c- 1 1 ~~ r 1 L n :J L V L 1'1

CONCLUS H!N l\iFl Pfll.. ICY RECnP'lfi1ENO!H HlNS

- 354

T h e t h eo r u t ; c a 1 :m ' I ern p L r i. c a 1 in v e s t i g at 1. on

into tho concept of comnetitivenns~ have revealed

thnt it is a highlt complex subjtJct and that all it.'s

rJeten·rn.i.nPJnt~l nro not amenal)le to quantitative

analysis. r-·1o13t of tho analy:ds here has hovered

around tho concept of "price competi.tiveness 11 •

Thls is because r·e.lati.ve price of a product is

undoubtedly the rnost eignif'icant ·-Jeterm1nant of

export performance. Also to the extent that compe­

titiveness implies ability to supply, it sabsumes

domestic price competitiveness which basically

exhibits the pressure of domestic demand.

DetermiQ.q>nts of Comp_et~_t_i~!l~~

~ mujor prnhlem in analysis of competitive­

ness is the choico of an approprJ;:d:r'l i.ndex. ThrBe

in d ic as have berm cons irlerod he rr:t, that is, market

shEtre, relati.v~1 r:rica an,; t:l1o extent of quota

utilisation. Each one of these indicators is

influenced by a l~rge number of factors both on the

demand as lJell as supply sirle, such 38 factor

pror:Juctivities and f3ctor prices, quality and design

of the product, freight anrl rlelivory schedule,

stnndard of packaginq and 3esthetic appeal of the

~roduct, rate of 8Xch~nge and choice of currency in

355

international transactions, and trade and industrial

policy of the exporting as well as the importing

country. Apart from the non-quantifiability of many

of these factors, consideration of all these factors

at one time is uell nigh impossible even in a general

equilibrium framwork.

Empirical verifiability of competitiveness is

also rendered difficult in vieu of the varying inter­

pretation in a static end dynamic setting. Also, the

results would be different depending on the precise

specification of the estimation procedures or the

parameters of estimation. In particular, the precise

specifications of uhat constitutes 'the market' or

which is the relevant price indicator are of vital

importance in arriving at the appropriate index or competitiveness. In the present exercise, for instance,

it uas considered that the relevant size of the market

in the context of India's exports uas 'the total import

from lass-developed countries'• The other indicator

of the market size ia the total import from extra-EEC

areas. It is, however, a moot point whether countries

facing different trade policy environment could be .

clubbed together to arrive at policy conclusion. It

uas for the same reason that intra-EEC trade uas

excluded from the computations or market share.

Similarly, in viau of the non-availability or other

- 356 -price indices or thgir non-comparabil.ity, unit value

indices of c.i.f. imports in the EfC was considered

as the appropriate choice of price indicator. This

indicator has obvious limitations particularly as

it is not independent of quantum of imports and as

it was difficult to compare it with pric~of domestic

pro~uction. Moreover, in markets fragmented on the

basis of quotas, th•:o cnrnpeti.tiveness in·Jices become

even more hazy.

Trade disadvantaqes such ~s Preiqht, quality,

packaging, lelivery !H:hedulet rn"lrkr?t information and

so on taken together constitute an importAnt element

of competitiveness. Non-quantifiabili.ty and lack of

full information of these fActors admittedly reduce

the unfulnr:lss of any indicator of competitiveness.

I t i ~' , h o wever , a ~• ~J 1 1 rn B d t h ":1 t r o 1 n t i v e p r i c e s o f

competjtors reflect these trade disadvantages as well.

Similarly poli.cy intervention, particularly

in the form of provirling export incentives or industry

subsidies and exchange rate manipulRtinns could alter

the scenario of competitivity rankinq of different

countries. Export success stories of South Korea and

more recently Pakistan, for instance, reveal wide

spread use of exchange rate policy. Tn the long run,

technolog i.cal Jnnov"t:lons and cq·Jital d(:~epening

process could 3lso alter thn comretivity rankinga or

- 357 -

nations. The strengthening of the textile industry

in [ u r o p e b as •3 rl on i 11 c r e as in rJ aut om n t i on an d robot i­

zation has thus rendered the exports from some of

the Asian countrieR uncompetitive despite the

continu~nce of low wage rates.

