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Gireesh S Bhat
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Introduction:
India stands at 6th position in the world with 2.6% market share in apparel trade with 11% growth rate. Apparel export contributes to 8% of the total exports from India and has recorded 1% growth over the last year. It is expected that the apparel export will grow to 15% in qty and 20% in value by 2011-2012. The majority of the Indian apparel is exported to EU which constitutes 44% of the total exports followed by the US that constitutes of 27% to 30%. The balance of 25% is exported to UAE, Saudi Arabia, Mexico, Canada, Turkey, Australia, Malaysia, Switzerland and South Africa. On the EU imports about 3.5% and US imports about 4.5% of its apparel goods from India. The aim of this paper is to analyze the trend of Apparel trade to the above two markets during the last decade when the Quantity Restriction on textile and clothing export ( MFA) was phased out after 30 years and its effect on Indian apparel export to the above two markets.
History:
The bulk of world trade in textiles and clothing was regulated by the Multi fibre Arrangement (MFA), which came into force in 1974. This was in response to the rapid growth of textile exports; both cotton as well as man-made fiber, from the developing to the developed countries during the period 1962 to 1974. Under the MFA the developed countries negotiate bilateral agreements with individual trading partners in order to restrict the quantity of exports of specific product categories by their trading partners. The intention of MFA was to protect domestic producers in the developed countries from market disruption. The annual quotas were not to be lower than trade in a specified twelve-month period and they had to be enlarged by not less than 6 per cent every year. The MFA was terminated in the Uruguay Round Agreement and was to be phased out in four stages in between 1994-2004. This removed the quantity restriction on textile and apparel export. In this scenario, the world textile and clothing export has grown from US$ 272.43 billion (bn) in 1994 to US$ 530 bn in 2006, registering almost a two-fold rise. It is observed that the export of clothing has exceeded the textile export from 1994 onwards. In the post MFA period, the world T&C export increased from US$ 456.11 bn in 2004 to US$ 530 bn in 2006, in which the textile export grew 4.9% in 2005 and 6.5% in 2006 and clothing export grew 6.6% in 2005 and 12% in 2006.
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The world export of Textile & Clothing (T&C), which was US$ 273 bn in 1994, increased to US$ 530 bn in 2006, registering nearly a two-fold rise. However, the export of clothing grew faster than that of textile. During this period, the former increased 2.2 times, while the later increased only 1.7 times. The share of clothing in the total T&C export significantly increased from 51.46% in 1994 to 58.68% in 2006. During 1994 - 2006, the gap between the amount of export of clothing and textiles has steadily widened, especially after 2001. Also the clothing export had started exceeding the textiles export from 1994 onwards. In 2006, the world clothing export was US$ 311 billion, and as against it the textile export was only US$ 219 billion. The regional flow of the T&C export shows that China was the leading world exporter whose clothing export share has immensely increased from 4.0% in 1980 to 30.6% in 2006. The other major exporters are EU (union of 25 countries), Hong Kong, Turkey, India, and Bangladesh. It is evident from the below table that the share of EU in the world export of clothing has significantly declined from 42.0% in 1980 to 26.3% in 2006.While the shares of some developing countries such as China, Turkey, Bangladesh, India, Mexico, and Indonesia among others, have increased (Table 1). For instance, share of Indias clothing export has increased from 1.7% in 1980 to 3.3% in 2006. Table 1 also shows the world leading exporters of textile, in which EU is the largest exporter, followed by China, Hong Kong, USA, Korea and India. China is the second largest exporter after EU. Its share in the textile export has increased from 10.2% in 2000 to 22.3% in 2006 with an annual growth of 20%. However, Indias share in textile export marginally declined from 2.4% in 1980 to 2.1% in 1990; thereafter it rose to 3.8% in 2000 and further to 4.3% in 2006. Comparing trends in Indias export of T&C to that of China, we observe that in China, the export of clothing grew faster than that of textile while in India, it is just the reverse. In 2006, Indias share in the world export of textile is higher than that of clothing, as is evident from the information given in Table 1.
