Textiles and Clothing Summary
Textiles and clothing products together constitute one of the most contentious issues at the WTO. While many developing countries have made textiles production a major part of economic output, developed countries have put in place complex systems of quotas and
Textiles and Clothing Summary
Textiles and clothing products together constitute one of the most contentious issues at the WTO. While many developing countries have made textiles production a major part of economic output, developed countries have put in place complex systems of quotas and tariffs to protect their domestic industries from international competition. At first blush, it seems the elimination of textile quotas and tariffs would benefit developing countries. But China's accession into the WTO has left many developing countries wondering what will happen to their industries in the future.
Agreement on Textiles and Clothing
For decades, international trade in textiles was subject to discriminatory quantitative restrictions put in place to protect domestic textile industries, particularly in the US, EU, Canada, and Norway. Under the WTO, these quotas fell under the auspices of the Multi-Fibre Arrangement (MFA). While some nations with strong political ties to developed countries benefited from preference agreements that raised their quota levels or eliminated them, many developing countries suffered from severely restricted market access. During the Uruguay Round WTO Members signed the Agreement on Textiles and Clothing (ATC), effective in 1995, that established multilateral rules and subjected the textiles trade to the basic WTO principles of non-discrimination and national treatment. The agreement mandates that WTO members implement the ATC over a period of 10 years, from January 1, 1995 to January 1, 2005.
The Agreement on Textiles and Clothing requires the progressive elimination of all quantitative restrictions according to four stages. Members were required to bring no less than 16% of the products in question into conformity with multilateral trade rules, followed by an additional 17% by 1998 and another 18% by 2002. At this point, 51% of products will have had their quantitative restrictions eliminated. By 2005, members must bring the remaining 49% of their textiles trade policy into full conformity with the Agreement, at which point the textiles sector will be fully integrated into the multilateral trading system. While the first three stages of implementation have been completed, in the last stage, almost half of the process must still take place in just three years. Developing countries, particularly members of the International Textiles and Clothing Bureau, have criticized the European Union and other developed countries for designing the implementation period so that most of the liberalization of these key sectors if left for the very end. Developing countries are also concerned that the developed countries are only meeting the minimum requirements of the ATC, and that they may use other protectionist measures, for example, subsidizing domestic products or raising tariffs.
The Impact of ATC on Producers
While developing countries should be enthusiastic for the implementation of the ATC, India, Egypt, Pakistan, and some Latin American countries are concerned that the removal of quotas and the impact of China in the WTO will actually harm their textile industries. First, countries that have preferential trade agreements with developed countries will lose the edge they had when they were granted higher quotas than their competitors. Once quotas are removed completely, market share will go to countries with the cheapest labor and the cheapest raw materials. Second, since China has arguably the cheapest labor and one of the strongest textile industries in the world, developing countries are concerned that their products will not be able to compete in the global marketplace if China can export without limit. Even with quotas, Chinese textiles have ballooned on the US market, taking 30-40% of the market share in areas like brassieres and dressing gowns.
The main hope for textile producing countries is that the US, and other developed nations, will take advantage of an exception in the ATC that allows for'safeguard' tariffs to be placed on Chinese textile goods until 2008 as a mitigating measure for market disruptions. China agreed to the exception as a way to assuage fears that its accession would harm WTO members. The US has been the first country to announce its intention to place tariffs on textiles from China in 2004, and again in 2005. For developing countries, this exception will provide a three-year window to take advantage of the quota-free trading environment and win precious market share in the US and EU before China is able to fully compete.
Liberalization is expected to be beneficial to consumers who will be able to pay less for textile goods as producers drop the premium they charge to make up for the costs of quotas. However, retailers are doubtful that the drop in prices will be significant enough to increase demand. As large corporations like Wal-Mart create competition by selling at lower prices, retailers will also cut prices but will not necessarily sell more, resulting in deflation in the clothing industries of many countries.
In a decision heralded by developing nations, the WTO ruled against the US in a case initiated by Brazil challenging US cotton subsidies. According to the WTO decision, the US will have to reduce cotton subsidies or face steep penalties. While the US is expected to appeal, it is unlikely the WTO will change its decision. This ruling has the potential to break the deadlock in Doha round agriculture negotiations by requiring the US, the EU, and Japan