In separate letters to the three major trading entities - the US, EU and Canada - the Chairman of the ITCB has called on these entities to live up to their commitments by undertaking real and meaningful liberalization of the textiles and clothing quotas held by them against exports from the South.

by Chakravarthi Raghavan

Geneva, 18 July 2000 -- The three major industrial trading entities - the United States, European Union and Canada have been challenged to live up to their commitments to free trade by undertaking real and meaningful liberalization of the textiles and clothing quotas maintained by them against exports from the South.

In three separate letters addressed to the EU Trade Commissioner, Mr.  Pascal Lamy, the US Trade Representative, Mrs.Charlene Barshefsky, and Canadian International Trade Minister, Mr.Pierre Pettigrew, Mr. Stuart Harbinson of Hong Kong China, chairman of the International Textiles and Clothing Bureau (ITCB) has decried the meagre results of the integration process so far and challenged the three to accelerate the process.

In the letters to the three major trading entities, the 24-member ITCB said: “In failing to come up to developing countries’ legitimate expectations, this has damaged their confidence in the WTO system and in the process of multilateral trade liberalization.” Decrying the meagre results achieved so far by the integration process, the ITCB letter challenges the trade-restraining developed countries to accelerate the process of integration, and that at least 50% of imports of products under specific quota restrictions be liberalized by 1 January 2002, the start of the third stage of the integration process when 70% of the 10-year transition period of the Agreement on Textiles and Clothing (ATC) would be over.

Also, the ITCB has proposed that for meaningful increases in access possibilities, the increased growth rates for stage 3 of the ATC be advanced from January 2002 to January 2000, and the growth rates increased to at least 6 percent, the norm set in the Multifibre Agreement.

The letter on behalf of the ITCB by Harbinson adds: “Developed countries carry the responsibility for leadership and to inspire confidence among developing countries. Besides assisting the developing countries, dismantling of textile quotas would bring huge benefits for consumers and businesses in the restraining countries themselves.”

The ITCB letter to the EU has also strongly criticised the EU Commission for new market openings in developing countries as a “precondition for liberalization of quota restrictions.”

The ITCB points out that these quota restrictions were never valid under the GATT. “Developing countries made tremendous sacrifices in accepting to live under these restrictions for over 40 years; they also had to offer significant concessions in the Uruguay Round to secure an end to these restrictions.”

The EU, US and Canada for 40 years now have maintained discriminatory quota restrictions against imports from the developing world, through a succession of GATT-sanctioned special agreements authorizing them to depart from normal GATT rules and disciplines.

The integration of this sector into the GATT, through the Agreement on Textiles and Clothing, in return for their assuming greater obligations in other areas (including services and intellectual property issues) was held out to developing countries as a major benefit and incentive for the Uruguay Round negotiations and its conclusion in the Marrakesh Agreement for establishing the WTO.

By putting all textiles and clothing products, both those under restraint and those that have not ever been restrained, into a common annex to the ATC, and enabling the importing countries to choose among these for integration, as a former Director of the UNCTAD Trade Programme Division (Mr. Bhagirath Lal Das) recently put it, a fraud had been perpetrated on developing countries.

As a result, in the six years since the Uruguay Round commitments went into effect, five years after the entry into force of the WTO, developing countries have seen very little economic benefit in the textiles and clothing trade.

The letters point out that though some 33% of the trade in the sector has been “integrated” by the quota-imposing countries, this has been so only in a narrow technical sense, and has comprised mainly products which were in any event not under quota restrictions, and few quota restrictions have been eliminated.

In the case of Canada, quotas have been removed only on 29 out of 295 restrained products in the textiles and clothing sector.  In the case of the European Union, only 14 out of 219 products under restraint or less than 5% of EU’s imports actually under quotas, have been freed of restrictions. The figure is even lower for clothing products.

In the case of the United States, quota restrictions have been removed only on 13 out of 750 items subject to restraint. And only 6% of US imports, which were actually under specific quotas, have been freed of restrictions. The figure is even lower for clothing products.