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Table 1: Worlds Leading Textile and Clothing Exporters Leading Exporters of Clothing China EU (25) Hong Kong, China % Share in world export 1980 1990 2000 4.0 8.9 18.2 42.0 37.7 26.9 12.3 14.2 12.2 Turkey India Bangladesh 0.3 1.7 0.0 3.1 2.3 0.6 0.5 1.5 2.4 ... 3.3 3.1 2.1 4.4 2.4 4.4 0.9 2006 30.6 26.8 9.1 3.8 3.3 2.8 2.0 1.8 1.6 1.7 Leading Exporters of Textile EU (25) China Hong Kong, China US Korea, Taipei, Chinese India Turkey Pakistan Japan % Share in world export 1980 1990 2000 49.4 4.6 3.2 6.8 4.0 3.2 2.4 0.6 1.6 9.3 48.7 6.9 7.9 4.8 5.8 5.9 2.1 1.4 2.6 5.6 35.6 10.2 8.5 6.9 8.0 7.5 3.8 2.3 2.9 4.4 2006 32.6 22.3 6.4 5.8 4.6 4.5 4.3 3.5 3.4 3.2
Mexico 0.0 Indonesia 0.2 US 3.1 Viet Nam ... Source : WTO Trade Statistics
The Indian Apparel export which came into light in mid 1980s was under the shield of MFA till 1994 when the MFA was terminated. During this period, more emphasis was given to export of textiles rather than apparels as India had a large resource of natural fibers and as the spinning and weaving mills were operational much before the garment industry was setup. As a result during the MFA period apparel export constituted less than 40% of the textile & apparel exports. However during the MFA phase out period (1994 2004), Indias T&C export rose from US$ 7.3 bn in 1994 to US$ 13.63 bn in 2004. During this period, Indias share in world textiles export increased from 2.63% in 1994 to 3.54% in 2004, whereas share of clothing export decelerated from 2.63% in 1994 to 2.55% in 2004. It is significant to note that during the MFA phase-out period, Indias share in the world export of clothing declined from 2.63% in 1994 to 2.55% in 2004; whereas its share in the world textile export rose from 2.91% in 1994 to 3.58% in 2004. In Table 2, it is observed that Indias share in T&C export declined in the year 1995, 1998, 2001 and 2004 which were the MFA phase I, II, III and IV out years. This indicates that Indias T&C industry has not benefited from removal of quota restrictions. On the other hand, Chinas exports of T&C increased from US$ 35.55 bn in 1994 to US$ 95.28 bn in 2004. Except for 1996 and 1998 when Chinas share in T&C export declined, during the entire phase-out and post-phase-out period, its T&C export grew immensely. It indicates that China has used the opportunity of removal of quota restrictions due to which its textile and clothing export increased 282% and 260%, respectively. To help the industries sustain the impact of MFA Phase out, the Government of India dereserved the clothing industry from SSI list in January 1, 2001 to encourage the establishment of large scale garment manufacturing operations (Ministry of Textiles 2001). The National Textile Policy 2000 took several initiatives, including de-reservation, to give impetus to the industry. To facilitate technological advancement, Technology Up-gradation Fund Scheme (TUFS) was started from April 1, 1999 and the Government has extended again the Scheme up to the XIth Five Year Plan (Ministry of Textiles 2008). However, the benefits of the scheme are mostly availed by the textile firms, not by the apparel firms due to lack of awareness among them (Shekhar 2005). In addition to low productivity and poor technology, inadequate infrastructure has severely affected the export of clothing firms. One of the ways the Government has tried to improve the infrastructure is to create apparel parks for boosting clothing export.
