The Vicious Circle
in the Apparel industry
Today, the situation of the apparel industry reminds everyone of a vicious circle where there are too many open ends and an escape route is missing. This is because when a manufacturer tries to balance out one aspect, the other is disturbed. What has happened over the last few months, (post demonetisation and GST) is that business, which was moving at a steady pace, suddenly lost track.
India’s apparel exports have dropped about 4 percent to $16.7 billion in 2017-18 after years of relatively steady 7-8 percent growth, an alarming trend as apparel exports still account for around 15 percent of India’s total exports.
The recent downturn is largely a consequence of the funds crisis faced by apparel manufacturing and exporting units, a situation created by a combination of delays in processing of refund of taxes and curtailment of duty drawback with the implementation of the Goods and Services Tax in July 2017. However, the next barrier is all set to hit the industry. As per latest reports, the US, which is one of the biggest importers of apparel and textiles for India is all set to preempt apparel export Subsidies after the US had challenged Indian export subsidy programmes at the WTO.
The latest buzz is that the US Government is now threatening to take India to task in the World Trade Organisation forum for continued provision of export subsidies in the apparel and other sectors. The Indian government plans to challenge the US contention at WTO, bearing in mind that if the decision of the world body goes against India, it would adversely impact India’s apparel and other key exports to the world.
India’s apparel export to the world for the period between April 2017 and January 2018 stood at USD 13,783.14 million.
It was way back in 2010 when India crossed the threshold in the apparel and textiles sector by attaining a 3.25 percent export slot in the global export market. This had highlighted India’s export
competitiveness in the sector. As per stipulations, when the threshold is crossed, the country gets an eight year period of reprieve to phase out subsidies. Thus, the bad news for India is that the eight years will come to an end in 2018.
As per the Subsidies and Countervailing Measures (SCM) agreement that was offset by the World Trade Organisation to prevent distortion of fair trade practices, there was a call for discipline on the subsidies granted to industry. Accordingly, the WTO imposed a set of rules and regulations to ensure the same. These rules pertain to restrictions on subsidies and export incentives in all its member nations. It governs non-agricultural products and the apparel industry in particular.
The SCM agreement mainly objects or countervails subsidies granted to a specific sector or, as in this case, to the textiles and apparel sector. The word specific is also applicable to a particular geographical territory. However, in general, if a specific sector like apparel is getting the benefit of government subsidy, the SCM agreement seeks to limit access to such a subsidy.
According to WTO norms, subsidies can be non-actionable or prohibited as stipulated by the SCM agreement.
Specifically, subsidies that are prohibited include those like the ones given to a firm or industry as in the case of apparel and textiles. The SEZ policy and the MEIS scheme which are applicable to the textiles and apparel industry come under this prohibited category. As per SCM norms, member countries of WTO can take remedial actions against India for such schemes and policies.
In short, if India fails to curb the subsidies mentioned under the prohibited list to the apparel and textiles industry within the stipulated eight year period, member countries can refer the issue to the Dispute Settlement Board of the WTO. In this case, the US being the complainant, it has the options of imposing countervailing duty on imports from India which will result in the Indian exporters losing their competitiveness in the US textiles and apparel market. Competing countries like Bangladesh, Taiwan and Vietnam are likely to benefit from India’s setback.
The reviews are based on the Trump Administration’s new Generalised System of Preferences (GSP) country eligibility assessment process, outlined in October 2017, as well as GSP country eligibility petitions, USTR said in a statement. For India, the GSP country eligibility review is based on concerns related to its compliance with the GSP market access criterion. For Indonesia, the review is based on concerns related to its compliance with the GSP market access criterion and the GSP services and investment criterion. Kazakhstan’s eligibility review is based on concerns related to its compliance with the GSP workers’ rights criterion. GSP provides an important tool to help enforce the Trump Administration’s key principles of free and fair trade across the globe. The President is committed to ensuring that those countries who receive GSP benefits uphold their end of the bargain by continuing to meet the eligibility criteria outlined by Congress. “India has implemented a wide array of trade barriers that create serious negative effects on US commerce. The acceptance of these petitions and the GSP selfinitiated review will result in one overall review of India’s compliance with the GSP market access criterion,” the statement said.
Several associations have come up and are trying to resolve the issue at the earliest because Indian apparel export industry is already going through a rough patch.
In this case, the US being the complainant, it has the options of imposing countervailing duty on imports from India which will result in the Indian exporters losing their competitiveness in the US textiles and apparel market. Competing countries like Bangladesh, Taiwan and Vietnam are likely to benefit from India’s setback.