You are on page 1of 24

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
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 Industry
The 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
Multi Fiber Agreement
The 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
Removal of MFA
Bangladesh 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 MFA
 16 % 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
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-
KEY ELEMENTS FINALIZED
REGARDING ATC ARE AS
FOLLOWS:

(d)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%
Stage 3 1 January 2002 annually
Growth rate
increased by a
factor of 27%
ATC
Provisions 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
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
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.
IMPACT OF QUOTAS
a 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
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 ATC
At 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.
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
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. 20
PRESENT SCENARIO
Global 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 21
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.
22
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)

23
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
24