Jul 4, 1984

NOTHING "SPECIAL" ABOUT TEXTILES AND CLOTHING TRADE, SAYS GATT.

GENEVA, JULY 2 (IFDA/CHAKRAVARTHI RAGHAVAN) — There is nothing "special" about international trade in textiles and clothing, warranting "special arrangements" for them, according to a report of the secretariat of GATT.-

International trades in textiles and clothing have been governed by special restrictions since the 1960’s.-

In 1961, the Short Term Arrangement (STA) on cotton textiles was introduced, and became in October 1962 the Long-Term Arrangement (LTA) in cotton textiles, lasting till 1973. It formally exempted an important part of world trade from GATT rules, particularly that of non-discrimination and general prohibition of Quantitative Restrictions (QRs).-

By mid-1960’s, when some Third World and East European countries became competitive in synthetic fibres and yarns, first bilateral QRs outside GATT sprang up, and later were "legitimised" through the 197l Multifibre Arrangement (MFA-I), under which in return for restrictions, the exporting countries were assured minimum growth rates for quotas and flexibility in procedures and implementation.-

While opinion is divided on contribution of MFA-I to growth in world trade in this sector, MFA-II resulted in significant tightening of Industrial countries restrictions on imports from the Third World, particularly through the concept of "jointly agreed reasonable departures" clause, GATT points out.-

And while the "reasonable departures" clause was given up in MFA-III, in actual implementation there has "a further tightening of application of restrictions", GATT adds.-

At the November 1982 Ministerial meeting, it was agreed to study the issue of further (...) in this sector, including possibilities of bringing about full application of GATT provisions to this sector.-

The GATT Contracting Parties are to consider the issue at their work November meeting, and the current secretariat study (Spec.(84)24) is a background (...) for the November meeting, the issue is being considered in a GATT working –456:7443,5)6.-

Apart from the secretariat study, the Third World memcoys of the MFA have (...) their own private study on (...) these issues.-

The secretariat study cebuos the arguments of the Industrial countries that trade in this sector is a "special cuse needing special measures", due among other things to the
"low cost" imports from the Third World and its impact on production and employment in the Industrial countries.-

"It will be difficult to argue in 1984 that trade policies in textiles and clothing are a 'special case' and thus in need for special trading regimes", the GATT study says.-

"A number of developing countries", it underlines, "have become competitive in a wide range of manufactured goods since 1960 ... the competitive challenge of developing country exports of footwear, ships, radios, T.V. and other light consumer goods, steel and other manufactures have to be managed within the GATT system.-

"Nor are the developed countries the only ones feeling the pressure of low cost imports as is evident in the situation facing labour-intensive products in South Korea, Hong Kong, Taiwan, Singapore and other more advanced developing areas".-

Changes in the Industrial countries' textile and clothing industries, as well as changes going on in many other tradeable goods industries, have had the effect of bringing the trade related problems confronting these two industries into the mainstream of commercial relations.-

"As such trade policy officials face essentially the same general issues in dealing with textiles and clothing as they do in dealing with several other tradeable goods industries. The solutions to these problems lie at the general trade policy level", GATT says.-

"The fundamental issue is structural adjustment i.e. the way in which economies respond to the pressures for changes in the patterns of production and trade that are inherent in the process of economic growth".-

"In many respects, the structural adjustment problems confronting the textiles and clothing industries in the developed countries is the prototype for structural adjustment in general. Future policy decisions regarding these two industries will be a key test of the Industrial countries' approach to structural adjustment".-

Basing themselves on their own study, the Third World MFA members note that the two main objectives of the MFA were to:

-- Expand and liberalise trade in textiles and clothing and increasing the share and earnings of the Third World in this sector, while

-- Providing a "breathing space" within which the textiles and clothing industries of the Industrial countries were to structurally adjust.-

Neither of these objectives have been met, they point out.-

While this is due a complex interplay of various factors, they note that the major cause lay in the provisions of the MFA itself - the justification for discriminatory "safeguard" actions under the MFA under the concept of "market disruption" without any means set to establish whether in fact market disruption has been caused by "low cost" imports from particular sources.-

When a correspondence is established between the categories of products for which "selective safeguards" were invoked and the product lines, the Third World countries say "the decline in production, if at all, was not caused by imports from MFA Third World countries".-

Among the other factors responsible, they say, are:

-- The slow growth of overall demand and the lagging behind of consumer expenditure on textiles and clothing as compared to other consumer items, and

-- The level and behaviour of wages that determine the profitability of these sectors to a greater extent than in other sectors.-

Since rigidities in labour markets (in the north) do not permit reflection or differences in productivity between industries, profits are squeezed and production and employment decline.-

This affects competitiveness vis-a-vis foreign suppliers who have comparative advantage, but the rise in imports from the Third World is a "symptom" rather than a cause of market disruption, they argue.-

The GATT study notes that the problems of adjustment faced by the Japanese industry have been identical to those of the U.S. - growing comparative disadvantage in labour cost, reduced employment and number of firms, increasing government regulations, increasing imports, and a host of new competitors in foreign markets.-

Despite this the Japanese textile complex actually gained strength and increased control over global textile complex activities, through a deliberate decision to streamline and upgrade their domestic complex and to pursue the shifting comparative advantage to the Third World through direct foreign investment.-

The Third World group underline that consumption and labour productivity in Industrial countries, due to technological change and automation, have had a much greater impact on employment than changes in imports.-

Third World countries also rebut the argument about "low cost" production in the Third World due to "low wages", and say facts show that this was not true, at least in some of the products.-

For e.g. while hourly wages in India and Korea are about 1/15th of that in the FRG, wage costs only account for 30-40 percent of total costs.-

The Third World lags in productivity to such an extent that total manufacturing costs in India are as much as 68 percent of that of West Germany, while for Brazil and South Korea it is respectively 74 and 79 percent. It is 79 percent for U.S.A.-

When transport costs are added, West Germany needs only a three percent duty on yarn from Korea and 12 percent on cloth, while the U.S. textile industry needs no protection at all.-

The Third World countries also rebut the arguments of the "size" of the domestic market as a cause for the problems - an argument advanced by some of the "small" West Europeans to justify restrictions.-

The Third World countries rebut this by comparing the cases of Sweden and Switzerland. While Sweden’s textile production declined between 1977 and 1981 by 21 percent, and that of clothing by 33 percent, in Switzerland textiles production increased slightly while that of clothing declined, but at one-fifth of the rate in Sweden.-

Imports from the Third World were not the cause of difficulties of the Swedish textiles and clothing industries, these countries argue.-

The stringent import restrictions in Sweden contributed to decline in productivity and relative poor performance in exports.-

The specialisation along lines of comparative advantage – shift from lower to higher value added products – made possible in Switzerland due to lack of restrictions, was an important factor in raising productivity, competitiveness and exports.-