Textile Industry is unique in the terms that it is an independent industry, from the basic requirement of raw materials to the final products, with huge value-addition at every stage of processing. Textile industry in India has vast potential for creation of employment opportunities in the agricultural, industrial, organized and decentralized sectors & rural and urban areas, particularly for women and the disadvantaged. Indian textile industry is constituted of the following segments: Readymade Garments, Cotton Textiles including Handlooms, Man-made Textiles, Silk Textiles, Woolen Textiles, Handicrafts, Coir, and Jute.Till the year 1985, development of textile sector in India took place in terms of general policies. In 1985, for the first time the importance of textile sector was recognized and a separate policy statement was announced with regard to development of textile sector. In the year 2000, National Textile Policy was announced. Its main objective was: to provide cloth of acceptable quality at reasonable prices for the vast majority of the population of the country, to increasingly contribute to the provision of sustainable employment and the economic growth of the nation; and to compete with confidence for an increasing share of the global market. The policy also aimed at achieving the target of textile and apparel exports of US $ 50 billion by 2010 of which the share of garments will be US $ 25 billion.  

The Textile Industry occupies a vital place in the Indian economy and contributes substantially to its exports earnings. Textiles exports represent nearly 30 per cent of the country's total exports. It has a high weight age of over 20 per cent in the National production. It provides direct employment to over 15 million persons in the mill, powerloom and handloom sectors. India is the world’s second largest producer of textiles after China. It is the world’s third largest producer of cotton-after China and the USA-and the second largest cotton consumer after China. The textile industry in India is one of the oldest manufacturing sectors in the country and is currently it’s largest. The Textile industry occupies an important place in the Economy of the country because of its contribution to the industrial output, employment generation and foreign exchange earnings.Outlook for Indian Textile IndustryThe outlook for textile industry in India is very optimistic. It is expected that Indian textile industry would continue to grow at an impressive rate. Textile industry is being modernized by an exclusive scheme, which has set aside $5bn for investment in improvisation of machinery. India can also grab opportunities in the export market. The textile industry is anticipated to generate 12mn new jobs in various sectors.

Multi Fiber AgreementThe MFA was introduced in 1974 as a short-term

measure intended to allow developed countries to

adjust to imports from the developing world.

The Agreement was not negative for all

developing countries. Ex – European Union (EU)

and Bangladesh.

But however at the GATT 1994, it was decided to

bring the textile trade under the jurisdiction of

the World Trade Organization (WTO)

Removal of MFABangladesh was expected to suffer the most from

the ending of the MFA, as it was expected to face

more competition, particularly from China.

The removal of quotas is likely to have political,

consumer and efficiency implications for the

countries involved.

The main positive impact of removing the quotas

was the overall increase in efficiency as greater

competition was introduced into the market.

Phase-out of MFA16 % of the total volume of the imports of the listed textiles

and clothing products on the date of entry into force of the ATC (1st January, 1995) must be outside quotas.

17 % of the total volume of imports of the listed textiles and clothing products on the first day of the 37th month or the end of the third year (1st January, 1998) must in addition be integrated, adding up to a cumulative total of 33 %

18 % of the total volume of imports of the listed textiles and clothing products on the first day of the 85th month or the end of the seventh year (1st January, 2002) must in addition be integrated, adding up to a cumulative total of 51 %

49 % of the total volume of imports of the listed textiles and clothing products on the first day of the 121st month or the end of the tenth year (1st January, 2005) must be integrated. This adds up to a cumulative total of 100 % and quotas disappear thereafter.

INTRODUCTION TO ATC

•From 1974 until the end of the Uruguay Round, the trade was governed by the Multifibre Arrangement (MFA) .This was a framework for bilateral agreements or unilateral actions that established quotas limiting imports into countries whose domestic industries were facing serious damage from rapidly increasing imports

•The quotas were the most visible feature. They conflicted with GATT’s general preference for customs tariffs instead of measures that restrict quantities.

INTRO(CONTD.)

