unctad.org | Conference on the Future of Textiles and Clothing After 2005
Statement by Mr. Rubens Ricupero, Secretary-General of UNCTAD
Conference on the Future of Textiles and Clothing After 2005
04 May 2003

"Will all developing countries benefit equally from
textiles and clothing liberalization?"

Distinguished participants,
Ladies and gentlemen,

It is with some trepidation that I have consented to speak on the question of whether all developing countries will benefit equally from textile and clothing liberalization. To me, this is an oxymoron. We all know that in trade liberalization, there is hardly a situation in which all countries benefit equally because trade is based on comparative advantage. I should therefore recast the question by asking whether developing countries in general will benefit from textile and clothing liberalization.

I say this because of differences in comparative advantages of developing countries across continents, in their factor endowments, their strengths and weaknesses in the textile and clothing sector, their domestic policies and a host of other factors that spell variations in competitiveness. But I wonder whether the answer is obvious, whether in the textile and clothing sector or in any other sector of international trade undergoing liberalization. So it seems the question of equal benefits from textile and trade liberalization is disingenuous from the standpoint of the liberal economic theory of international trade. But we all know where the textile and clothing sector is coming from in the context of international trade relations, and this is where I propose to anchor my thoughts on the question of benefits.

I believe that the international trading community is at last committed to lifting the remaining vestiges of quota restrictions as stipulated in the Agreement on Textiles and Clothing (ATC). I thought I should emphasize this. The credibility of the multilateral trading system is at stake, and I have no doubt that all will respect the terms of the ATC in line with commitments under the single undertaking compact of the Uruguay Round. This, I believe, is our common starting point at this meeting. Anything that makes us depart from this would be simply counterproductive.

For too long, the derogation represented by the Multifibre Arrangement and its predecessor arrangements from the basic principle of the multilateral trading system constituted a reverse form of special and more favourable treatment for developed countries to impose discriminatory restrictions in a sector of crucial interest to developing countries. It provided them and their textile industry with more than 30 years of protection in a major sector of developing countries´ manufactured exports. It is only right that this longstanding deviation from the basic rules be finally laid to rest with the lifting of quota restrictions in 2005 under the ATC. This action would symbolize in one stroke a credible response to the development needs and aspirations of developing countries.

For all this time, their participation in international trade in textiles and clothing has been blunted by an anomalous instrument alongside the General Agreement on Tariffs and Trade that championed the cause of an open trading system. The textile and clothing sector was one sector that offered good prospects for diversification away from traditional commodity exports, for entry into the area of manufactures, for absorption of large pools of manpower, for crossing the big divide between the rural and urban sectors, for poverty alleviation and for gender empowerment. In short, the question of benefits in trade cannot be divorced from the larger issue that there is an encompassing development dimension to the integration of textiles and clothing into the normal rules of the trading system.

With the conclusion of the Uruguay Round, large welfare gains were predicted to emanate from the textile and clothing sector in initial estimates of the benefits of liberalization. Several modelling scenarios estimated gains for developing countries ranging from as low as 12 per cent to as high as 64 per cent of total welfare gains.

It bears recalling that the ATC is part of the entire package agreed in the Uruguay Round. Developing countries have paid for that agreement in exchange for acceptance of other agreements in the package. This is why developing countries accepted the package, in anticipation of the gains in this sector. There was a compact, and that compact deserves to be respected. Anything contrary to this will have unimaginable implications for the trading system.

Against this historical background, it is not surprising that the future of the textile and clothing sector after 2005 attracts mixed reactions and intentions from different quarters and stakeholders. After all, the sector has long been an example of managed trade, spawning vested interests in both exporting and importing countries. It is time to permit normal trade rules to govern trade relations in this sector, which is of such dynamic potential for developing countries.

Addressing the issue of benefits, we will agree that if the notion of equal benefits were developed as a standard for engaging in multilateral trade liberalization, then that would unravel the liberal trade philosophy of the trading system and reinforce mercantilist pressures. I do recall several sectoral agreements in the Uruguay Round, including one on information technology products, from which a few major players stood to benefit most. Was the notion of equal benefits ever posed in this regard? No. And it is the same spirit that should inform liberalization in this sector as well.

