Looking for ways for consultations on ATC adjustment questions

Geneva, 3 Oct (Chakravarthi Raghavan) - A year-long well-orchestrated and choreographed campaign by the US and EU textile industry lobbies for continuing 42-year old quota regime and managed trade in the world textiles and clothing sector appears to have failed, at least for now, when the Council for Trade in Goods (CTG) found itself unable to agree to a study and work programme on the “post-ATC Adjustment-related issues.”

Earlier on Friday, the CTG began its last major review of the integration process, and after several general statements, agreed to continue the discussions at future meetings. The next meeting will be on 18 October.

In the discussions on ‘post-ATC Adjustment-related issues’ raised by Mauritius and eight other cosponsors, a large number of developing countries, current beneficiaries from the 42-year old managed trade and quota regime, and the preference schemes, spoke about their impending loss in employment and export earnings, and for measures to help them sustain and maintain their present export shares, when the Agreement on Textiles and Clothing (ATC) ends on 31 December 2004, and the entire trade in the sector will come under WTO/GATT rules, and will be dominated by a few large developing countries.

Those who spoke in favour of the Mauritius cosponsored proposal included Madagascar, Jamaica, the Dominican Republic, Nepal, Sri Lanka, Bangladesh, Lesotho, Uganda, Jordan, Rumania, Turkey, El Salvador, Nicaragua, Guatemala, Mexico, Morocco, Nigeria, and Tunisia.

Many of these countries spoke of the future being dominated by a few countries, with some specifically referring to China - and in terms of this being an unforeseen one. In its intervention at the end, the World Bank challenged this. Some of these countries, called for voluntary social standards (presumably referring to its alleged lack in China).  Some of these countries have in fact very poor track record in allowing trade union activities, and many of them are frequently identified by the world labour movement and in the reports of ILO experts.

On the other side, while expressing sympathy and concern, and openness to productive and constructive suggestions, China, India, Indonesia, Pakistan, Hong Kong China and some others whose trade has been subject to discriminatory restrictions so far, insisted on strict adherence to legal commitments and need to steer clear of new distortions or revising agreed parameters of ongoing negotiations.

Brazil said that it shared many of the concerns raised, but that the adjustment issue related to many of the agreements and the trade liberalization process and should be addressed in a cross-cutting horizontal way.

The US and the EC said they would fully phase-out the quotas as provided in the ATC on 31 December 2004 and integrate the trade under the WTO rules. The US at the same time wanted those benefiting from the phase-out to reduce their tariffs. The EC said at this time, it could not support either a study or work programme.

At the end of the discussions in which some 38 delegations spoke, the CTG chairman, Amb. Alfredo Vincente Chiaradia of Argentina, said that it was difficult to move forward on the suggestions, but that there was a willingness to continue consultations. He would look at the best way to have informal open and fully transparent consultations on the matter.

While expressing willingness to discuss, on a case-by-case basis, financing needs associated with the ATC-related adjustment, the World Bank (an observer at the CTG) cautioned against the temptation to replace the existing quantitative restrictions in this trade by managed trade interventions, whether in the guise of anti-dumping actions or discriminatory safeguards.

While many of the distortions that masked competitive weaknesses will be eliminated with the end of the ATC and phase-out of quotas, and this will bring adjustments, the World Bank cautioned against over-simplifications of “winners and losers” based on the GTAP and other models used for these forecasts, and said the outcome of such general equilibrium analysis and partial equilibrium estimates should be taken with a pinch of salt, as they only illustrated the directions of estimated adjustment trends.

While China and India will be main beneficiaries, it simply reflected their comparative advantage (particularly in clothing) and the degree of the restrictions imposed on them by the quotas. Such beneficiaries could “unilaterally liberalize” their own markets on an MFN basis and/or extend preferential access to the least developed countries.

The proposal for a WTO study and recommendations, and a Work Programme, to deal with the “post-ATC Adjustment-related issues” was made by Mauritius, with eight other co-sponsors - Bangladesh, Dominican Republic, Fiji, Jamaica, Madagascar, Nepal, Sri Lanka and Uganda.

The Mauritius ambassador, Mr. Servan Singh, in presenting the proposal said there will be many losers as a result of the ATC phase out, with LDCs and other small and vulnerable economies facing enormous adjustment costs. While studies have suggested that elimination of quotas may be beneficial to developing countries as a whole, there would be many losers along with winners. Mauritius would be one of the losers and was very concerned. Ways and means should be found collectively to address the adverse effects on LDCs, small and vulnerable economies. African countries, now enjoying trade preferences, would be among the biggest losers. In several of their countries, female labour constitute the bulk of the employees, and the job losses will affect them.