•Since 1995, the WTO’s (World Trade Organization) Agreement on Textiles and Clothing (ATC) took over from the Mulltifibre Arrangement (MFA).

•By 1 January 2005, the sector was fully integrated into normal GATT rules.

•In particular, the quotas came to an end, and importing countries are  no longer be able to discriminate between exporters. The Agreement on Textiles and Clothing no longer exists: it’s the only WTO agreement that had self-destruction

KEY ELEMENTS FINALIZED REGARDING ATC ARE AS FOLLOWS:

(a)the product coverage, basically encompassing yarns, fabrics, made-up textile products and clothing

(b) a programme for the progressive integration of these textile and clothing products into GATT 1994 rules.

STAGES YEAR CHANGES

Stage 1 1 January,1995 integration by Members of products representing not less than 16 per cent of that Member's total 1990 imports

Stage 2 1 January 1998 Not less than a further 17 per cent was integrated.

Stage 3 1 January 2002 not less than a further 18 per cent will be integrated

Stage 4 1 January 200 all remaining products (amounting up to 49 per cent of 1990 imports into a Member) will stand integrated

Along with the integration process, there is a programme for liberalizing the existing restrictions, that is, for enlarging the bilateral quotas carried over from the former MFA on 1 January 1995 until such time as the products are integrated into GATT, at which time the quotas terminate.

These former MFA quotas, when carried over into the ATC on 1 January 1995, represented the starting point for an automatic liberalization process.

The former MFA growth rates applicable to each of these quotas were increased on for the first stage of the Agreement and the new growth rate was applied annually in the following way: STAGES YEAR CHANGES

Stage 1 1 January,1995 Growth rate increased by a factor of 16% annually

Stage 2 1 January 1998 Growth rate increased by a factor of 25% annually

Stage 3 1 January 2002 Growth rate increased by a factor of 27% annually

ATCProvisions relating to the commitments

undertaken in all areas of the Uruguay Round as they relate to textiles and clothing require that all Members “shall take such actions as may be necessary” to abide by the rules and disciplines of WTO so as to achieve improved market access, to ensure the application of fair and equitable trading conditions and to avoid discrimination against textiles and clothing imports (Article 7).

If an exporting Member is found not to be complying with its obligations, the Dispute Settlement Body or the Council for Trade in Goods may authorize an adjustment to the quota growth for that country which is otherwise an automatic growth.

Textiles Monitoring Body (TMB)The Textiles Monitoring Body has been established to

supervise the implementation of the ATC and to examine all measures taken under it, to ensure that they are in conformity with the rules.

It is a quasi-judicial, standing body which consists of a Chairman and ten TMB members, discharging their function on an ad personam basis and taking all decisions by consensus. The ten members are appointed by WTO Member governments according to an agreed grouping of WTO Members into constituencies. There can be rotation within the constituencies. These characteristics make the TMB a unique institution within the WTO framework.

It monitored actions taken under the agreement to ensure that they were consistent, and it reported to the Goods Council  which reviewed the operation of the agreement before each new step of the integration process.

Cont…The Textiles Monitoring Body also dealt with disputes

under the Agreement on Textiles and Clothing. If they remained unresolved, the disputes could be brought to the WTO’s regular Dispute Settlement Body.

In January 1995, the General Council decided upon the composition for the TMB for the first stage. In December 1997, the General Council decided upon the composition for the second stage (1998-2001).

When the Textiles and Clothing Agreement expired on 1 January 2005, the Textiles Monitoring Body also ceased to exist.

IMPACT OF IMPLEMENTING QUOTAS & ATC

The impact of implementing the ATC has several dimensions –

there is the political gain related to the credibility of the multilateral trading system at a time when the system is experiencing considerable strains.

there are the efficiency gains from eliminating highly distorting quotas that have lead to an inefficient global allocation of textile and clothing production.

There is the loss of quota rents on the part of ATC exporters.

There is gain to consumers.

