Bridges Weekly Trade News Digest • Volume 8 • Number 36 • 27th October 2004
Textiles Consultations Deadlocked
An informal meeting of the WTO Goods Council on 26 October ended in heated discussion and deadlock after Members failed to agree on measures to address concerns regarding the negative impact of the elimination of textile and clothing quotas. Following the meeting, Goods Council Chair Choi Hyuck (South Korea) said that agreement had not been reached on an initiative of ten developing countries for adjustment measures. He would nonetheless continue to consult with Members on the issue and report back to the formal meeting of the Goods Council on 11 November.
The international textile and clothing trade has been managed for almost fifty years by a system of quotas that is to be eliminated at the end of 2004. While most countries recognise the economic potential liberalised trade in this sector offers in the long term, there are strong concerns that the abrupt liberalisation at the end of the year will hurt least developed countries (LDCs), vulnerable countries and other small developing countries that have invested in the sector under quota-governed market access. The informal meeting on 26 October was called following a request by Bangladesh, the Dominican Republic, Fiji, Madagascar, Mauritius, Sri Lanka and Uganda (G/C/W/496) at the 1 October Goods Council Meeting (see BRIDGES Weekly, 6 October 2004), which was subsequently supported by Jamaica, Nepal and Mongolia.
Turkey presents adjustment mechanisms
Following the annual report of the Textiles Monitoring Body (G/L/700) and the Goods Council meeting on 25 October, the 26 October informal meeting considered a submission from Turkey (G/C/W/497) — referred to as "provocative" by some Members — that attempted to provide concrete options to solve adjustment challenges posed by the phase out of textile and clothing quotas. Turkey said that WTO Member countries "have a responsibility to address the justifiable concerns of the developing as well as the least developed countries about the sustainability of their economic growth and its main components such as textile and clothing exports".
Countries have raised a number of reasons for concern about the effects of the quota phase-out on the future of their domestic textiles and clothing industry’s exports. Turkey’s communication noted that in 2002, when several textile and clothing products were removed from quota, the share of Chinese products in the US market soared as high as 800 percent and the unit price decline in liberalised categories was around 60 percent. A recent WTO report also predicted that China and India would increase market share dramatically in 2005. In addition, the Agreement on Textiles and Clothing (ATC) was structured to enable a gradual elimination of quotas over ten years so that developed and developing countries alike could gradually restructure their markets. The vast majority of trade in commercially valuable products in developing countries was, however, back-loaded towards the 2005 liberalisation so that most quota elimination will occur at the end of this year, rather than gradually throughout the 10 years as originally envisioned. The Turkish communication suggests that in many developing countries, the sector is the main source of export revenue, potentially representing "as much as 90 percent of manufacturing exports". In Turkey it is the largest industry, representing 22.6 percent of manufacturing output.
Turkey said "it is obvious that there are rules in place in order to protect domestic markets against unfair trade practices. Likewise, there is a strong need for the establishment of such mechanisms to protect the market shares of the developing countries in their export markets". To begin the dialogue on possible solutions, Turkey mentioned options ranging fro "a monitoring mechanism that will concentrate on the threat of market distortions" to a "unique safeguard mechanism that has a self-triggering structure". Turkey offered these solutions in an attempt to start discussions on adjustment mechanisms, but the reaction to the suggested measures from other Members was rather negative.
China and India reacted critically to this proposal, saying that the full liberalisation of the international textile and clothing sector scheduled for the end of this year will be a major achievement of the WTO and in developing countries’ interests. They noted that adjustment challenges could be met by encouraging investment by developing country textile producers in the textiles sector, improving the application of preferential rules of origin in major importing countries and ensuring greater coherence with institutions such as the International Monetary Fund and World Bank in supporting adjustment assistance.
European Commission proposes textiles regulations
In related news, the European Commission adopted a proposal for a Council Regulation on 26 October to eliminate all textile and clothing quotas as of 1 January 2005 and permit goods shipped before 1 January 2005 to be subject to the pre-elimination import regime. As well, it proposed to set up a special monitoring system for Chinese imports "to follow closely imports of the most sensitive textile and clothing products" and "ensure a smooth transition to a quota-free system" while remaining compliant with WTO rules on import licensing.
ICTSD Reporting; "WTO Members Deadlocked on Impact of Jan. 1 Elimination of Textile Quotas," WTO REPORTER, 27 October 2004; "Textiles: EU prepares for WTO textiles and clothing quota elimination from 1 January 2005," EU RELEASE, 26 October 2004.