The WTO secretariat study should look at the problem in a disaggregated way, and make recommendations, and the WTO work programme should identify appropriate mechanisms to expeditiously address the issues.

Some 25 countries, all now benefiting from the quota regime, spoke and expressed concerns that they would lose exports and market shares - with several of them asking for the WTO measures to enable them to maintain their market shares sustainably.

China’s Amb. Sun Zhenu said that it was evident from the very beginning that virtually every sector covered by the WTO, trade liberalisation would require domestic structural adjustment, and China understood the concerns of some members about the difficulties they would encounter. In dealing with the issue, it should be bone in mind that developing countries for whom textiles and clothing was a sector of comparative advantage, had not been allowed for 40 years to enjoy this advantage.

Why should this sector now be treated as separate from normal rules and principles of the WTO? Doing so would cause fundamental systemic difficulties at the WTO, and would affect the ongoing negotiations in Nama, Agriculture, Services and other areas of the Doha agenda. Should they also have a study or work programme on TRIMS, steel, chemicals, automobiles etc?

The item (by Mauritius and others) pointed to the need for coherence, and the role of the World Bank and the IMF in supporting adjustment to trade liberalisation, and the efforts to improve other elements of global economic policy-making to complement the effective implementation of the results of the Uruguay Round (as agreed by Ministers at Marrakesh). China’s own adjustment efforts had shown that lack of resources, including human and financial, was one of the important obstacles to adjustment. China noted with satisfaction IMF and World Bank statements of their willingness to assist developing countries to make adjustments. The WTO too must strengthen its efforts to strengthen coherence with these two institutions.

Referring to the studies showing trade policy constraints imposed by trading partners such as preferential rules of origin, impeding substantially their competitiveness, China drew attention to the World Trade Report which had cited the case of one of the cosponsors (Mauritius losing under AGOA to Lesotho and other LDCs in sub-Saharan Africa). Removal of such constraints by the preference-giving members for benefit of the developing countries could play a role. China also saw a role for south-south cooperation. Within its resources, China had extensive cooperation with other developing countries and would continue doing so.

However, China was fully committed to safeguarding and defending the basic general principles and rules of the WTO, and ensure the smooth functioning of the multilateral trading system, and was prepared to engage and offer support to address issues raised in accordance with a systemic and cross-cutting imperative. The sectoral approach proposed by Mauritius and other proponents would defeat the overall systemic objective, Amb. Sun added.

Indonesia’s Amb. Bustami, in offering some preliminary comments, said that while understanding and appreciating the difficulties encountered by some members in the post-quota regime. The ATC had provided ten years of transition for adjustment before the phasing out of quota restrictions. Nevertheless, Indonesia was willing to see how the adjustment problems could be handled in the post-ATC regime. While it could see the merits of a study, other organizations like the International Trade Centre, UNCTAD, IMF and World bank were also important, and there should be close cooperation with them for adjustment assistance.

India’s Amb. K.M. Chandrasekhar said that while approaching the issue raised by Mauritius and cosponsors with utmost sympathy and concern, “we believe in the legal and political sanctity of negotiated agreements” and could not support ideas to introduce new distortions even as they were struggling to remove old ones. The integration of this sector presented countries with continuous challenges, and the problem had been aggravated by the back loading of the reform in major countries - and this was violative of the spirit, if not the letter of the ATC.

However, it was difficult to foresee at this time the shape of the global textile industry, once the transition is over. Outlining the adjustment measures to consolidate a fragmented industry now taking place in India, Chandrasekhar that the industry accounted for 34 million direct jobs and a further 47 million in allied activities. Any uncertainty or questioning of the underlying expectations of the international regime in the sector could cause enormous damage to the Indian economy.

It was a systematic imperative that agreements once entered into should be adhered to scrupulously by all. Failure to do would undermine multilateralism. For developing countries the ATC (with its definitive end to the quota regime) was a major gain from the Uruguay Round - and balanced the onerous obligations in other areas such as TRIPS. The simultaneity of the phase.out of the quota regime and the kicking in of the TRIPS regime for product patents underlined this linkage, India pointed out.

Chandrasekhar asked whether a WTO would be an academic exercise or one for specific remedies to the difficult transition? Were the problems amenable to WTO solutions or domestic policy adjustment, restructuring, diversification etc? As for technical or financial resources to ease the pain, did the WTO have any central role to play? Similar questions and systemic concerns arise over proposals for development of a work programme on a sectoral basis. It would be more profitable to promote coherence between multilateral institutions.