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Table-2: Indias share of Textile and Clothing Export in World T&C Export Textile Export Year World (US$ bn) 133 152 153 156 150 146 159 149 156 175 196 205 India (% China (% Share) 2.91 2.86 3.23 3.37 3.04 3.48 3.78 3.6 3.87 3.92 3.58 4.13 Share) 8.98 9.14 7.93 8.88 8.55 8.92 10.17 11.27 13.19 15.41 17.1 20.01 World (US$ bn) 141 158 166 178 186 185 198 194 206 234 261 278 Clothing Export Total T&C Export China India (% China (% India (US$ (US$ Share) 2.63 2.6 2.54 2.45 2.57 2.79 3.12 2.83 2.93 2.83 2.55 3.31 Share) 16.86 15.19 15.07 17.91 16.16 16.29 18.21 18.91 20.03 22.24 23.74 26.68 bn) 7.53 8.47 9.15 9.59 9.34 10.24 12.18 10.86 12.07 13.47 13.64 17.67 bn) 35.55 37.97 37.15 45.63 42.87 43.12 52.21 53.48 61.86 78.96 95.28 115.21
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
2006 219 4.27 22.27 311 3.27 30.63 19.52 144.07 Source: Authors calculation, data from World Trade Organization, values at current price, bn = Billion, T&C= Textile & Clothing. http://stat.wto.org
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Country -- World -USA UK UAE Germany France Spain Italy Netherlands Canada Denmark Belgium Saudi Arabia Japan Sweden Mexico South Africa Turkey Australia Switzerland Malaysia
India's apparel Exports Year 2007 9218.84 2815.24 1106.62 625.65 766.35 668.81 333.71 422.71 338.20 252.93 197.92 176.45 209.12 101.38 76.23 66.72 60.74 39.02 38.06 51.10 38.31
India's apparel Exports Year 2008 10110.78 2756.36 1114.45 889.42 832.16 721.53 451.82 431.34 412.83 261.05 233.44 229.82 226.40 125.00 99.92 71.13 69.58 61.47 55.70 54.25 50.83
%age in India's apparel Exports Year 2007 100 30.54 12 6.79 8.31 7.26 3.62 4.59 3.67 2.74 2.15 1.91 2.27 1.1 0.83 0.72 0.66 0.42 0.41 0.55 0.42
%age in India's apparel Exports Year 2008 100 27.26 11.02 8.8 8.23 7.14 4.47 4.27 4.08 2.58 2.31 2.27 2.24 1.24 0.99 0.7 0.69 0.61 0.55 0.54 0.5
%age Growth in India's apparel Exports 2008 /2007 9.68 -2.09 0.71 42.16 8.59 7.88 35.39 2.04 22.07 3.21 17.95 30.25 8.26 23.29 31.07 6.62 14.56 57.52 46.33 6.16 32.68
India's apparel Exports Jan 2008 925.369 279.675 97.857 56.528 79.502 74.136 43.773 49.100 37.392 24.228 23.273 21.936 14.200 9.930 9.671 6.914 4.046 5.257 3.823 4.891 2.468
India's apparel Exports Feb 2008 951.708 281.387 107.131 55.708 92.479 71.657 43.770 48.578 39.682 25.611 25.037 17.334 11.456 14.143 11.330 5.327 4.028 6.682 3.654 5.660 2.526
%age Share in India's apparel Exports Jan-Feb 2008 100 29.89 10.92 5.98 9.16 7.77 4.66 5.2 4.11 2.66 2.57 2.09 1.37 1.28 1.12 0.65 0.43 0.64 0.4 0.56 0.27
%age Share in India's apparel Exports Jan-Feb 2009 100 25.22 9.93 7.04 11.83 7.85 5.68 4.7 4.26 2.87 2.67 1.99 1.24 1.56 1.2 0.66 0.5 0.59 0.52 0.55 0.33
%age Growth in India's apparel Exports Jan-Feb 2008 /JanFeb 2008 3.68 -12.53 -5.77 22.13 33.85 4.8 26.18 -6.41 7.5 12.07 7.5 -1.26 -6.24 26.34 11.34 4.23 19.37 -3.62 35.14 1.2 27.14
Source: www.aepcindia.com
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PARTNER/PERIOD
Yr. 2008
Jan-May 2008
Jan-May 2009
INDIA
SOUTH KOREA SRI LANKA MAURITIUS MALAYSIA PHILIPPINES PAKISTAN RUSSIA SINGAPORE THAILAND VIETNAM SOUTH AFRICA
3899.20
144.17 1124.23 423.06 197.09 144.67 882.70 33.94 10.92 788.03 1246.36 13.31
3.55
0.13 1.02 0.38 0.18 0.13 0.80 0.03 0.01 0.72 1.13 0.01
1895.55
66.38 457.29 180.25 76.50 68.81 361.31 16.12 4.67 304.33 457.55 5.61
2020.64
32.77 513.27 162.13 63.32 52.41 385.37 6.35 2.91 303.80 463.06 4.69
6.60
-50.63 12.24 -10.05 -17.23 -23.83 6.66 -60.63 -37.73 -0.17 1.20 -16.38
Source: www.aepcindia.com
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USA's apparel Imports Year 2008 73099.48 23999.81 5151.61 4035.40 3355.32 4128.92
%age Share of USA's apparel Imports Year 2008 100.00 32.83 7.05 5.52 4.59 5.65