Finally, the analysis of competitiveness

requires the choice of competitors and competing

products and the laval of aggregation involved there•

in. As far as the chclicB of pro:lucts is concerned

present analysis has relied on the category-wise

c 1 as s i. f i cat. ion b as e c1 on t h e r EC: b i 1 at era 1 agree rn en t a

with the expDrting countrie!3. Th!!3 is JuDtified on

the ground of cover~qe as well as for policy impli­

cations. The choice of compAtitora is essentially

b3sed on the principle of substitutability of produGts.

As it happened, the four AsiAn countries, i.e.

Pakistan, South Korea, Taiwan and Hongkong with export

expsrience based on low wage supplies exhibited

significant elasticities of substitution with Iridian

products.

r.; :-1 r i< 8 t ~l h l !' P 0 f' ?l C n I J n try 8 (1 U ;" l l y d 8 p 8 n d S 0 n

the evolution of nolitical rPlntinns hRtween countries.

Jnstitution on

t: he one han •! an l t h r:! ::; J ~1 n if' i ~~ cl n t c: h lfl (] n in relations

b e t w e B n t h E: f o r rn e r c o 1 o n .i a 1 rH-:' 1 1 e r- :J :J n ' l t. 11 e i r r:l e p e n cl em-

cie!::> on the other bg::~r. tost.i.nwn'/ tn this fact. Tn the

358

more recent pariod, grouing inrluence of the Pacific

Asia has brought out basic changes in economic

relations of countries like India. Increased imports-

nee or the EEC during 1973-80 and it's virtual re­

surgence in end 1985 in the uake of third Enlargement

and Prospocts of 1992; the increasing importance or

Japan and the USA in economic sphere; dem~tisation

of Eastern Europe, particularly the de-Communisation

of Poland, Czechoslovakia and Hungary; emergence of

China (which uill shortly include Hongkong) on the

world economic scene are m8nifastations of worldiwide

politico-economic re-alignments. In a wider context

these developments have relevance to India's competi-

tiveness. It is a different matter that these changes

are beyong the scope and purpose of this study.

Indian Competitiveness in the EEC : Some Possible Explanation

The trends in India's declining competitiveness

in the EEC particularly since 1980 has also had a lot

to do with ths oil shocks in 1973 and 1979 and it'•

consequent adverse impact on growth and employment

in the EEC. The onset of recession in the EEC owing

to hike in oil prices and tougher US monetary policies

triggered increased protectionism. The deceleration

in demand accompanied with increased tariff and non­ta~~rr barriers hurt more the exporters operating with

- 359 -

lesser marketinq expertise 1nc1 re.s:~'urcos <1nd

It is

export of garments fell in restricted, non~restricted

as lJell as in items outsic!B the biL>tor:::l :Jgreements.

In alternativ~ tsrms, growth r~te of the EEC imports

o f t e x t i 1 e s f r o m I n ri i ::~ i n t. e r r·' s o f C: r: I .1 ·J e c 1 i n e d f r o m

3 3 p e r c en t p e r c:J n n urn 'i u r in IJ 1 9 7 1;- 7 '~ t o 1 3 • 8 p e r c e n t

per annum riurinQ 1979-82 and fu':.'th~r to 6.9 per cent

per ~nnum durin1 1983-85. Jnrli~'s sh~re in Extra-EEC

imports declinPd frnr'l lt.17 f1 'r c·,nt in 197~l to 2.67

per cont in 1qas.

India's cleclininq compr=d:.J::iv!.~ne~>S vls-a-v!s

Pakist'Jn on the onf?. h1nd and [ast :\"Jnn countries

co~t Htructure, Paki~tan through a combin~tion of

1:: r a c1 u a n d i n clu 'l t. r 1 31 p o l .i c i e s i 111 p r o \1 e r:J h e r p r i c e

compotitiveness nq~inst Inrii1 by os much as 71 per

cent botween ~FA Tl And MFA III pRriorls. Inrlia lost

heavily to Pakistan in fabrics. The E~st Asian

countries on the other hanc1 ;;JC!iiever:J f·1ster grotJth

because of their pre-dominnnt position in export of

garments, demand for t.1hich uas e>(~nn Hnr; f3ster in

t h e E F.: C • \3 e t. tJ e en 1 9 7 G an c 1 9 ·1 t1 , i m r' o r t o f g a r men t s

into the EEC incrB:::t<;od by 211 p(•l' c~:·!n t crHn~J-1red with

- 360 -

10 per cent growth in im~ortn of tAxtilsa.

garments accounted fnr 90 per cont of totQl textilee

exports from Hongkonq, 76 per cnnt of South Korea

and GS per cent of Taiwan compared with 45 per cent

from India.