The additional access under the ATC has been limited to minimum increases in quota growth rates, and has not resulted in any significant lessening in the restrictive nature of quotas, nor has it allowed the restricted countries to benefit from healthy growth in consumer demand.

The letter to Canada commends that country for avoiding recourse to any safeguard actions, and its 1998 decision to liberalize a significant commercial product category, to raise quota levels for another and liberalize certain other product categories on a partial basis.

In the letter to the EU, the ITCB said its members had been heartened by the EU’s willingness at Seattle to advance the implementation of increased growth rates for quotas from January 2002 to January 2000.

“But recently, we have been dismayed by demands for additional market opening from developing countries as a precondition for meaningful liberalization of quota restrictions, even during the third stage of the ATC implementation. Such demands are unjustified.”

The ITCB letter to the EU has also cited a recent study, commissioned by the Swedish Foreign Ministry, which has concluded that EU import restrictions on textiles and clothing cost European consumers almost 25 billion Euros a year, or equal to about 270 euros for a family of four.

While the ITCB letter focuses on the ATC and securing meaningful liberalization, the process of integration being adopted seems likely to permanently distort the trade even after the 10-year transition, and ensure that developing countries can get little benefits out of it.

The successive MFA agreements were all supposedly to provide the industry in the North breathing space to restructure and adjust, and with lead time to do it. The protection too was often presented as saving jobs and workers’ employment.

Under the WTO, this period for ‘restructuring’ was extended to another ten years - and the general belief among developing country governments, fostered by their trade negotiators and officials, was that at the end of the transition, their industries could compete without restrictions on industrial country markets.

However, through various devices and ancillary agreements, the conditions of competition are being permanently altered.

In the United States - where its textiles and clothing industry has been protected, first against Japan and then the developing countries from early 1960s, through quotas and high tariffs - through regional agreements and its own tax laws, a new situation of ‘competition’ is being established.

In terms of the NAFTA, the old Caribbean Basin Initiative, the agreements with the Central American and Caribbean countries, and the latest preferential trading arrangements for Africa, a sub-contracting trade has been established so that the US textile industry can export fabrics, get them stitched with low-wage workers, and import them back paying only duty on value-added abroad.

If and when the WTO/ATC arrangements disappear, this trade may have to contend with exports free of quotas, but sheltered behind the fairly high tariff rates applicable against other imports.

In Europe, while the intra-Europe trade in textiles and clothing has declined, the benefit has gone to Turkey, under its customs union with the EC, and the east European transition economies hoping to join the EC but practising EC acquis in trade relations with others and at the WTO.

The European textiles and clothing industry has been engaged in ‘investing’ in these areas, both in textiles and clothing, as well as outsourcing for processing of clothing at cheaper east European wages, to be imported back under the preferential quota-free arrangements.

Sheltered behind these protections, and helped by the oligopolistic distribution channels and systems, a new rentier class is springing up and those in the developing world hoping to go up this ladder are in for some disappointment.

In all these cases, even with foreign investment and establishment of subsidiaries, in terms of the way the GATT and its ‘national treatment’ is operated—the subsidiary can import, rather than purchase inputs locally, process them and export, leaving virtually only the wage costs as net value retained in the host country.

The entire EC push for investment rules through a new round is also thus aimed at securing an investment foothold in the developing world and is targetted at ownership of industries and agriculture, particularly plantation agriculture, and fertilizer and seed inputs.

Astonishingly, neither central banks, nor finance ministries, nor local trade and industry ministries, nor even domestic enterprises and think tanks in developing countries, appear to be engaged in full analysis and estimation of effects of such activities, and on real net value contribution (as well as capital and technology accumulation in the country).  And in international organizations that can collect and analyze the data, there is often an attempt at obfuscation. There is more time and energy devoted to promote globalization and liberalization of foreign trade and investments than to look at the flip side and the possible remedies.

Some civil society studies, perhaps anecdotal examples, show this up, impelling them to buck the neo-liberal tide and join globally with the ‘shrink or sink’ agenda for the WTO aimed at overwhelming a new round, and its single undertaking, in the same way the OECD’s MAI negotiations were derailed.-SUNS4712

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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