IMPACT OF QUOTASa quota is equivalent to a tariff and as such it increases

the local price of the product in question in the importing country, and reduces local demand for the product. However, while the increased price in the case of tariffs partly benefits local producers and partly the government through tariff revenue, the increased price due to the MFA/ATC partly benefits local producers and partly accrues to the exporters as quota rents.

Another impact of the quotas (and tariffs) is that when the importing country is large, quotas lower the price of the product in question in unrestricted markets because the large country's reduced demand is sufficient to reduce total world demand.

CONT…If the quotas are set at a level higher than local

demand at world market prices, then the quota will not be binding, and will have no effect besides the administrative costs of managing the quota system, which may still be significant both on the exporting and importing side.

India also has a number of domestic distortions that if eliminated would improve the performance of the clothing and textiles sector substantially. Thus, according to a study by the World Bank, the welfare gains to India from the elimination of the ATC quotas would be three times as high if combined with domestic reforms.

IMPACT OF TERMINATION OF ATCAt the end of December 2004, the Agreement on

Textiles and clothing was terminated.

All textiles and clothing products were fully integrated into WTO rules, and bilateral quotas removed.

Full application of WTO rules to international trade in textiles and clothing was a very positive and long-awaited development for the industries and millions of consumers who will benefit from a more open, non-discriminatory and transparent trading environment in this sector.

As part of these negotiations, we hope to see tariff reductions in the area of textiles and clothing.

Changes to existing WTO rules or new WTO disciplines which might be agreed may also have an impact on international trade in this sector i.e. resulting in better trade relations between countries as a result of increased transparency.

IMPACT OF APPLICATION OF WTO RULES As of 1 January 2005, WTO rules have been applied to trade in

textiles and clothing as in all other areas of trade. These include the core WTO principles of transparency and non-discrimination.

Tariff preferences for developing countries under the Generalised System of Preferences and initiatives for least-developed countries, such as the European Union’s “Everything but Arms” initiative and the United States’ “Africa Growth and Opportunity Act” will remain.

Regional trade agreements will continue to be an important feature of the trading system with their preferential market access features.

WTO rules on anti-dumping and security have the following impact:

- prevent unfair trading practices - prevent injurious trade flows

Members will have the right to use the WTO’s dispute settlement mechanism to resolve any trade disputes that might arise in this area.

GLORIOUS PAST

Known as world’s textile hub from the pre-maurya civilisation.

Transit for the golden silk route.British colonial rule help to establish

eastern Manchester in Ahmedabad and part of Bombay presidency.

Post independence boom- due to favoured quota import policy by developed nation.

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PRESENT SCENARIOGlobal manufacturing backyard Supply to all textile and retail majors like

Dolce and Gabbana, Gap, Mark & Spencer, Zara and Harrod’s.

Global VC major like Blackstone picking up shares in Gokaldas exports and Himatsingasiede.

Knit ware hub at Ludhiana and Tirupur and dedicated textile SEZ by Adidas in Nellore, AP.

Indian majors Spentex, GHCL and Welspun making buy-out the iconic brand like Roseby.

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SLOWDOWN IN GROWTH

The growth rate in the textile industry became 0.8 % in 2008-09 (April-August).

The growth rate of Wool, Silk & Man-Made Textiles sector became negative (-1.2%) in the first five month in the year (April-Aug).

The jute textile segment also declined in 2008-09 by 7.4% as compared to the 33% growth in 2007-08.

Textile products picked up slightly (5.8%) in 2008-09 as compared to 3% in 2007-08.

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Recommendations

Excise Duty on Textile Machinery & Spares to be reduced

Reduction of Custom Duty on Textile Machinery

Exemption route to be extended to Export Oriented Units (EOUs)

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Recommendations(cont.)

Fringe Benefit Tax under Sec 115 of the Income Tax Act

Refund of State Taxes & Duties to Exporters

Uniform rate of VAT on Industrial Inputs

Reduction of Excise Duty on Man–Made fibre Products

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