%age Growth in apparel Imports 2008 /2007 -3.25 0.14 19.99 1.16 11.95 -10.80
USA's apparel Imports Jan-June 08 33799.58 9620.20 2317.24 2027.96 1579.94 2048.93
USA's apparel Imports Jan-June 09 29540.02 9869.79 2314.47 1952.98 1705.90 1655.05
%age Share in USA's apparel Imports Jan-Jun 08 100.00 28.46 6.86 6.00 4.67 6.06
%age Share in USA's apparel Imports Jan-Jun 09 100.00 33.41 7.84 6.61 5.78 5.60
%age Growth in USA's apparel Imports Jan-June 09 /JanJune 08 -12.60 2.59 -0.12 -3.70 7.97 -19.22
India
Honduras Cambodia Sri Lanka Thailand El Salvador Pakistan Guatemala Philippines Italy Nicaragua Egypt Jordan Peru Dominican Republic
3121.64
2674.41 2371.55 1491.02 1697.07 1532.56 1508.37 1387.64 1362.92 1519.08 934.06 742.02 971.33 792.26 834.89
4.27
3.66 3.24 2.04 2.32 2.10 2.06 1.90 1.86 2.08 1.28 1.02 1.33 1.08 1.14
-3.11
3.36 -2.04 -5.86 -5.20 3.22 -0.34 -4.37 -20.94 -6.27 -3.49 6.44 -15.15 -2.45 -20.45
1772.15
1252.62 1154.15 737.49 850.09 743.98 698.12 738.93 703.30 750.32 472.91 349.62 454.60 426.35 413.97
1614.66
995.98 888.87 640.67 628.35 606.07 604.57 532.94 522.75 476.87 408.26 374.41 361.97 299.21 297.26
5.24
3.71 3.42 2.18 2.52 2.20 2.07 2.19 2.08 2.22 1.40 1.03 1.35 1.26 1.23
5.47
3.37 3.01 2.17 2.13 2.05 2.05 1.80 1.77 1.61 1.38 1.27 1.23 1.01 1.01
-8.89
-20.49 -22.98 -13.13 -26.08 -18.54 -13.40 -27.88 -25.67 -36.44 -13.67 7.09 -20.38 -29.82 -28.19
Source: www.aepcindia.com
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Conclusion:
During the MFA phase-out and post-phase-out period, share of clothing export has exceeded the share of textiles export in the world. Comparing India to China, we observe that China exported the textiles and clothing in the proportion of 33:67 while corresponding proportion in India was 50:50 during this period. We observe that the growth of Indias clothing export was slow and stagnant during 1994 - 2004 which may be due to low productivity, poor technology and less number of machines per apparel firms. The government recognized this fact and adopted several initiatives, including de-reservation of the industry from SSI list, extension of TUFS and setting up integrated textile parks. These initiatives along with removal of QRs in the post-MFA regime would help in enlarging the scope of Indias production and export of clothing. The paper argues that boosting up of clothing export in India is more desirable than that of textiles from the point of view of value addition and employment generation. Indias competitiveness has improved since 2007 due to a reversal of the rupees appreciation against the dollar. For the future, India may be forced to focus on a narrower range of products where it is more competitive. Past records suggest that such products include: mens and boys cotton knitted shirts; mens and boys cotton trousers; womens and girls cotton trousers; and cotton undergarments. However, such a focus could force the Indian government to downgrade its ambitious expansion plans for the apparel sector. There are many reasons for the fluctuation in export during the last 3 years. Some of the significant ones are: Appreciation of INR against USD, Global economic slowdown, Emergence of new cheaper sourcing destinations like Vietnam, Bangladesh, Laos Republic, Morocco etc... Growth of retail apparel market in India. Use of out dated production techniques. High rate of unorganized small scale manufacturing units (Job work units) etc.
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Bibliography:
Primary Source: www.aepcindia.com
Secondary source: 1. Ramaswamy. K. V & Gereffi G, Indias Apparel Export: A Challenge of Global Market. 2. Export Update 2010 AEPC India. 3. www.indiantextilejournal.com
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