The Indian Government recently made two significant declarations: first, to acknowledge the EU's proposal to grant duty-free access to textile exports from Pakistan, and second, to provide zero-duty access to 45 textile imports from Bangladesh into India.
The EU's decision to grant zero-duty access to Pakistan for 75 items, including textiles, garments, footwear, and leather items for three years from 2012, was aimed at providing special assistance to cover losses caused by devastating floods in Pakistan. These floods severely affected cotton production in the country, leading to a significant slump. The heavy deluge impacted the cotton fields, causing a reduction in the commodity's production. Pakistan's fixed annual export target for cotton was $14 billion, and the losses due to floods were estimated to be around 1.5 million bales.
The duty-free access granted to Pakistan on 75 items poses a challenge to India and Bangladesh. Bangladesh, a major exporter of apparel items, might face tough competition in the EU market if Pakistan gets duty-free exports to the EU, a primary importer of Bangladeshi apparels.
While Bangladesh initially raised concerns about the waiver, it later declared that it doesn't object to it. Under WTO regulations, only least developed countries such as Bangladesh are eligible for duty-free access. India initially protested against the proposal, citing its potential adverse impact on its exports to the EU. However, it later withdrew the protest, stating that it would improve bilateral relations between India and Pakistan.
This sudden change in the Indian Government's stance has led to protests among industry analysts. They fear that this move might erode India's competitive advantage in the EU market. Previously, Pakistan had also enjoyed certain benefits from the EU under the GSP (Generalized System of Preferences), and this preference could potentially lead other countries to favor imports from Pakistan rather than from countries like India. Indian apparel exports to the EU currently face a 12% tariff, which reduces to 10% with a 20% GSP concession. However, compared to Pakistan's zero-duty preference, India might become less competitive in the European market.
Indian Government maintains a list of protected goods under its free trade agreement. The Government's declaration of giving duty free access to Bangladesh textile exporters rather than considering it as a rival export market has evoked opposition from domestic textile manufacturers who believe that this would be a major blow in the Indian market. 45 textile products covering up to 90% of Bangladesh's exports are granted duty free access. This liberalization does not consider the Rules of Origin. This indicates that Bangladesh need not use the yarn or textile material for making apparels that are being exported into India.
Most of the items under the list are covered under the Tariff Rate Quota (TRQ) to Bangladesh. Under this quota, Bangladesh was getting duty free exports for up to 8 million pieces till 2010, and was later increased to 10 million pieces during April 2011. Government had agreed to increase the TRQ, but a total removal of these items from the list is anticipated by industry players to have a negative impact.
Bangladesh is already very competitive with power cost, low wages, and tolerant labor laws. This gives Bangladesh a competitive advantage over India. Possibilities exist that in a period of time, India is likely to be flooded with Bangladesh apparels. The general fear that is threatening Indian industry is that, this would hurt the jobs of lakhs of garment workers in major hubs like Tirupur, and Ludhiana. 18 million people employed in Indian garment industry would be facing threat. Industry players fear that India is losing out to Bangladesh in a big way, and much of the apparel manufacturing process is moving out to Bangladesh.
Critics feel that these generous policy declarations of the Government would jeopardize the Indian textile sector sooner or later. Is the Indian textile industry in the altar? Time is yet to reveal the answer.
References:
1) Nation.com.pk
2) Articles.economictimes.indiatimes.com
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