Market Access in 2005 will be free of quota restrictions for WTO member countries. However, trade will not be free from 2005. On the contrary, there is a danger that other trade policy instruments might be used in importing countries in order to compensate for the “loss” of quota restrictions. This section will give an overview about possible future market access constraints and other T&C trade uncertainties. These emerging issues, or challenges, affecting trade in T&C will be briefly described and links to further information provided.
WTO T&C site: http://www.wto.org/english/tratop_e/texti_e/texti_e.htm
WTO discussion paper: http://www.wto.org/english/res_e/booksp_e/discussion_papers5_e.pdf
EU study: http://europa.eu.int/comm/enterprise/textile/documents/ifm_final_report_2005.pdf
US-ITC study: http://63.173.254.11/pub3671/main.html
Uncertainty 1: Uncertainties of trade flows in and after 2004
On 31 December 2004, the Agreement on Textiles and Clothing (ATC) will end, and with it the quota system for international trade in textiles and clothing. As a result, trade in these sectors will undergo a fundamental change. By 2005 the sector will have been fully integrated into the WTO General Agreement on Tariffs and Trade (GATT), and all quotas will have disappeared. On a global level, consumers will benefit tremendously as well as those exporters that are in shape to withstand competitive pressure form countries that have been constrained under the quota system. For those countries, however, which were protected by the quota system, life will become more difficult, unless they gear up their competitiveness.
While nobody can give a precise picture of the global textiles and clothing market after 2004, there are some indicators of the potential winners and losers of the quota phase-out. Three important indicators are highlighted below:
a) Use of quotas
Countries which are fully using their quotas in the years preceding 2005 will probably increase their exports after that date. Countries which are not able to fill their present quotas are unlikely to benefit from a market opening. Quota performance monitoring, therefore, is essential. As only Canada, the European Union (EU) and the United States continue to impose quotas — 1,007 between them — this is a feasible task for countries to undertake.
US OTEXA: http://otexa.ita.doc.gov/default.htm#IMPORTQUOTAS
US customs: http://www.customs.ustreas.gov/xp/cgov/import/textiles_and_quotas/;
EU SIGL: http://sigl.cec.eu.int/
Canada:
http://www.dfait-maeci.gc.ca/tna-nac/goods-en.asp#8
http://www.dfait-maeci.gc.ca/trade/trade_policy-en.asp
b) Exploiting liberalized categories
The changes stemming from the liberalization of product categories, which followed the third stage of the ATC in January 2002, give a clue to possible developments. At that time, the United States integrated seven product categories into WTO, thereby abolishing quotas and causing trade flows to change tremendously. In all liberalized quota categories, China greatly increased its exports to the US market, in some cases up to several hundred per cent. While other countries increased exports in some categories, only China did so across the board, mainly to the detriment of Central American and Caribbean countries, and of some other small producers, which lost market share.
c) Critical export mass
Developing countries that are not under quota constraints will face intense competition, which they have not experienced before. For developing countries that do not currently have meaningful export quantities, it will become even more difficult to enter or to remain in world markets, and critical mass will become an important issue. Major international buyers are unlikely to source from a country where only a few companies serve the world market. Moreover, major textile and clothing buyers will reduce by half or even more the number of countries they source from. The challenge for countries and companies is to remain an important source for these buyers.
In addition, textile and clothing import prices have fallen continuously since 1996 in the US, Europe, Japan and many other markets. In an oversupplied, liberalized market, where quota rents will disappear, this trend is likely to continue, potentially bringing about a deterioration in developing countries’ terms of trade. Retailers in these market expect that prices will drop by 10-20 %, depending on the product and the market.
From 1 May 2004 the EU has extended its membership from 15 from 25 countries. For these new members it meant that hey had to adopt the EU trade policy. Thus, the 10 new members have now the same tariff structure, antidumping cases, quota management, etc. as applied within the EU. New members had to establish a quota management system for only 8 months until the quota phase in 205. Other features are as follows:
• Adaptation of EU lower tariffs (except Czech Rep., Slovakia, Hungary) i.e. more competition
• New EU members to apply quotas for 8 months
• ITCB members countries say : « This violates WTO rules: Article 2.4 ATC & DSP following EU-Turkey customs union
• EU quota increase pro rata for new EU 10: China & HGK quota increase extensive (due to old trade links)
• China’s quota increase in category 6 (trousers): + 50%;
• China’s quota increase in category 4 (knit shirts): + 41%
Overall, trade flows into the EU might be affected and influenced by the above facts, especially as EU quotas are valid for the EU as a whole independent, of the actual importing member country.