In the ongoing analysis of India's exports,

mostly at macro level, the ~ecline in India's market

share or her orice competitivAness has been attri­

buted to ~ost of f~ctors like f3llinq factor producti­

vity, rising cost of lahour anrl rnw materiel, lack of

moc~ernization, unf:lVOt.nablE"J tr3de arvl invHstment

p 0 1 i C y j_ n t 8 X t i le S 8 C t 0 r a n rj p r C-l S S U r r::! 0 f cJ 0 m 8 S t i C

d e m a n cl .'J n d t h e c o n •:; B ,.,l 1 8 n t d i f f i. c u 1 t j_ ~ ·• s 1. n g 13 n e r a t i n q

export~hle surplu9es.

Evidence rel~ting to the period 1974-85,

provides considerable suppat:t to these hypotheses.

The textile industry Jn Indii1 r!urinq thi~3 period i.s

char3cterizecl with unLalancnd ~)rowth t,lhBre the

rjecont.ralisec! sc.1ctor tvts rrwrcho:l ahH<ld at the cost

u! Li1~:' mill ~H1ctue. Liberal licenstng policy \Jith

reg~rrl to spinning mills, the Je-licensinq of spinning

cap a c i l-. y be 1 o '·' 2 5 thousand s p in d 1 e s an cJ rest r i c t i v e

licensing policy towards composite mills on account

of ~RTP Act were mainly responsi •le for the decli.ne

of mill sector. Th.b: policy :,;b,ncc;; JccnP1fJ2nied with

.. 361 -declining rate nf profitability le: 1 to ~iecline in

c a p ~ c i t y u t i 1 i z a t .i. n n n n rJ r 1 o <> ' ' T' " n f rrt i 1 l s

was little possibility of product rlnvelopment with

lack of finer counts of yarn and relatively faster

qro1.Jth in pt·iten nf fl.nputs than output.

The toxtile oe~tor h~s grown ~t much slower

rate than the textile products and clothing. The

evidence relnting to the period 1974-85 does not

support the conventional argument that this was due

to productivity lagging behind wage rise. It was

more due to increase in in~ut costs particularly of

cottor1 at a rate f3ster than thA increase in prices

of output. This together with incr~ased pressure of

domestic demand as rRflected in the falling export to

output ratio preventor-J the realiz'ltJnn of full export:

potential.

Clothing sectnr, on the other hanrl, has been

the star performer in India's exports 0ven though it

is yet to emerge as a large scale organised and

efficient industry. Apart from the lack of economies

of scale, other f3ctors such as, high cost of inputs,

infrastructural constraints, faulty quota allocqtion

policy and lack of imaginative marketing 3rrangements

h 3 v e h i n ~j e r e rl t h A e x p o r t rJ r o u t h o f t h i s ~ e c t o r • T '~ r .i f f

and non-tariff barriers on ~cce3~ to hlenrled and

synthetic fabrics h~v~ 3rlversely ~ffected the export

362

o f s tan d a r d g a r men t ~3 1 j k e b u s in ~~ ft s s h J r t. 3 • [ :><port

incentives 1 i k 13 c: A 9 h :vl :d s t 111 c n <HI -1 i rnp or t r ''3 p le­

nishmr:lnt hnvt:3 bE1en foun'l t.n he :(n8dequ.Jtr'l to

neutralise thE~ dis:-Hiv.-,r.tages,

There is enough evidenca to suggest that

India's exports of textiles and clothing suffer

fr·orn 9nrJ.()US rJis··HJ\18ntnges in respect of develop­

ment of marketin9 channels, 1uality improvement and

transportation, Various official committees have

found the large net,Jork of" exoort promi[Ji.:ion agencies

operating in Europe as unproductive as there has

been no decline in time delays anj wrong responses

to enquiries relntinq to trade transactions, fair

schedules and payment of bills. In regard to

quality, exporting firms hnve not adhered to the

quality of products nc,-ordinrJ t.n tho snmpln provided.

