1.  INTRODUCTION

The International Trade Centre UNCTAD/WTO (ITC) was created in 1964 by the General Agreement on Tariffs and Trade (GATT) and since 1968 it has been operated jointly by GATT and the United Nations, the latter acting through the United Nations Conference on Trade and Development (UNCTAD). It is the focal point in the United Nations system for technical cooperation with developing countries and transition economies in trade promotion.

ITC works with developing countries and transition economies to set up effective national trade promotion and export development programmes for expanding their exports and improving their import operations. In addition to specific technical cooperation projects ITC provides services from its headquarters in Geneva, which include publications on trade promotion, export development, international marketing, import operations and foreign trade training, as well as trade information and trade statistics of various types.

The conclusion of the Uruguay Round of Multilateral Trade Negotiations in December 1993 has rather significantly increased ITC’s activities in the field of textiles and clothing due to the introduction of the Agreement on Textiles and Clothing (ATC). The months leading into the conclusion of the Uruguay Round were clearly indicating that the producers/exporters of textiles and clothing in developing countries were becoming increasingly confused and concerned about the future development in international trade in textiles and clothing. Probable implications of the newly established ATC seemed uncertain and therefore it was decided at ITC that a series of workshops related to the "Implications of the Introduction of the Agreement on Textiles and Clothing" be conducted both in developing countries and transition economies in 1995 - 1998. More than twenty workshops have been so far conducted in the following countries in chronological order: India, Bangladesh, Nepal, Tanzania, Zimbabwe, South Africa, Jamaica, Poland, Thailand, Mauritius, Honduras, Egypt, China, Vietnam, Indonesia, Kyrgysztan, Romania, Mexico. More than 2000 industry leaders and relevant government officials have been attending the workshops.

During the one-day workshop the ITC team has been looking into the possible implications of the ATC and the liberalisation of the existing quota regimes in importing countries by the end of the year 2004. Other related matters have also been discussed, such as eco-labelling, environmentally friendly products and production methods, social clause and social labels. Lately, such topics as the code of conduct, rules of origin and anti-dumping have also been included in the workshop programme.

2. BACKGROUND

Soon after the World War II, a major part of international trade was governed by national trade regimes, which were mostly very complex by nature. Economic difficulties following the post-war era in several developed countries were presented as justification for high tariffs, complex import licensing procedures, and an array of trade restrictions etc. However, in the 1950s quantitative trade restrictions were reduced once both the GATT and the IMF started pursuing the liberalization of trade.

The gradual removal of trade restrictions in the developed countries coincided with the emergence of a number of developing countries as exporters of textiles. Those developing countries, which had an access to raw materials and cheap labour, were in the position to increase their exports of cotton textiles, followed a few years later by clothing exports. This trend was not favourably received in developed countries, where the developing country imports quickly became a threat to local industries. In order to avoid potentially serious social problems some developed countries negotiated with the supplier governments in developing countries special agreements in order to limit the quantities of their exports of cotton textiles.

For more than thirty years this sector has been covered by several special arrangements: the Short Term Arrangement Regarding International Trade in Cotton Textiles (STA) in 1961 which was then followed by the Long Term Arrangement Regarding International Trade in Cotton Textiles (LTA)(1963-1973). After the LTA the Arrangement Regarding International Trade in Textiles (the Multifibre Arrangement – the MFA) was introduced as a temporary measure to control international trade in textiles and clothing. The MFA was extended five times and came eventually to an end 31.12.1994 when the Agreement on Textiles and Clothing (ATC) was introduced on the following day. Since these arrangements were restricting the volume of trade they were not in conformity with the existing GATT Rules. Therefore this sector has remained outside the GATT(WTO) Rules.

The MFA was forcing the developed countries to modernise their production of textiles and clothing in order to face the growing competition from developing countries and transition economies. According to the European Commission European textiles and clothing industry has gone through a difficult adjustment period over the last 15 years during which some 800,000 jobs were lost. Today the industry has about 100,000 enterprises employing 2,4 million people. The industry is now much more competitive and European textiles and garments are being sold all over the world as can be seen in the statistical tables above. In the early 1990’s there were eight developed countries amongst the top 15 textile exporters in the world (Germany and Italy amongst the top five) and similarly out of the 15 top garment exporting countries there were seven developed nations amongst them. Germany and Italy were again amongst the top five suppliers.

It has been evident that there has been a regular shift of the production from quota restricted countries to less restricted ones as soon as the quotas began to cause considerable problems for the traders in importing countries. Typically, the production of garments has been started over the last 10-15 years in several South East Asian countries once the quotas in more traditional producing/exporting countries in the area began severely to restrict the trade. These countries were at the time relatively unknown as garment producers.

