The Vi­cious Cir­cle

in the Ap­parel in­dus­try

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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.

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