EU enlargement : http://trade-info.cec.eu.int/textiles/enlarg.cfm
EU enlargement : http://europa.eu.int/comm/enterprise/textile/enlarg.htm
e) Quota/export administration
The good news is that with the quota system also the administrative system for quotas will disappear, and thus transaction costs at the enterprise level will be reduced. With regard to the USA, there will be no visa system anymore in 2005. T he Committee for the Implementation of Textile Agreements (CITA), an inter-agency group chaired by the US Department of Commerce (DOC), has clarified that starting on January 1st, textile and apparel exports to the US from WTO member countries, if they are currently subject to visa requirements, will no longer require a visa, an Electronic Visa Information System (ELVIS) transmission or a Guaranteed Access Level (GAL) certification. However, all textile and apparel products that are exported to the US in 2004, and currently require a visa, will continue to be subject to these requirements, even if they enter the US next year. Current visa requirements specified in various US trade preference programs, such as the African Growth and Opportunity Act (AGOA), will remain in force. Additionally, textile and apparel goods exported from non-WTO member countries after 31 December 2004, including Cambodia, Vietnam, Russia, Belarus and Ukraine, may continue to be subject to currently applicable requirements. For all those countries, US Customs and Border Protection will also maintain its system of Textile Product Verification Visits to ensure that no transhipment of T&C products happen from companies of these countries. Companies, thus, will have higher transaction costs than companies in WTO member countries that do not benefit from trade preference programmes.
However, CITA has not provided guidance as to what will happen to goods shipped in excess of the 2004 quotas. With regard to this issue, CITA has reserved its right to take whatever action it deems necessary if exports exceed the 2004 limits. Specifically, CITA may deny entry or stage entry for goods in a particular category that were shipped in excess of that category's 2004 quota. Under staged entry, a limited amount of the excess merchandise is allowed entry in intervals, typically every 30 days. In this context, it is important to note that the staged entry process has not been used for some fifteen years.
The bad news is that restraining WTO members have already informed exporting countries that no carry-forward possibilities exist in 2004, i.e. countries cannot borrow quota from 2005, simply as there will be no quotas anymore. For some exporting countries that could mean a loss of trade possibilities of up to 5% in 2004.
US : http://www.otexa.ita.doc.gov
US Customs : http://www.customs.ustreas.gov/xp/cgov/import/textiles_and_quotas/
EU SIGL : http://sigl.cec.eu.int/
EU Helpdesk : http://export-help.cec.eu.int/
Canada :
http://www.dfait-maeci.gc.ca/eicb/textile/textiles-en.asp
http://www.dfait-maeci.gc.ca/tna-nac/Tex-Info-en.asp
http://www.dft.moc.go.th/eng/commodity/Textil2.htm
e) Rules of Origin Requirements
Non-preferential rules of origin
WTO DSP India-USA
(WTO Web site)
Preferential rules of origin
Uncertainty 2: Erosion of preferential market access for developing countries, especially LDCs and its reflection in sourcing decision of buyers.
a) WTO negotiations under the Doha Development Agenda (DDA)
After the successful General Council meeting from 27 – 31 July 2004 in Geneva, the Doha work programme seems to be back on track. The schedule is now to finalise the round by the end of 2005. While T&C are not immediately negotiated under the DDA, the outcome of the Non Agricultural Market Access (NAMA) Negotiations will have implications for T&C trade. The DDA states that particular emphases should be given to reduce high tariff, tariff peaks and tariff escalations. This is exactly the situation, which you presently find for T&C trade. Thus, depending on the applied formula and subsequent tariff cuts, preferences will be eroded for those countries, which receive presently duty-free market access or market access at reduced duty (such as GSP or under special free and regional trade agreements).
The NAMA negotiations also include a provision to put attention towards a sectorial approach in seven sectors of special interest to developing countries. The seven sectors have not yet been defined, but T&C could be a possible sector to look at.
Finally, the DDA also makes reference towards the elimination of tariffs and non-tariff barriers (NTBs) forto environmental goods and services. The problem is that these goods have not been defined and are open to wide interpretation. Within T&C, organic cotton as well as silk products might qualify for these additional benefits.
On cotton WTO Members agreed to make discussions on cotton an integral part of the agriculture negotiations rather than treating the issue on a separate track. In order to address the issue "ambitiously, expeditiously, and specifically", a special sub-committee will be established as part of the effort to "ensure appropriate prioritisation of the cotton issue independently from other sectoral initiatives". In addition, the Director-General was instructed to consult and work with relevant international organisations, including the International Trade Centre on the development aspects of cotton. For more on cotton please klick here.
