The Hindu Business Line : Stitch in time

THOUGH THE CHINESE Commerce Minister, Mr Bo Xilai, described the textile trade deal between the US and China as a `win-win' situation for both sides, Beijing has got a better deal than Washington. This is mainly because Beijing has extracted import caps of 8-10 per cent in 2006, 13 per cent in 2007 and 17 per cent in 2008 instead of a flat 7.5 per cent which Washington can impose on Chinese imports under the 2001 WTO accession agreement with Beijing. For the latter, this schedule of export caps will yield a higher return than the 2001 ceiling, which is perhaps an acceptable price while waiting for a future (after 2008) when the sky should be the limit for Chinese textile exports.

For Washington, the accord provides a breather from an insistent textile manufacturing lobby. (In the first eight months since January, when the new quota-free WTO textile trade regime came into force, Chinese exports to the US have shot up by about 55 per cent to about $17.7 billion.) Even so, the lobby has hailed the agreement which, it feels, is better than that signed by Beijing and Brussels in early September in that it has lower growth rates for the most sensitive items of clothing imports and which also will last a year longer (the accord with the EU ends in 2007). This apart, there will also be a large measure of predictability in the disruption caused by the imports from China because the accord covers three years. In other words, the adjustment period for US textile manufacturers will be less chaotic.

The interesting aspect of the entire issue is that, as in the EU, there is a clash of interest between the US textile manufacturers and the retailers, the latter keen on cheap imports which would add to their profits. Not surprisingly, US retailers and importers are relieved that they will have stable supplies till 2008 though disappointed with the relatively low growth rates for imports. The story is the same in Europe. While members such as France, Italy, Portugal and Spain, which have significant textile manufacturing lobbies, have opposed any concessions to the Chinese, northern European countries such as Germany and Sweden are reportedly backing their retailers in their demand to let into a starving market the stockpiles of Chinese garments waiting at ports.

As for the Indian textile sector, there is little doubt that US/EU-China accords will open more export opportunities as importers will have to look elsewhere for supplies that would have come from China in the absence of the new quotas (till 2008). Admittedly, there is some concern among Indian exporters about the impact the release of the held-up Chinese supplies at ports will have on order flows. This may but be a transient problem of much less importance than the longer-term strategic task of gearing up the infrastructure and the quality levels of the domestic industry. Chinese prices cannot be matched, but Indian exporters can excel — as they have in the newer markets of Spain and Italy — in value-addition and in the supply of niche products. Strengthening these aspects of the textile industry would contribute greatly to the overall task of improving the competitiveness of Indian products, which is perhaps the only way to check the Chinese juggernaut.

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