India was not unconcerned or unresponsive to the issues raised, and was ready to discuss them with the concerned developing countries to get a better understanding of their problems, and would be open to all productive and constructive suggestions. However such a dialogue would have to be on the basis of adherence to legal commitments, and steer clear of introducing new distortions or revisiting the agreed parameters of ongoing negotiations.

Brazilsaid it has undergone major, and in many ways paintful restructuring in the sector, and was asking itself how to deal with a more competitive environment after 1 January.

Most developing countries have had experiences with significant adjustments as a result of rapid trade liberalization, as part of structural adjustment programs or similar autonomous economic measures.  It was too often forgotten that the reallocation of productive resources was not simply a change of coefficients in a production matrix. In the short term, there are costs related to the idleness of production factors, which is indeed the economic justification for safeguards. “We should probably devote more time to discussing trade adjustment issues on a broad basis and in practical terms, possibly by means of an exchange of national experiences.”

However, it was intriguing that this issue should be raised in a discussion about textiles, as this is not the first sector that would come to our mind. The costs associated with trade adjustment can only be understood as “losses” in a short-term horizon. And the last time that the expression “short-term” was used with regard to textiles was in the 1950s. Since then, textiles remained outside the multilateral trading system, to the detriment of both - the sector and the system.

There seems to be a parallel between textiles and the negotiations on climate change. The first and most obvious one is that the liberalization of textile trade and climate change are measured with the same time scale: decades. The second, the risk of affirming the consequence, of mistaking correlations for causes, of barking at the wrong tree, of spending energy fighting the wrong enemies and thereby of missing the opportunities for addressing the real problems.

“In climate change, for instance, there have been attempts to blame developing countries for whatever economic growth they have managed to achieve now, deviating attention from the accumulated distortions caused by others. In the case of textiles, we would incur the same mistake if we were to consider trade liberalization in general, and the end of the ATC in particular, as problems in themselves. This would distract us from the very significant, concrete problems that will continue to haunt textile trade after 1 January, such as tariff peaks and restrictive and ever-changing rules of origin.”

They must also bear in mind the systemic implications of any attempt to depict trade liberalization as an evil. The textile sector is very important, but it is not essentially different from other sectors.

“Therefore, if we are to look into adjustment, we should do it horizontally. And if we are to go along that path, we must do it in a manner that does not undermine the foundations of the multilateral trading system.”

Speaking at the end, as observers, the IMF and the World Bank gave support to ending the quota regime and integrating the trade into WTO rules.

The World Bank said that after more 40 years of “temporary” quantitative restrictions, the phase-out would herald normality to this important component of international trade. The post-ATC world would be characterized by a more competitive environment, and many of the distortions would be eliminated, bringing adjustments to different segments of the industry. However, there was need for caution in evaluating the post-ATC outcome.

The concept of ‘unforeseen circumstances’ used by some proponents for extension of the time-table for eliminating the ATC quotas raised a number of questions. It was hard to argue that the quota phase-out would be a surprise. While back loading of the liberalization would bring most of the adjustment with the final phase-out, this too was provided for in the agreement and known from the beginning. Nor was it easy to defend the view that China’s accession to the WTO required a re-examination of the agreement, more so since China was already a main exporter in 1994.

While the estimates of global welfare by phaseout were biassed upwards in simplifying assumptions, the GTAP-based general equilibrium model analysis and partial equilibrium estimates (used in the WTO study) need to be taken with a pinch of salt - they only indicate the directions of adjustment trends. There were some aspects of the industry, like reliance on female workers in the clothing sector that added to the complications of the adjustment process. Trade-related solutions may play a better role in facilitating adjustment, including unilateral liberalization on MFN basis by those who would benefit or extending preferential access to the LDCs.

But it was also important to avoid the temptation to replace quotas by managed trade interventions - anti-dumping actions or discriminatory safeguards. The World Bank was ready to discuss on a case-by-case basis, the financing needs of countries associated with ATC-related adjustment.

In concluding the discussions, the CTG chairman said there had been intensive discussions, with 38 delegations and the World Bank and IMF participating as observers. It was an important issue within the CTG discussions. Some had supported the proposals for study and work programme. However, there were difficulties involved, since it affected the rules and disciplines of the WTO, and hence difficulty in making progress. At this time they could not move forward on the proposals.  There was also a willingness to continue consultations in some form. A reasonable way forward would be to have informal consultations which are open, transparent and fully acceptable to all. The chair would look for the best way to undertake such consultations.

Trade observers said that with the certainty of end to quota regime by 31 December 2004, the trade in the major markets would be looking for competitive supplies on the one hand, while industry in the US will try to see whether the electoral process, and post-electoral scenario there could be used for its purposes. – SUNS5659

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