In the last few weeks, four developments have taken place abroad that might impact our exports significantly. The first is the deal between China and the US to facilitate China's entry into World Trade Organisation (WTO). The second is the proposal of the developed countries to allow duty-free access to the goods originating from least developed countries (LDCs). Third, the entry of Turkey into the European Union (EU) and the attempts of Malta and Cyprus to gain entry into the union. Fourth, the US attempt to push through a Sub-Saharan Trade Agreement.
India has welcomed the move to facilitate China's entry into the WTO. Our hopes are that our access to China's markets will improve and that China will have to dismantle its non-transparent system of export subsidies. One key question will relate to whether China will get quota free access in textiles, by January 1, 2005, when the self-destructive clause in Agreement on Textile and Clothing comes into force. If China gets that, we will face more competition in textiles.
The proposals of developed countries to offer duty-free (not quota-free) entry to LDC goods directly threatens our exports. Having championed the cause of the developing world, we might now find it difficult to assault the ploy of the developed countries to split the LDCs and developing countries. However, much depends on the items that will get duty-free entry.
The entry of Turkey into EU will enable the developed EU countries to send their fabrics to Turkey and get their garments made with cheaper labour in Turkey. The US is already reaping the benefits of the North American Free Trade Agreement by sending fabrics to Mexico and getting the garments made by Mexican workers. US' imports of garments from Mexico has increased considerably, at the expense of the Asian countries. EU intends a similar development.
Under the Sub-Saharan Trade Agreement, the US hopes to ship fabrics to 38 low wage African countries and get garments made there. Such goods will get duty-free entry in US. Indian garments have a 17 per cent duty and still compete with such Sub-Saharan goods. We may lose our market share. The strategy of developed countries seems to be to put in place regional trading arrangements before textile quotas are phased out in 2005. In five years, the EU may try to enlist other lower wage countries in East Europe.
These developments need to be factored in when the textile ministry frames the textile policy. Meanwhile, manufacturers in Surat complain of increased imports of fabrics from East Asia, via Dubai. They claim the importers have set up dummy trading outfits in Dubai to under in-voice and facilitate duty evasion. The manufacturers fear that the menace will grow and kill their units, unless the customs take prompt action.
(Rajagopalan is an authority on exports and imports.)