WTO Doha Development Agenda :
http://www.wto.org/english/tratop_e/dda_e/dda_e.htm#dohadeclaration
WTO The July 2004 Package :
http://www.wto.org/english/tratop_e/dda_e/ddadraft_31jul04_e.doc
EU Commission on the DDA text:
http://europa.eu.int/comm/trade/issues/newround/doha_da/index_en.htm
The International centre for trade and Sustainable Development :
http://www.ictsd.org
b) Free Trade Agreements (bilateral and regional)
In response to the ATC, major buying countries have granted specific concessions that provide selected countries with comparative advantages. This tendency has resulted in regionalisation of trade in textiles and clothing and a complex patchwork of international trade agreements. This makes it very difficult for clothing-exporting small and medium-sized enterprises (SMEs) from developing countries to determine their competitiveness vis-à-vis that of major competitors. As quotas are phased out, there may be more concessions granted than before, rendering trade even more complicated.
EU: http://europa.eu.int/comm/trade/issues/bilateral/index_en.htm
US: http://www.ustr.gov
US: http://www.customs.ustreas.gov/xp/cgov/import/international_agreements/
Canada: http://www.dfait-maeci.gc.ca/tna-nac/menu-en.asp
c) Generalised System of Preferences (GSP)
GSP facilities are provided unilaterally by importing countries to a selected range of beneficiary countries, covering selected products and sectors. While the US GSP scheme does not provide any additional duty reductions for T&C imports, the EU provides duty reductions of up to 20% for eligible countries. However, they also use a product and country graduation system whereby counties that exceed certain level of development will loose gradually GSP benefits for certain products. In addition, the EU is presently revision is current GSP system, to introduce a new one as from January 2006. The EU Commission proposes to reform the present GSP system as follows:
-
It will target GSP benefits to countries most in need: e.g., least developed countries (LDCs).
-
It will simplify the GSP system to reduce the arrangements to only three: a general arrangement; the "Everything but Arms" initiative giving duty-free and quota free access to the world's 50 poorest countries; and a new "GSP+" initiative giving tariff preferences to countries with special development needs.
-
It will increase transparency, the idea being to focus graduation (withdrawal of GSP) on the most competitive products from those beneficiaries that are highly competitive on the EU market and no longer need the GSP to boost their exports to the EU. The idea behind graduation is not punitive but rather an indication that the GSP has successfully performed its function.
US: http://www.ustr.gov/Trade_Development/Preference_Programs/Section_Index.html
US: http://www.customs.ustreas.gov/xp/cgov/import/international_agreements/gsp_gen_system/
EU ACP Agreement: http://europa.eu.int/comm/development/body/cotonou/index_en.htm
EU Trade and Development: http://europa.eu.int/comm/trade/miti/devel/index_en.htm
EU GSP: http://europa.eu.int/comm/trade/miti/devel/eba.htm
Canada: http://www.dfait-maeci.gc.ca/tna-nac/social-en.asp
Uncertainty 3: Use of trade remedies under the WTO
a) Antidumping and countervailing duties
There is likely to be a rise in antidumping and countervailing duty cases, which will pose a real threat to successful developing country exporters. The use of antidumping measures could sharply reduce the benefits of liberalization, as they are non-transparent and unpredictable. Just the announcement of possible antidumping investigations can make buyers hesitant to place future export orders because of uncertainty over whether antidumping duties will be imposed in the future, an effect known as ‘trade chilling’.
While developing countries and academics are expressing this fear, US and EU industry lobbyists are calling for their explicit use as, they feel, many products are simply dumped on the market. The consequences for developing countries, however, will depend on the status of the countries and industries. While sucgt trade remedies are likely to be targeted at large countries with integrated T&C industries such a China, India, Pakistan, Indonesia, etc., smaller countries could benefit from some protection against theses countries should trade remedies been used. However, as anti-dumping investigations are extremely expensive for industries that seek protection in their domestic markets, importer associations in the major importing countries have already indicate the view that investigations are likely to cover a group of countries in order to cut costs and widen “benefits”.
WTO Dispute Settlement: http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm
For case studies on how antidumping cases have affected developing countries’ textiles and garment exports, visit the web site of the International Textiles and Clothing Bureau http://www.itcb.org .
US : http://www.adcvd.com/Links.htm
USA-ITA has developed a guide on how the US is investigation anti-dumping cases:
http://www.usaita.com/
b) Use of the China-specific safeguards
Since its WTO membership started in December 2001, P. R. China has very successfully penetrated its major T&C markets, to an extend that many countries fear that P. R. China will take over all major markets. The only hope may small supplying countries have is that new quotas being introduced against China, which is temporarily possible under the China’s WTO accession protocol. However, this can only be done by the importing country if there is a risk of market disruption in the importing country. Importing countries will not do it so protect other developing country exporters to protect them form China’s competition.
