garment with guilt", which few nations can match, and yet the future of their garment export is somewhat blurred.
What has been done by the European Union to Sri Lanka, has been replicated by the US, who has decided to revoke Madagascar's AGOA status, on the ground of alleged election fraud. Probably, the Americans expect the same level of refinement in the elections by Madagascar as they have in their own country, which is highly unlikely or even possible. The sufferers in this case are the industrialists from Korea, Taiwan and Hong Kong, who have set up their textile units in Madgascar. With a single stroke, the US can in fact has created situation where the flight of foreign investment would be real and massive.
The story does not end here and with small countries. It may be small countries, whose principal prop is garment exports, who are the victims today, but getting encouraged both the US and the EU could attempt somewhat similar treatment with the bigger economies too. As everybody known the Obama Administration is moving ahead fast towards a new environment policy, which will ensure a lead role for the US. The Obama Administration is reportedly considering penalizing those countries, which are the culprits of pollution with a clear perception that the US companies and customers should not look overseas to exporters, who enjoy the advantage of lower cost because their industry is free to pollute.
Whatever strategy the EU and the US have adopted towards lesser countries, may not be suitable for the bigger countries from within the other world, who are heavily polluting the atmosphere. As we have seen only recently at the Climate Change Conference in Copenhagen, a meaningful voluntary agreement seems highly unlikely. Now, there are two options for the policing nations. One, either the exporting countries enter into a binding agreement to reduce green house gasses or second, importing countries impose countervailing duties to offset any cost benefits arising from lower pollution standard.
As everybody knows US and China are the most two polluting nations in the world. Adopting a different attitude and policy towards its indigenous industry than for other countries, the US can always be trusted to bring even China in his sweeping action for reduction of pollution and carbon control. It is also well known that China has refused to go by any voluntary binding agreement to reduce carbon, the US will be left with only the second option i.e. imposing countervailing duties on Chinese imports. However, there is a snag here. Imposition of countervailing duties, in such situation, runs contrary to the WTO rules, once the country (in this case, the US) has already ratified the WTO treaty and has thereby become a US law, which takes precedence over all other US laws with the exception of US Constitution itself.
The US has very limited and constrained choice and has to struggle to find out ways and means or loopholes, which can be exploited for applying countervailing duties on China. If it is done in case of China, can India be far behind, since India has offered only voluntary reduction of carbon emission, but totally and completely refuses to be bound by that or even allow monitoring of their efforts in carbon reduction by any agency, including international agency. Even the fact that India's contribution in carbon emission is less than one-fourth of Chinese carbon emission and for this reason alone, India should not be treated at par by the US and any international agency, with China.
Originally published in Stitch Times: March 2010