Trade in Textiles and Clothing: Assuring Development Gains in a Rapidly Changing Environment

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Trade in Textiles and ClothingAssuring
Development Gains in a Rapidly Changing
Environment

• Michiko Hayashi
• Prepared for UNDP Regional Consultation on
• Export Diversification in the Asia-Pacific
  Countries
• in the Post-ATC Era
• 28-29 November 2007, Colombo, Sri Lanka

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Outline of presentation

• Implications of the NAMA negotiations
• Diversification into dynamic products
• Adjustment issues

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Implications of the NAMA negotiations

• Increased market access
• NAMA negotiations have a high stake for Asian
  developing countries due to tariff peaks and
  escalation in the textiles and clothing sectors
  in the industrialized countries.

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Implications of the NAMA negotiations
Table 1 Present Tariff Structure for Protected
Textiles and Clothing in the US (Percentage)
SourceUNCTAD/World Bank World Integrated Trade
Solution Database Note Figures in 5th to 9h
columns were calculated at applied rate at HS 6
digit level
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Implications of the NAMA negotiations
Table 2 Present Tariff Structure for Protected
Textiles and Clothing in the EU (Percentage)
SourceUNCTAD/World
Bank World Integrated Trade Solution Database
Note Figures in 5th and
7th columns were calculated at applied rate at
HS 6 digit level
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Implications of the NAMA negotiations

• Loss of tariff protection for developing
  countries
• Developing countries would have to reduce their
  tariffs on textiles and clothing drastically.
• This would mean significant loss of tariff
  protection and policy tool.
• LDCs would be exempt from tariff reduction
  commitments. Instead, they would have to
  increase their level of tariff binding
  commitments.

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Implications of the NAMA negotiations
Table 3 Pre and Post-Doha Tariff Scenarios for
Textiles (Percentage)
Source UNCTAD/World Bank World Integrated Trade
Solution Database Tariff year is 2001.
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Implications of the NAMA negotiations
Table 4 Pre and Post-Doha Tariff Scenarios for
Clothing (Percentage)
Source UNCTAD/World Bank World Integrated Trade
Solution Database Tariff year is 2001.
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Implications of the NAMA negotiations

• Flexibility for developing countries
• Apply up to 50 less-than-formula cuts to 10 of
  tariff lines as long as the tariff lines chosen
  do not account collectively for more than 10 ,
  by value, of the members total non-agricultural
  imports.
• Keep up to 5 of tariff lines unbound or not
  subject to the formula provided the lines chosen
  do not collectively account for more than 5, by
  value, of total non-agricultural imports.
• These two options can be combined so long as they
  do not together breach the 5 limit.
• OR
• Benefit from an additional 3 points in the
  applicable coefficient by not resorting to either
  of the two flexibilities above.

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Implications of the NAMA negotiations

• Non-reciprocal preferences issues
• Due to tariff peaks in the textiles and
  clothing sectors in the major importing
  countries, "preferred" countries have enjoyed a
  significant advantage over "non-preferred"
  countries. However, preference margins would be
  reduced considerably in the post-NAMA phase, even
  if the most lenient tariff-cut coefficient is
  adopted.

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Implications of the NAMA negotiations
Table 5 Post-Doha Tariff Scenarios for Textiles
and Clothing in the US (Percentage)

SourceUNCTAD/World Bank World Integrated Trade
Solution Database
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Implications of the NAMA negotiations
Table 6 Post-Doha Tariff Scenarios for Textiles
and Clothing in the EU (Percentage)

SourceUNCTAD/World Bank World Integrated Trade
Solution Database
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Implications of the NAMA negotiations

• Because tariffs on other industrial goods are
  low, tariff reductions on textiles and clothing
  would be the only meaningful result which
  "non-preferred" countries could obtain from the
  NAMA negotiations. This point is of highly
  relevant to Asian TC exporting countries.

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Implications of the NAMA negotiations

• Trade-solution for countering preference erosion
  is considered for products concerned.
• These products are mostly textiles and clothing.
  For them, extra of two years would be given for
  tariff reduction phase, i.e. 7 years instead of 5
  years. (Annexes 2 and 3 of July 2007 Text on the
  NAMA modalities)
• The NAMA negotiations on the issue of
  non-reciprocal preferences need to identify
  solutions that would not compromise the interests
  of "non-preferred" countries, i.e., technical
  assistance and capacity building.

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Implications of the NAMA negotiations

• Reduction or elimination of non-tariff barriers
  (NTBs)
• NTBs identified specifically for textiles and
  clothing
• Differing and excessive labelling or marking
  requirements
• Excessive technical regulations and standards,
  and certification requirements
• Restrictive governmental measures on import of
  textile products, e.g., import licensing
  requirements
• Specific packaging requirements
• Pre-shipment inspection requirement
• Unreasonable customs valuation
• Application of strict rules of origin
• Lack of enforcement for infringement of
  intellectual property rights
• Lack of preventive measures in the countries
  concerned for false country of origin marking
• Non-uniform classification practices with respect
  to the same products
• Export taxes and export restrictions on textile
  raw materials
• Import prohibition on used textile products
• Import restriction of fabrics
• Price controls
• Tariff quotas

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Implications of the NAMA negotiations

• Differing and excessive labelling or marking
  requirements
• US proposal Textile and apparel labelling
  requirements should be harmonized. Information
  which importing countries could require would be
  limited to country of origin, fibre content, care
  instructions, and information necessary for
  consumer safety.
• EU proposal NAMA Group should agree on what
  information can be required for labelling for
  textiles and apparel.