In principle, importing countries have the possibility to utilise two safeguard mechanisms specifically against China, as stipulated under its WTO accession protocol. These are:
-
T&C specific safeguards valid until December 2008, and
-
Product specific safeguards, which can be utilised for all kinds of products, including T&C, valid until December 2013.
In brief, the two possible safeguard possibilities contain the following:
T&C Specific safeguards :
• Until 31/12/2008 for ATC products only
• Invoked by any member by asking for bilateral consultations if market disruption (threaten to impede the orderly development of T&C trade)
• Request for consultations implies immediate limitation of exports at a pre-determined level: (7.5% (6%) above the amount imported during the last 12 month)
• Does not necessarily require China's agreement
• No WTO notification; no multilateral surveillance
• Duration: max. 12 months
• Not to remain in effect beyond one year without reapplication, unless agreed
The “Transitional Product-Specific Safeguard Mechanism
• Available until 10 December 2013 for all products, incl. all T&C
• When imports threaten or cause market disruption
• Measure taken after consultations, except in critical circumstances when provisional measure immediate
• Safeguard measure can be a quota, but can take other forms, including withdrawal of concession
• Must be notified to the Committee on Safeguards
• Duration: "only for such period of time as may be necessary to prevent or remedy the market disruption“
• After 2 or 3 years (relative or absolute increase in imports), China has right to suspend application of substantially equivalent concessions or obligations
For more details on these safeguard mechanisms
please see below
WTO China Accession Protocol: http://www.wto.org (Search for documents 01-5996 “Accession of the People’s Republic of China” and 01-5314 “Report of the Working Party o the Accession of China”
US OTEXA: http://otexa.ita.doc.gov/
US-ITC China Safeguard Investigations: http://www.usitc.gov/7ops/chinasafeguard.htm
Uncertainty 4: Introduction of new rules/ New buyer requirements
a) Government/Customs level
Customs procedures and enforcement structures to prevent unlawful transhipment under preferential trade agreements.
AGOA record –keeping document
US Customs Trade Partnership Against Terrorism.
• Under the Department of Homeland Security
• Envisages a supply chain covering manufacturers
• Manufacturer monitoring to include security compliance
• E.g. verification of job applications
• US customs to visit manufacturers randomly
• Mandatory advanced cargo electronic information
• That could add extra transit time and increase lead time
U.S. Customs Advanced 24 Hour Manifest Rule
document
US customs: http://www.customs.ustreas.gov/
Details on CTPAT: http://www.geosbush.com/ctpat.htm
b) Codes of Conduct
There is widespread concern about child labour in the marketplace. Western nongovernmental organizations, the media and labour unions advocate for ‘sweatshop-free’ sourcing of clothing, by creating awareness among the major consuming groups. They are putting pressure on international buyers to source ‘ethically correct’. Major buyers and retail groups have reacted to these pressures by introducing corporate codes of conduct. Such ethical sourcing standards are applied to all their developing country manufacturers, and even subcontractors. Large international buyers apply these rules strictly, as they cannot afford negative publicity. For clothing exporters this means increased costs as standards need too be increased in most cases.
Cross link to an authentic questionnaire used by a European retailer under Technical Assistance
NGO websites: http://www.clrlabor.org/index/04aug.htm
http://www.ethicaltrade.org/
http://www.nosweat.org.uk/
http://www.cleanclothes.org/codes.htm
http://www.fairlabor.org
http://www.theglobalalliance.org
http://www.seal-asia.org
http://www.socam.org/pdf/english.pdf
http://www.cepaa.org/Training%20and%20Programs/Programs.htm
http://swatch.igc.org/global/
http://www.wrapapparel.org
Canada: http://www.dfait-maeci.gc.ca/tna-nac/social-en.asp
c) Eco Labelling Requirements
Textile and garment manufacturers from developing countries are increasingly confronted with the need to adapt to eco- labelling requirements. Eco- labelling schemes currently serve primarily as a marketing tool, and products with eco-labels tend to target niche markets. However, there is concern that access to developed markets will be significantly reduced due to consumer boycotts of non- labelled goods and aggressive advertising by protectionist domestic industries. Overall, more transparency is needed to ensure that eco-labels do not become a new market access barrier.
For a paper on eco-labelling please click.
http://www.entemp.ie/press/2004/20040415a.htm
http://www.oeko-tex.com/en/start/start.html
http://europa.eu.int/comm/environment/ecolabel/producers/pg_textiles.htm
d) Environmental Standards
This paper was written by Matthias Knappe, Senior Trade Development Officer,
International Trade Centre UNCTAD/WTO, Palais des Nations, CH-1211 Geneva 10, Switzerland,
Email