A very typical case is Bangladesh, which in 1980 had practically no garment production or exports. Korean export agents together with American buyers were busily looking for new potential suppliers (with no quota restrictions) and contacted some interested parties in Bangladesh early 80’s. This was a beginning of a new export industry with an extraordinary growth as shown here: in 1980 garment exports were US$ 2 million, in 1988 some US$ 416 million and in 1993 some US$ 1,250 million. The estimated figure for 1998 is about US$ 3,780 million. The success of the Bangladesh garment exports was partially helped by her status as an LDC that has granted a quota free access for Bangladesh garments into the EU markets. The creation of the garment industry in Bangladesh may, however, largely be attributed to the existence of the MFA quota system and not so much due to actual market demand. However, the fact that new developing countries have been attracted into the production and exports of garments may be considered as one of the positive results of the MFA.

Since the quotas restricted the textiles and garments exports it made sense to try to upgrade the products in order to increase the unit value of the export items. The quotas were applied by number of products, not by the unit price. The MFA has also given a kind of market share for quota holders, even if it has to be emphasized here that the products still had to be competitive enough to be able to enter the market. The quota itself could not be considered as a guarantee for a market share. On the other hand, an exporter without a quota, but possibly with a very competitive, attractively priced product, could not necessarily enter the market. One additional problem area was developed during the MFA period: transshipments through third countries in order to avoid quotas. Falsified documents of origin have also been causing quite a lot of concern in restraining countries.

According to the GATT the international trade in garments has been growing very fast and in 1987 the value surpassed for the first time that of textiles. In 1997 global clothing exports reached US$ 177 billion and the same year textile exports were valued at US$ 155 billion. From 1985 to 1997, textile trade increased by 182 per cent and the corresponding figure for the garment trade was 259 per cent.

The significance of Asian exporters of textiles and garments has been over the past twenty years steadily growing. In the 1970’s the share of Asian textile exports of the global exports was about 28%, in the 1980’s some 34% and in 1997 well above 40%. Over the past two decades the textile production has been growing steadily 3,6% per annum in the developing countries. The corresponding figure for developed countries has been 0,2% only.

The world’s largest producer/exporter of textiles and clothing, China became a member of the MFA only in the early 1980’s, when its textile exports were about US$ 2,5 billion per annum. They have since risen more than three times. The clothing exports have risen during the same period almost twelve times. Chinese textiles and clothing exports increased from US$ 8,5 billion in 1986 to US$ 46,6 billion in 1997, i.e. about 25% of the total exports China.

North America, i.e. USA, is still a relatively significant exporter of textiles (in1997 some US$ 9,19 billion) and clothing (some US$ 8,67 billion), but the country has lately become by far the largest importer of textiles and garments - in 1997 some US$ 62,8 billion. The share of the US garment imports in 1997 was about 30 per cent of the global garment imports.

Some other areas in the world have not been growing particularly fast as exporters, but it may be specially mentioned that Latin American suppliers have lately continued to increase their exports to North American market. The impact of the introduction of NAFTA can be seen very clearly: the clothing industry in Mexico has now about 8000 production units. The country has become the largest supplier of clothing in the US market in 1997 (about 1555 million m2) showing an increase of about 50% in 1996. In fact the U.S. market is clearly showing a trend favouring the suppliers located in the U.S. hemisphere at the cost of the Asian suppliers. In addition to Mexico, now some the fastest growing suppliers in the U.S. market are countries, such as Honduras, El Salvador, Dominican Republic and Jamaica.

In the case of African suppliers the easy access into the EU-markets due to the Lomé Convention has not been utilized to a large extent, Mauritius being an exception to this rule. The Middle East, notably the UAE has been developing garment exports both to North America and Europe to such an extent that both markets have already imposed quotas on products coming from the UAE. Recently the Central and Eastern European countries have been increasing their market share in Europe through an intensified cooperation (OPT = Outward Processing Trade) with several EU member countries, such as Germany and more recently Italy.

4. AGREEMENT ON TEXTILES AND CLOTHING (ATC) 1995/2004

It was significant that this sector was included in the Uruguay Round of Multilateral Trade Negotiations in 1986. The complex negotiations over a period of seven years resulted in the Agreement on Textiles and Clothing (ATC) which now forms an important part of the final results of the Uruguay Round. As stipulated by the ATC this sector will be fully integrated into WTO rules by 01.01.2005 and at the end of the ten-year transitional period the ATC will no longer exist, since it is the only WTO Agreement that has its own termination built in.

According to the ATC the quotas in international textiles and clothing trade are to be terminated and the tariffs on such products are also to be progressively reduced. The lengthy and difficult negotiations highlighted the sensitive nature of this sector both in developed and developing countries.

As mentioned earlier the main purpose of the Agreement on Textiles and Clothing is to bring finally the international trade in textiles and clothing into the basic principles of non-discrimination of GATT discipline. In certain ways the ATC may resemble the MFA, but the fundamental difference is that the ATC will not be prolonged, as was the case with the MFA. There shall be no extension of this Agreement (article 9). The progressive dismantling of the MFA was one of the primary goals of the new Agreement. The ATC will cease to exist 31.12.2004 and so will the quantitative limitations to the international trade in textiles and clothing. The integration programme for textiles and garments into GATT rules will be carried out as follows:

01.01.1995	Integration of products which represent not less than 16% of their imports of all those products in 1990
01.01.1998	An integration of not less than 17% of those products
01.01.2002	Not less than 18% integration
31.12.2004	All the remaining 49% will be integrated into GATT

It may be mentioned here that it is the importing country that will decide about the products that will be integrated at each stage. The importing country will, however, have to include products from the following product groups, i.e. tops and yarns, fabrics, made-up articles (towels, home textiles etc) and clothing.

