Textiles trade liberalization: A test case to promote development

Pascal Lamy, European Union, Commissioner for Trade, Brussels

One of the most important results of the Uruguay Round, which ended with the establishment of the World Trade Organization (WTO) in 1995, was the agreement on the elimination of quotas to imports of textile and clothing products world-wide. After almost four decades of existence, quotas will cease to exist from Jan. 1, 2005. It is one of the most significant events in the history of the world trading system, whose repercussions will be felt by the industry everywhere, affect tens of millions of employees across the world, as well as traders and consumers.

Barely a year from this crucial deadline, some pressing questions are being posed on the challenges in economic and trade terms, as well on the social and development effects. This week the European Commission has adopted a policy paper with a list of measures we will be pursuing to respond to all these questions.

The elimination of quotas should not be a threat, but rather an opportunity. Many studies point out to the significant gains, which can be expected for the world economy. Developing countries as a whole should be able to increase their exports to industrialized countries.

Greater competition should lead to greater economic efficiency, and lower import prices should result in cheaper prices for consumers. The way forward will depend on the response from industry and on the competitiveness policies followed by governments. However, as with any major economic changes, it will put the textile and clothing sector -- where there is already overall overcapacity -- under additional strains, in industrialized as well as developing countries.

Nobody can tell just how individual countries will react and be affected by the new competition. Realignments in world production patterns are likely, with important adjustment costs that may be relatively more intense in developing countries, and especially those which are most dependent on textiles: Some of the poorer ones, small countries which do not have an integrated textile and clothing industry, and those lacking adequate infrastructure to attract investment and capacity to conform to fast changing market requirements.

The least developed countries are the most vulnerable, especially in Africa and the Caribbean as well as in South and South East Asia. Some of these are dependent on textiles for up to 90 percent of their industrial exports, and their employment in the sector can reach 60 percent of working population in industry. Other developing countries may also be under great pressure, in particular those around the Mediterranean.

What can be done to cushion the impact on these countries? The way to go is not by hampering competition in the sector or by deteriorating the market access that the other countries enjoy, but instead by measures to facilitate imports from the weakest countries, in full compliance with the multilateral rules.

The first step would be to grant duty-free access to imports for the least developed countries, something that the EU already provides, under the Everything But Arms initiative and also to Africa, Caribbean and Pacific (ACP) countries.

Unilateral trade preferences -- such as the EU's Generalized System of Preferences -- could be concentrated on those countries most in need, and we could examine measures to facilitate greater use of such preferences, including by taking steps so that rules of origin contribute to benefiting from market access.

In the case of the countries around the Mediterranean, progress towards the completion of an integrated trade zone should be accelerated so that it becomes effective by the end of 2004, thus promoting the competitiveness of the textile and clothing sector of the whole area.

For the EU this is an important objective also to promote stability in the region, as in Southern and Eastern Mediterranean countries there are almost 4 million people directly working in this sector, mostly for exports into the EU. A major step was achieved in July when trade ministers from the Euro-Mediterranean area agreed a common set of origin rules.

But dismantling quotas is not enough: We must tackle very high tariffs that still exist in many countries, as well as non-tariff barriers. Trade in the sector has been characterized so far by an almost one-way flow: From developing countries to industrialized countries, the EU, the U.S. and Japan accounting for 80 percent of the world's garment imports.

Differences in comparative advantages may have played a role, but also high levels of protection. For this reason the EU has proposed in the WTO a genuine convergence of market access conditions world-wide: That all countries -- with the exception of the least developed ones -- bring their custom duties to the lowest possible common levels, on the basis of reciprocity, and for the elimination of all non-tariff barriers.

The most important and competitive textile exporting countries must be fully part of this process, even if time might be necessary to facilitate a smooth transition.

There are other issues that will require attention too including respect of intellectual property rights and fight against counterfeiting as well as vigilance to counter unfair trading practices.

We must also promote sustainable development. Action here should not be contrary to multilateral trading rules or be construed as a protectionist device. It should consist mostly in encouragement and persuasion: Granting advantages to exports from countries which can prove a good track record of respect of core labor standards as promoted by the International Labor Organization as well as encouraging adherence to international environmental agreements. Policies to support diversification into other sectors and activities in developing countries should also be promoted.

There should be a mix of competitiveness and solidarity, to ensure that the gains of post-2005 textile and clothing trade are widely shared and felt. We look at the textile sector as a test case of joint action at world level: Let us all contribute to its success.