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Implications of the NAMA negotiations

• Excessive technical regulations and standards,
  and certification requirements
• EU proposals
• Simplification of certification requirements and
  conformity assessment procedures
• Establishment of rules to limit these
  requirements and procedures to what would be
  agreed as necessary measures

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Implications of the NAMA negotiations

• Proposal on establishment of "NTB Resolution
  Mechanism" in the WTO by the EU and the NAMA 11
  Group of Developing Countries ( India, Indonesia,
  Philippines)
• This system would be independent from WTO's
  dispute settlement mechanism.
• Current systems to address NTBs are not
  effective.
• The notification system is not geared to
  problem-solving
• the dispute settlement mechanism is
  time-consuming and costly.
• How the Mechanism works is yet to be discussed.

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Implications of the NAMA negotiations

• The NAMA negotiations provide an opportunity to
  establish an innovative approach to reduce and
  eliminate non-tariff barriers.
• The problem of non-tariff barriers for developing
  countries relates to a lack of capacity to comply
  with standards and to participate in
  standard-setting.

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Diversification into dynamic products

• Intensification of competition
• Post-ATC competition environment
• Reduction of tariff protection in the domestic
  market (NAMA)
• Erosion of preference margins (NAMA)
• Enhancement of competitiveness and
  diversification into dynamic products are
  necessary
• What are dynamic products?

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Diversification into dynamic products

• Products of high growth rates ( growth rates of
  100 to 600 between the period of 2001 to 2005)
• Suits, ensembles, jackets, blazer, trousers,
  shorts
• Coats, anoraks, ski jackets
• Jerseys, pullovers, cardigans
• Underwear, pyjamas, bathrobes, dressing gowns
• Pantyhose, tights, stockings, socks, shawls,
  scarves Tracksuits, ski suits, swimwear
• Other garments
• Other made-up clothing accessories
• 
  continued

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Diversification into dynamic products

• Blankets and travelling rugs
• Furnishing articles
• Other made-up articles, including dress patterns
• Yarn of carded wool, fine animal hair, cotton
  sewing thread, cotton yarn
• Woven fabrics of cotton, silk yarn
• Synthetic thread and yarn
• Wadding of textile materials and articles,
  textile fibres, felt
• Woven pile fabrics and chenille fabrics, tulles
  and other net fabrics Embroidery and quilted
  textile products
• Knitted crocheted fabrics, warp knit fabrics
• Other textiles

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Diversification into dynamic products

• Technical textiles
• Demand for technical textiles is rapidly
  increasing, and profit margins for these textiles
  are high.
• Technical textiles are used for unconventional
  areas such as agriculture, construction, medical
  care, environmental protection, sports, and so
  forth.
• With global consumption of over 1000 tons and a
  worth of 40 billion dollars annually, technical
  textiles have emerged as a global industry.
• Some sixty per cent of technical textile
  production has already shifted to developing
  countries, and the potential still holds promise.
  
• Among developing countries, China is a leader in
  the production of technical textiles. India,
  Indonesia, Mexico and Pakistan follow China.

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Diversification into dynamic products

• Trend of forum-shopping
• Manufacturers buy inputs such as yarn, fabric and
  accessories from the most cost-effective
  suppliers instead of manufacturing them in-house.
• Medium-sized enterprises are increasingly
  specializing niche production in areas like
  textile accessories, linings, specialized
  fabrics, technical textiles, ethnic textiles, etc

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Diversification into dynamic products

• To facilitate firms' endeavours to shift to
  dynamic products, domestic policy needs to
  address
• Regulations affecting the competitiveness of
  dynamic products, including domestic labour
  markets, energy, telecommunications,
  transportation, and electricity
• Intellectual property rights for the protection
  of traditional artistic expression, promotion of
  niche markets, and attracting foreign
  investments
• Infrastructure to support efficient trade such as
  dry ports, export processing zones, and financial
  and fiscal incentives to improve competitiveness.
• Modernization, technology upgrading

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Diversification into dynamic products

• Actions required at the international level
• Relaxing restrictive rules of origin which are
  constraining "forum-shopping" and the use of
  competitive inputs
• Providing technical and financial assistance by
  bilateral and multilateral donors for enhancing
  supply capacity, particularly in promoting
  technological upgrading

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Adjustment issues

• To effectively respond to adjustment problems,
  reform of the textiles and clothing sector needs
  to be put in a context of overall adjustment that
  encompasses
• diversification of economic activities
• industrial reform
• domestic capacity-building
• employment, and creation of social safety nets
• coherent trade and development policies
• targeted, comprehensive and high-quality
  technical assistance and capacity-building

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Adjustment issues

• Other measures to help adjustment
• Implementation of commitments to provide
  duty-free access to products from LDCs with user
  friendly rules of origin
• Inclusion of textiles and clothing in the GSP
  schemes that currently exclude these products

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Thank you.