Developing countries would benefit from textile and clothing liberalization through opportunities being made available to them on an equal basis in a quota-free world, underpinned by the principles and disciplines of the multilateral trading system. Extrapolating from recent IMF and the World Bank studies on income, trade and employment implications for developing countries arising from combined quotas and tariffs on industrial country imports, it can be estimated that developing countries would have income gains of about US$24 billion per year, export revenue gains of US$40 billion and employment generation of about 27 million jobs. But translating opportunities into actual trade performance is altogether a different matter -- one for the traders and economic operators to act on, and one that would require appropriate domestic policies and measures as well as production, technological and marketing strategies to maintain or improve the competitive edge of developing countries.

What I am saying is that the post-ATC regime offers opportunities of export markets free of quota restrictions. The name of the game is therefore competitiveness, and so it is incumbent on the various national stakeholders to prepare themselves to exploit the vast opportunities offered by the lifting of quota restrictions beginning in 2005. Many developing countries have a competitive edge in yarns and textiles; others in made-ups; and still others in apparel and so forth. So there is something in the lifting of restrictions for every participant. But there are fast-changing phenomena at work in the textile and clothing business, and there are new ways of doing business, new technologies, new and better fabrics. Specialization in niche products and in diverse export markets is probably the wave of the future.

I said earlier that the lifting of quotas constituted in one stroke a credible response to development concerns because numerous analyses of the ATC point to backloading of liberalization. Liberalization delayed is liberalization denied. Numerous national studies of the ATC and its impact on the textile and clothing sector of developing countries are replete with frustrated commentaries and unfulfilled expectations.

The intervening period leading up to 2005 was an excellent opportunity for adjustments by importing countries. But this is water under the bridge, a missed opportunity. Had real liberalization taken place in the early stages of the transition period, lifting the bulk of quotas at the final stage on the so-called sensitive products, such as apparel, would be a matter of course, one that could not be subject to suspected reluctance to lift quotas at the hour of reckoning. In any event, importing countries have only themselves to blame for accumulating problems.

Additionally, the intervening period has seen the proliferation of contingent protective measures against textile products, a disquieting development that if not reversed could undermine the efficacy of lifting quotas under the terms of the ATC. These trends, we hope, do not presage the further proliferation of contingent protective measures in the textile and clothing sector in the post-ATC era. If they did, they would tend to nullify the benefits of the removal of quotas.

In this context, developing countries have a strong case in pressing for special and differential treatment in respect of improving rules and disciplines on contingent protective measures. Developed countries should be extremely circumspect in applying such measures to imports from developing countries. And in the context of the Doha negotiations on market access in non-agricultural products, developed countries´ tariffs in this sector should be addressed appropriately so as to enable increased trade for the developing countries in the spirit of trade liberalization in an area of major export interest to them.

The intervening period leading up to 2005 also saw the emergence of regional trade arrangements and unilateral preferential schemes on international trade in this sector. These preferential regional arrangements or programmes provide for no quota restraints and/or duty-free treatment on imports of textiles and clothing from subsets of developing countries, which I shall refer to in short as the preferred suppliers. What is the challenge for them in the post-ATC era? For the United States, there are the Caribbean Basin Initiative, the Andean Trade Preferences Act and the African Growth and Opportunity Act, not to mention NAFTA. And of course for the European Union, there are, among others, the Euro-Mediterranean Association Agreements, preferential arrangements such as the ACP-EU Trade Agreement and the Everything But Arms Initiative. There is also the further enlargement of the EU to cover many Central European countries.

Let me quickly cite a few numbers that suggest increases in exports of the preferred suppliers:

  • · Textile and clothing exports of preferred suppliers to the United States grew significantly between 1995 and 2001 (CBI by 69 per cent, ATPA by 40 per cent and the AGOA countries by 131 per cent).
  • · Market shares were significant for the CBI countries (about 12 per cent). Market shares for the ATPA and the AGOA were, however, less than 1 per cent.
  • · Mexico´s exports grew by 132 per cent during the same period, its market share in the US increasing from 5 per cent to 13 per cent.
  • · Textile and clothing exports from the EBA countries and countries acceding to the EU also grew significantly during the same period (by 83 per cent and 20 per cent, respectively).
  • · In 2001, the EBA countries´ market share in the EU was about 5 per cent, while that of the EU acceding countries was about 27 per cent.

