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Export quotas and policy constraints in the Indian textile and garment industries

Author

Listed:
  • Kathuria, Sanjay
  • Bhardwaj, Anjali

Abstract

The Agreement on Textiles and Clothing will abolish all quota restrictions in trade in textiles and clothing by the year 2005. Dismantling the quota regime represents both an opportunity (for developing countries to expand exports) and a threat (because quotas will no longer guarantee markets and even the domestic market will be open to competition). Data about the real burden imposed by distorting but nontransparent policies under the quota regime are inadequate, so the authors interviewed traders in Delhi and Bombay about quota rents. They provide comprehensive estimates of the magnitude of the implicit export taxes resulting from the labyrinth of quotas imposed under the WTO Agreement on Textiles and Clothing. Using the concept of an export tax equivalent (or ETE), they assess how much exports are restricted. The international trade regime in textiles and clothing imposes a substantial tax equivalent on Indian exports. Between 1993 and 1997, ETEs for garment exports to the United States were roughly double those for the European Union. The ETEs for the United States declined 1996, which could be a warning signal that India faces increasing competition from NAFTA-empowered Mexico. From India's viewpoint, the European Union is ahead of the United States in dismantling the quota regime - and in not restricting India cotton (garment) exports (where India has a comparative advantage) more than synthetics. India's strengths in this sector lie in natural resources and factor endowments - raw cotton and cheap labor. The Indian garment industry's decentralized production structure - subcontracting, which is low risk and low capital - has served the industry well but has executed Indian products from the mass market for clothing which demands consistent quality for large volumes of a single item. Growth in Indian exports may require a shift to an assembly-line, factory-type system. This would probably require: a) No longer restricting garment production to the small-scale sector (and ending other anachronistic policies). b) Making labor policy more flexible. c) Ending the policy bias against synthetic fibers. d) Reducing transaction costs for exports.

Suggested Citation

  • Kathuria, Sanjay & Bhardwaj, Anjali, 1998. "Export quotas and policy constraints in the Indian textile and garment industries," Policy Research Working Paper Series 2012, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2012
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    References listed on IDEAS

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    1. Trela, I. & Whalley, J., 1989. "Unravelling The Threads Of The Mfa," Papers 448, Stockholm - International Economic Studies.
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    Cited by:

    1. Aaditya Mattoo & Devesh Roy & Arvind Subramanian, 2003. "The Africa Growth and Opportunity Act and its Rules of Origin: Generosity Undermined?," The World Economy, Wiley Blackwell, vol. 26(6), pages 829-851, June.
    2. Van Heerden, Auret. & Berhouet, Prieto. & Caspari, Cathrine., 2003. "Rags or riches? Phasing-out the Multi-Fibre Arrangement," ILO Working Papers 993587893402676, International Labour Organization.
    3. Walmsley, Terrie L. & Hertel, Thomas W. & Ianchovichina, Elena, 2001. "Assessing the Impact of China’s WTO Accession on Foreign Ownership," Conference papers 330941, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. McCorriston, Steve & MacLaren, Donald, 2005. "Market Access and the Reform of State Trading Enterprises," Conference papers 331330, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. Bernard, Alain & Vielle, Marc & Viguier, Laurent, 2004. "Modeling the European Directive Establishing a Scheme for Greenhouse Gas Allowance Trading and Assessing the Market Power of Firms," Conference papers 331190, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Jorg Mayer & Adrian Wood, 2001. "South Asia's Export Structure in a Comparative Perspective," Oxford Development Studies, Taylor & Francis Journals, vol. 29(1), pages 5-29.
    7. Polo, Clemente & Valle, Elisabeth, 2005. "The impact of a fall in tourism on the Balearic economy," Conference papers 331334, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    8. Mausumi Kar, 2012. "National and Global Aspects of India’s Textiles and Apparel Industry and Trade: An Overview," South Asian Journal of Macroeconomics and Public Finance, , vol. 1(1), pages 81-133, June.
    9. Misu Kim, 2019. "Export Competitiveness of India’s Textiles and Clothing Sector in the United States," Economies, MDPI, vol. 7(2), pages 1-17, May.
    10. Aziz ELBEHRI, 2010. "MFA Quota Removal and Global Textile and Cotton Trade: Estimating Quota Trade Restrictiveness and Quantifying Post-MFA Trade Patterns," EcoMod2004 330600048, EcoMod.
    11. Meenu Tewari, 2005. "The Role of Price and Cost Competitiveness in Apparel Exports, Post-MFA: A Review," Indian Council for Research on International Economic Relations, New Delhi Working Papers 173, Indian Council for Research on International Economic Relations, New Delhi, India.
    12. Chandan ROY, 2017. "The artisanal silk industry of West Bengal: A study of its history, performance and current problems," Turkish Economic Review, KSP Journals, vol. 4(4), pages 444-451, December.
    13. Harrison, Jill W. & Horridge, J. Mark & Pearson, Ken, 2005. "Using GEMPACK Subroutines in your Fortran Programs," Conference papers 331348, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    14. Faraz Lakhani & Anwar Ali shah G. Syed & Naveed Shaikh & Faiz. Shaikh, 2012. "Impact of WTO Reforms on Trade Agreements on Cotton and Clothing in Pakistan," Modern Applied Science, Canadian Center of Science and Education, vol. 6(12), pages 1-27, December.
    15. repec:ilo:ilowps:358789 is not listed on IDEAS

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