Globalization: A bane or a boon?

By Alfons Samosir

GENEVA (JP): The United States latest position on textile and clothing issue under the Agreement on Textiles and Clothing (ATC) has disappointed most developing countries, including Indonesia.

The U.S. position has two key elements.

The first concern the issue of market access. For the U.S., the integration process should be coupled with actions to achieve improved market access for textiles and clothing. According to Hayes, President Clinton made a commitment to the U.S. Congress whereby the phasing out of the Multifibre Arrangement (MFA) should be linked directly to the achievement of effective market access in individual countries by removing non-tariff barriers and reducing tariff levels.

The second element relates to the issue of transshipment and or circumvention. As the largest consumer market for textiles and apparel, the U.S. has urged World Trade Organization members to fulfill their commitment on prevention of circumvention (transshipment, re-routing, falsification of official documents) by taking legal and or administrative action against circumvention practices within their territory. Again, the U.S. is of the view that without full cooperation, this will be more difficult to eliminate. Knowing that Ambassador Hayes' visit would be a "signal" for the U.S. position in this sensitive sector, certain developing members took action in order to counter. As for the European Union, it shares the same U.S. position, being comprised of importing countries which have imposed quotas.

The textile and clothing sector is of great importance for the developing members' economies, and the latter have encountered many problems over the two years of the ATC's implementation, particularly with regard to the integration process, the use of transitional safeguards, circumvention, anti-dumping and the function of the Textiles Monitoring Body (TMB). As a result, the developing member strongly urged that these elements be included in the Singapore Ministerial Declaration which created a very hot debate between the two sides leading to a controversial positions.

The Developing exporting countries saw the developed importing countries (the EU, U.S., Norway and Canada) as restraining countries which still maintained quotas under the MFA, and never showed any serious intention to implement the ATC since their first integration was far from "commercially meaningful."

No textiles and or clothing restriction were liberalized during the first integration except by Canada, for work gloves (only one category). As a result, the first integration did not produce any impact on world trade nor did it contribute towards any further liberalization of trade.

Although the developing countries fought for a commercially meaningful integration for the second stage of integration, their efforts were seemed in vain since the U.S. notification in the second stage of the integration program only comprised miscellaneous yarns outside its category system such as speciality fabrics, carpets, wadding and other miscellaneous made-up articles. For the clothing sector, the U.S. was only ready to integrate like garments, handkerchiefs, hosiery, down- fillet apparel and silk clothing.

Like the U.S., for its second program, the EU also notified its second integration program, however, it seems that this program does not contain any meaningful commercial products. Furthermore, the notification refers to a conditional statement to the effect that if the developing exporting countries want a commercially meaningful integration, they must open their market by reducing tariff levels and non-tariff barriers.

As a derogation to the MFN system, the transitional safeguard is an exceptional measure, to be applied during the transition period on products which remain to be integrated into GATT. According to Article 6 of the ATC-WTO, all members are encouraged to apply the transitional safeguard "as sparingly as possible". This has led to the beginning of a skirmish which has created deep differences between U.S., as an importing country and many exporting countries. The exporting countries are of the view that the U.S. invocation of the transitional safeguard in 28 instances against more than 15 WTO members within a short period of months could not be qualified as "a sparingly use".

They argue that the U.S. are in breach of Article 6 of the ATC in letter and spirit and that the U.S. has violated the very first prescription of the transitional safeguard.

Members also questioned the very exclusive composition of the Textiles Monitoring Body (TMB). The ten members of the TMB designed to supervise the implementation of the ATC work based on as an ad personam basis. As a quasi-judicial body, the TMB was fully expected to solve the problems arising between members. However, members are doubtful about the function of the TMB when it fails to resolve the problems and asks the disputing parties to consult again. This attitude, which is likely to encourage bilateralism and finally erode the disciplines of the ATC, has seriously disappointed the developing members.

For many countries, the introduction of new rules of origin in the U.S. (Indonesia has already settled this problem with the U.S. as from November 1996) will create yet another problem and disturb the existing pattern of trade. Accordingly, They have urged the U.S. to take appropriate actions in order to minimize the adverse effects of this new rules of origin.

Another serious problem over which the developing countries are very concerned is the proliferation of anti-dumping actions in the textiles and clothing sector. Since this kind of action is often imposed on areas of the textiles and clothing sector which are already under restraint, it means that this sector is affected by a double protection amounting to "trade harassment".