Statistics on increases in exports of preferred suppliers to the US and EU must be assessed in conjunction with the baseline, value, volumes and increase in trade shares, so as to obtain a complete picture of the efficacy of the agreements and schemes. The conclusion seems to be that real gains are more evident in the RTA type of arrangements.

Reports indicate substantial intratrade of textiles and clothing taking place between the US and the EU on the one hand and their respective preferred country suppliers on the other hand, an indication of closed production chains. This has been attributed largely to preferential rules of origin designed to encourage the use of US or EU inputs. In other words, the beneficial impact of these arrangements is on textile producers from the importing countries, a development that has permitted them to regain some competitive edge in that sector, which is generally capital- and technology-intensive. In the light of the lifting of quotas under the ATC, it seems unlikely that the closed investment and trade loops under these agreements or schemes would be unduly disturbed, let alone displaced.

In any case, analyses of some of these agreements or schemes highlight certain drawbacks, such as non-trade conditionalities, eligibility criteria and stringent rules of origin that detract from their efficacy. It seems that preferred suppliers face conditions circumscribing the utilization of benefits. In contrast, trade in the post-ATC world would be more predictable and stable for economic operators.

The question arises as to the treatment of non-preferred developing country suppliers. Often referred to is the notion of "discriminatory trade liberalization" or "discriminatory free trade" aimed at demonstrated inclinations for preferential trade arrangements and programmes, allowing duty-free and quota-free imports from subsets of countries while maintaining barriers to imports from other sources. It might or might not be relevant to note again that the intervening period leading up to 2005 saw the parallel institution of preferential treatment of a subset of developing countries.

Simulations of the effects of dismantling quotas and liberalizing tariffs suggest increases in world market shares of developing countries as a whole. Shares of certain developing countries from Asia increase a few percentage points, while those of other developing countries or regions free from quota restraints decline. Differential effects of quota dismantling do essentially reflect variations in production and trade structures of developing countries within and across regions.

It is evident that non-preferred suppliers stand to be placed on parity footing with preferred suppliers insofar as the lifting of quota restrictions is concerned. Price competitiveness would make a lot of difference in the post-ATC world, although non-price competitive factors, such as quality, quick responses to changing consumer tastes, fashions, development of new fabrics, etc., should not be discounted. Developing countries with developed or integrated production structures encompassing fabrics and apparel are probably poised to better utilize the market opportunities of a quota-free trade regime in textiles and clothing. That being said, preferred suppliers would nonetheless continue to enjoy the cushion of duty-free treatment in certain arrangements.

Observers have noted the impact of regional trade agreements diminishing the shares of major non-preferred suppliers. Lifting quotas would restore parity of treatment of non-preferred suppliers, but preferred suppliers would continue to enjoy duty-free treatment, an advantage not available to non-members of those agreements. Conversely, non-preferred suppliers would continue to be discriminated against by way of tariff treatment. It occurs to me that lifting quotas under the ATC provides an opportunity even for preferred suppliers in regional trade agreements to diversify their export markets.

I have emphasized market opportunities because this is only one aspect of the notion of benefits. Translating opportunities into, say, market shares requires supportive domestic policies ranging from wage policies, overcoming infrastructure bottlenecks, export promotion activities, improving productivity, retraining, improving value chain linkages, etc. I emphasize a broad-front approach by national policy makers to reap the opportunities offered by the dismantling of quotas in this sector.

Comments have been made about the investment displacement effect of lifting quotas away from poor developing countries. I am uncertain whether lifting quotas is a sufficient factor for this to take place, especially because the trade and investment linkages are well established. Perhaps there are other more important factors affecting investment and production decisions. I look forward to discussions in this regard in another session by those in the business of making production and locational decisions.

Having briefly shared with you my thoughts on the question, let me echo the conventional wisdom that the post-ATC regime would not permit discriminatory quota restrictions as a matter of rule. This is basic. What, then, could be done in favour of the less competitive developing countries, whose capabilities to respond to new market opportunities are limited? This points to the need for positive measures to assist less competitive developing countries adjust to the rigours of the post-ATC regime. Action to improve supply-side capacities would be an example in this regard.

For many developing countries, exports of textiles and clothing range from 20 to 60 per cent of their exports of manufactured products. It goes without saying therefore that the lifting of quotas would finally unleash their potential for greater growth and development and enable them to benefit much more from the multilateral trading system.


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