1. Indian Textile Industry: Challenges & Recommendations in the Post ATC Era by M. Knappe Market Development Section International Trade Centre (ITC) UNCTAD/WTO Mumbai, India 29 November 2006

2. 2 IMPORTANCE OF T&C INDUSTRY Globally World trade in T&C in 2005: $479 billion, (clothing accounted for approx $276 billion) 6.6% of world export of manufacturers Trade in T&C important for Industrialised Countries (ICs) but most important for Developing (DCs) & Least Developed Countries (LDCs) Industry projected to surpass $800 billion by 2014 Some observations: …a highly competitive environment

3. 3 ATC immediate effects: a buyer’s market Trade patterns changed, with an immediete surge in the first half of 2005 & unit prices fell Market share based on competitiveness rather than quotas Competitiveness is determined by service provision (approach to customer satisfaction) EU and US agreements with China - controlled the surge for 2006 China still maintained and increased market share India – overall winner but tough competition

4. 4 Structure Challenges for India Challenges for India Finding Responses Finding Responses Special Challenge: WTO Special Challenge: WTO

5. 5 1. Challenge: Prices are falling further Source: OTEXA

6. 6 US Import Prices Cotton Pile Towels (363)

7. 7 Source: OTEXA

8. 8

9. 9

10. 10 Source: OTEXA

11. 11 EU Textile Import Prices 1990 - 2005

12. 12 Source: Eurostat

13. 13 Source: Eurostat

14. 14 EU Import Prices Clothing 1990 - 2005

15. 15 Japan Import Prices: Textiles

16. 16 Source: textiles intelligence 2. Sourcing from fewer suppliers (consolidation)

17. 17 3. Buyer expectations: Changing Trade Competitiveness Manufacturing Manufacturing & Sourcing Manufacturing & Sourcing & Product Development FULL SERVICE Value-Added Buyers requirements Time 20051970 FULL Partnership

18. 18 4. NTBs - regulations & international rules & compliance Compliance with retailers Codes of Conduct - Ethical Sourcing ECO Labelling: Remain voluntary but can reduce market access Security: US Customs- Trade Partnership Against Terrorism: –Manufacturer monitoring to include security compliance –Container security IPR issues Lengthy & discriminatory customs procedures Restrictive import licensing requirements Discriminatory product standards, certification, etc

19. 19 5. Challenge: Use of Trade Remedies with today’s target China (but also India) Safeguards (fairly traded imports) Antidumping duties (unfairly traded imports): mainly yarns, fabrics & made ups; e.g. China on polyester filament EU-India histroy of aanti-dumping on bed-linen since 1994 Anti-subsidy: countervailing duties on bed-linen from India T&C products as targets for retaliation in dispute settlement cases. Possibility of new quotas against China 1) Special T&C Safeguards until 31/12/2008 2) Product Specific Safeguards until 10/12/2013 (all products, not only T&C)

20. 20 6. Adjustment-related costs: WTO Note on LDCs TRTA & CB needed but not specifically focussed on T&C Non-reciprocal preferences: –Coverage (best unconditional), –Predictability (best permanent), –Rules of origin (simple, homogeneous, unrestrictive translates into higher utilization rates) LDC need to proceed with easy to improve trade policies, customs facilities Other DC continue to press for similar note and recommendations

21. 21 Structure Challenges for India Challenges for India Finding Responses Finding Responses Special Challenge: WTO Special Challenge: WTO

22. 22 1. Tariff Structure in Main Markets US:Simple average: 8.9%; main traded items at 20%, with peaks up to 32% EU: Escalation: 12% c, 8% f, 4% y Japan: 9-11% c, 3-6% f & y Canada: 17-18% c, 12-14% f, 8% y DCs: bound rates between 25% - 45%; applied rates sometimes lower (India: 35%-15%; Brazil: 35%-20%) Sum: impact of tariff reductions depend on your main market c: clothing, f: fabric, y: yarn

23. 23 2. DDA related issues for T&C NAMA Negotiations - reduction of Tariffs: high tariffs, tariff peaks and tariff escalations Members agreed on a Swiss formula (Non-linear harmoniszing formula) Need to agree on: a) structure of the formula, b) value of coefficient(s), c) S&D: flexibility given to DCs, d) unbound tariff lines Cotton: Market Distortion by Subsidies NTBs: identification, categorisation, examination & treatment Adjustment-related costs of the quota phase-out for LDCs and other DCs

24. 24 Simulation: Tariffs after the Aplication of Reduction Formula (Swiss Formula) Source: Macmap Database HS 610342 --- Men's/boys trousers and shorts, of cotton, knitted The formula cuts higher tariffs by more than smaller tariffs It does not change the ranking of protection

25. 25 Swiss formula simulations on tariff escalation: EU T&C Tariffs

26. 26 Application of Simple Swiss Formula in Selected Tariff Lines (Peaks) of US Source: Macmap Database

27. 27 Cross country comparison, Swiss formula application on knitted M&B Trousers HS 610342)

28. 28 Cross country comparison, ABI formula on knitted M&B Trousers HS 610342)

29. 29 Comparison between formula proposals Simulation on Indian tariffs Mens’ shirts Yarn

30. 30 3. Multilateral vs. Bilateral Approach Complex System of FTAs & RTAs favouring nearby countries, excluding Asia Asia in general and India are under-preferred Most Asian countries are excluded from FTAs & RTAs of the major markets US: CAFTA, Andean & AGOA EU: New GSP scheme from 1 January 06; envisaged a Euro-Mediterranean Zone, etc. India is not part of any significant FTA: (only low trade in SAARC, Bangkok agreement, BIMSTEK) India’s option: Multilateral Negotiations

31. 31 Free Trade Agreements and Preference programs for sourcing decisions? 32% 68% 32% ‘buyer’s view’ Source: USA-ITA

32. 32 How important are Free Trade Agreement and Preference Programs ? 6% 78% 9%7% ‘buyer’s view’ Source: USA-ITA

33. 33 Structure Challenges for India Challenges for India Finding Responses Finding Responses Special Challenge: WTO Special Challenge: WTO

34. 34 Post-ATC Requirements for India Post ATC trade patterns changed considerably Prices falling further: need for value-added & services More responsibilities for suppliers/exporters Multi-national manufacturers consolidate Emergence of mega-factories Mills become vertical manufacturers

35. 35 Post-ATC Requirements for India cont. New manufacturing locations with tight cost- efficient supply chains Overall: Countries without an efficient supply chain (integrated VC) will be in difficulty High competition from FTA & RTA beneficiaries: unlikely benefit for India India’s T&C industry will gain from successful WTO NAMA negotiations

36. 36 THANK YOU ! For more informationhttp://www.intracen.org/textilesandclothing Contact: Matthias Knappe Matthias Knappe, Chief, Market Development Section Knappe@intracen.org