The MFA restraining countries have fulfilled their obligation of the first stage to integrate 16% of their imports at the level of 1990. Yarns and fabrics account for more than 70% of the integrated products and consequently the proportion of clothing is very small. The integration of the first stage did not liberalise any significant restrictions in the EU, Norway and the United States. In Canada it has removed the quotas for working gloves only. The second integration 1.1.1998 also made very little impact on the actual trade since the quota liberalisation planned by the US included babies garments (cat.239), down-filled coats (cat. 353, 354, 653 and 654) and hosiery (cat. 632). As regards the restrained countries the liberalisation of these products is negligible.

For the second milestone European Commission published the plan for the integration, and as was expected the reciprocity for the market access remained an important issue. The Commission announced that 24 product categories from skiwear to swimwear are included in the proposal. Quotas covered 19 of the proposed categories. The list included gloves, wool and non-woven fabrics, carpets, women’s suits, ski-suits, corsets, stockings, tents and mattresses. The EU was to integrate in this 2^nd stage 17% of textiles and clothing and according to the Commission the categories to be integrated covered 17,84% of EU imports.

Against this background it is clear that the actual removal of the most important quota barriers will only take place during the third and, particularly, fourth milestones. In other words 01.01.2002 and 31.12.2004.The most sensitive quota products, such as T-shirts, men’s shirts, ladies’ blouses, jeans etc. will most probably be integrated on the last day of the ATC only. In the meanwhile developing country producers will have to continue their preparation for the new market situation in the year 2005.

Regarding the acceleration of quota growth, any bilateral agreements in force 31.12.1994 will remain in force until 31.12.2004 except for those products that have been already integrated into GATT. For quotas, which remain, growth rates must be increased according to the following formula: at the beginning of Stage 1 rates must be raised by 16%, i.e. a 10% annual growth becomes 11,6%. At the beginning of Stage 2 the growth rates must be at least 25% higher than those in Stage 1, i.e. an 11,6% annual growth becomes 14,5%. Stage 3 growth must be at least 27% higher than in Stage 2. Thus a quota which grew under the MFA 10% in 1994 will grow by 18,4% between 2002 and 2004.

Rules and procedures concerning the circumvention of the restrictions through transshipments, rerouting etc., as well as false declarations of origin are also provided in the ATC. These rules require consultation and cooperation by Members concerned during the investigation process. If sufficient evidence is available the entry of goods might be denied. The monitoring, dispute settlement and review procedures will be handled by the Textile Monitoring Body (TMB) as stipulated in the ATC (Article 8). The TMB consists of a chairman and ten members and the decisions will require a consensus.

5. IMPACT OF THE ATC ON DEVELOPING COUNTRIES PRODUCING TEXTILES AND CLOTHING

According to the GATT Secretariat the likely effects of the conclusion of the Uruguay Round will by 2005 be some US$ 500 billion higher than before and based on 1994 trade figures (US$ 129 billion for textiles and US$ 140 billion for garments) the additional potential growth for this sector could be as high as US$ 100 billion.

However, the feeling amongst many developing country producers/ exporters about the impact of the ATC is so far rather guarded. Many producers feel that the real impact, i.e. the abolition of the quotas for the most sensitive will be left to the very last moment, i.e. 31.12.2004. In addition to that some of the recent developments in the international trade in textiles and clothing are perhaps not very encouraging from developing countries’ point of view. The U.S. Rules of Origin (as of 01 July 1996) and the increasing threat of the EC anti-dumping duties on imports of cotton textiles from a number of developing countries, such as China, Egypt, India, Indonesia and Turkey, may be mentioned as examples.

As regards the overall impact it may be noted that the countries with substantial exports in textiles and clothing will probably gain from the ATC and specifically this will apply to a number of dynamic exporters in Asia. In this connection it may be mentioned that some of the most important producers/exporters of textiles and garments are not yet members of the World Trade Organization, such as China (the world’s largest producer/ exporter), Taiwan (Province of China), Viet Nam, Russia. Textile and clothing producers in developed countries are looking forward to the gradual opening of potentially vast consumer markets, such as China, India and Indonesia.

The ATC will serve as a preparatory period for developing countries to be ready for the forthcoming quota-free international trade in textiles and clothing starting 1.1.2005. However, the producers in developing countries are well advised to follow the recent development in industrialized countries particularly in the field of environmentally friendly products, production methods, social clause and social labels. The quantitative restrictions of the international trade are supposed to disappear when the ATC will cease to exist, but there may be other non-tariff barriers coming up.

The fact that the integration process within the ATC has been far from satisfactory may actually be a blessing in disguise. It gives the producers/exporters in developing countries and transition economies more time to prepare themselves for the forthcoming more liberal and transparent trade