According to the Far Eastern Economic Review (Oct. 3, 1996), the EU's anti-dumping duties will raise the price of Asian products by between 3 percent and 36 percent. A typical example is the case opposing Indonesia and the EU, in which the latter's anti-dumping actions on cotton fabrics (including unbleached cotton) have been particularly irksome to Indonesia.

These instances of closing and reopening anti-dumping actions are seen by Indonesia as leading to systemic trade harassment and to disguised form of protection and discrimination. Ultimately, one of the adverse effects of anti-dumping action is the loss of markets, because importers will be forced to turn to other suppliers. This sector plays a major role in the economies if the developing countries, with considerable political, social and economic implication, yet the developed countries have repeatedly threatened this sector in a number of ways.

This naturally raises the question as to why this sector has become such a trade battlefield. As we are aware, trade in textiles and clothing, has a very long history. Trade restrictions on cotton textiles were already introduced long before the World War II when "voluntary export restraints", were applied as the basis for agreement.

As the U.S. and Western Europe were of the view that this sector was sensitive and important, they decided to manage this sector by imposing restrictions aimed at avoiding "market disruption" as a result of the substantial increases in imports which they believed would have serious economic, political and social implications for their domestic affairs. In order to legalize these "measures" (voluntary export restraint-VER), in 1961 the U.S. proposed to hold a conference with the countries actively trading in cotton textiles products. This conference led to the establishment of Multifibre Arrangement Regarding International Trade in Textiles (MFA) which was in force from Jan. 1, 1974 to Dec. 31, 1994, until its replacement by the new born Agreement on Textiles and Clothing (ATC) under the WTO which will remain in force until 2005.

There is no doubt that this sector is of great importance for the social and economic wellbeing of the developing countries. Aside from the fact that this sector has created billions of dollars worth of the revenue for the developing countries, the role of the workers in this sector cannot be ignored. According to the ILO, in twenty years from 1970 to 1990, the number of workers involved in this sector has increased by 597 percent in Malaysia, 416 percent in Bangladesh, 385 percent in Srilanka, 334 percent in Indonesia, 271 percent in the Philippines and 137 percent in Korea.

According to the ILO press release, during the same period, employment in the developed countries declined sharply by about 58 percent in Germany and 55 percent in UK. In total this sector has absorbed about 23.6 million workers.

Although it is still difficult to predict what will happen in 2005, it is likely that the conflicting interests between developed and developing countries will continue in the future. The EU, the U.S., Canada and Norway will continue to maintain their restraining policy in order to protect their textile (including clothing and footwear) industries and workers.

As a result, the U.S. and the EU have already stated that the bulk of their MFA quotas will probably be put in place until the final stages of the ATC integration program. This means that no MFA restrictions will be phased out or integrated during the integration period.

According to the UNCTAD study, if MFA restrictions are phased out precisely on schedule, Asian exporting countries could tripe their exports within 10 years to reach U.S.$.175 billion in annual export revenues. This is the reason why Asian countries, led by Pakistan, India, Bangladesh and Thailand have put forward a very strong position to be included in the Singapore Ministerial Declaration.

However, the final question which needs to be clearly answered by exporting countries concerns the remaining eight years of textiles and clothing integration. We cannot deny that globalization is both a bane and a boon. Assuming the ATC is not extended after 2005 and the MFA quota is completely phased out on schedule (2005), then what?

Have the developing exporting countries already prepared themselves to enter the year 2005? Maybe structural adjustment is one of the most important actions which need to be affected during the next eight years rather than putting all the stress on other issues, such as anti-dumping, rules of origin, TMB, the integration process and the like in the negotiations.

In the textiles and clothing trade, globalization means very sharp competition. However, small and medium enterprises which export textiles and clothing can only win on the global market if they can create of increase their competitive power.

In this context, the role of governments in giving these enterprises the chance to evolve is to do so through (structural) adjustment. Even through the years, MFA quotas are the only "passport" to enter the developed market (the U.S., the EC, Norway and Canada), sooner or later (maybe after 2005?) they will no longer exist.

Whether globalization will be a bane or a boon depends on governments and on private sector. Good cooperation between the two should be a conditio sine qua non. If not, the textiles and clothing trade will stand to suffer more than they will benefit from globalization (a "bane" and not "boon").

The writer is a staff member of the Commercial Division of the Indonesian Mission to the UN, Geneva.