Quality problem of Indian garmonts is also compounded

due to poor falnics bnsB and l.cwk of' exposure to

better quality prnducts. Ind:i.<1n exporters also face

an unusually high frAight cost, estimated at 70 per

cent more due to ltnf'avourahlP cornposii·ioh of exports

and 30 per cent mars duq to higher ttansgort QharQeS

on account of inefficiency of port operations. In

2~dition, there is lack of space in west bound air

- 363

T h e s e s up p 1 y ~l .1. d B p r o h 1 e rn t> 1 r r~ o f' o v e r r i d in g

importance in thH lew compet.itivii:y pf TndJa 1s

exports. This of course, dnes not mn~n that Indian

t ex t i 1 e an d c 1 o t h in r1 8 ~ p o r t e r s do no t f :·1 c r:? dB man d

constraints in the European Comnunitv. Statistical

evidf~nce suggests that :>hare of the ·~cc in total

imports by developer! areas declined from 69.3 per cent

to 61.9 per cent in textiles and 58.4 per cent to

43.3 per cent in clothin~ during 1979-84. Import from

the less developed countries h~ve qrown even more

slowly since 1981. Qne consequence of ':iecling demand

was that competition among LlCs becsme more tense in

which less effici~nt countries lik8 Jn1ia suffered

the most, p;:!rt.icl!}.3rly in view of' the highly elastic

supply rHs:.HJnse from corrtp<!titors l.il<o r'aki~of:.:tr1. In

item~-' s t r c h 8 s '-1 o von r::: o t 1: on f <~ ;~, r i. c ~:; , k n 1 t. LJ a a r , b 1 o us as ,

shirts, handkerchief's, household linE~n, :-Jrnssas,

underg:::.rments, Inc!ia f':1,:ecJ price:' cJmrr:=Jt:ition frnm one

o r t tH? o t h n r m a j o r . \ s l. a n c o rn p rJ t 1 t o r •

The n~stricto,l 'Jrouth in lrTIIIOrts has been du13

to a cnmhin·~tion of' f·1ci:ors re-inforctnrJ each other.

I t i ~ rna in 1 y <l t t r J hut e d to : h r! r P. c esC~ .i on a r y s it lJ at ion

arisinq out of i:he ojl pr.irt? l1ikes .in ·1973 c:1nd 1979.

Apparent consumption of textiles declined by 11.1 per

cent anrl that of clothing by 12 ~er c8nt per annum

during 1982-85. ~p8rt from r~cnssinn, rlemand was also

- 364 -

constrained by slowing down of wngo Qrowth, demo~

graphic stagna t .ion ::mel rJocl ird rFJ m:HIJ in al propene ity

to consume of textilos and clothing.

EEC policy ltn~tucle tho imporl:s of b3xtile and

clothing was perRapa the most important factor behind

slowing down of demanrl for imports, As the MFA wae

originally envisaged as a temporary measure, countries

like 8elgium, U.K., Italy and France offered substa­

ntial subsidies to their industries irrespective of

their pace of adjustment. Uhen these policies failed,

the governments of the Member States provided aid for

restructuring and subsequently the EC Commission came

up with a programme and criteriA for such aid and

thus provided sanction for sustaining an otherwise

dccGying industry,

U hi 1 e the f J w1 n cia 1 support f or r 13 ~; L r u c t u fin g

d i rl he 1 p i. n r a is i. n q t n v e !3 ten an t , J t co u 1 cl not he 1 p .t r1

preventing job losse9 due to higher productivity. The

EC Commission, vested with the powers to shape tradp

policy for the Cofllmunl.ty thortd'or.e translated the

protectionist sentiments into uchemes ~nd arrangements

uh.i.r.h ensured only rn!.n1rnnl rp:-mtth in i_lllports from lolJ

W<:H.Jf:.l ·loveloping countr.ies. Dref'ernnce schemes like

th8 GSP were made inoperAtive by introducing strict

rules of origJn 3nd tariff' quotas. r·'oreover, by evolVing

a hierarchy or trade relations, the access was made

difricult for countries like India.

- 365 -

In the araa of textiles, non-tgriff barriers

have bncorne the binrfJng constr•int over the years.

It is estimated that volume ;:wd pr:ico restraints

affect as much as 80 per cent of EECs imports of

textiles and clothing from developing countries• The

successive ~lFAs gradually narrowed the market access

in th13 developed countries. It t,Jas more accentuated

i.n tho CCC chw to f.1ner categnrizatlon of products,

sources and destinotions. A cornpnr~,1t.f.ve study of

!njo-EEC bilaternl agreements indicate gradual decline

in the range of g rolJt.h parmiss ible, prol. i feration in

the number of categories, significant reduction in

quota transfers among categories and over years,

reduction in advance usage of quota and introduction

of a 'triggering device' for unrestricted categories.

Full utilization of quotas was also prevented by

following tactics like delay in issuing import licences

and even stopping it under the provision of emergency

protection. Moreover, due to varying j_ntarpratationa,

products like handloom which ware exempted under the

MFA were covered under the [ndo-EEC bilateral

agreements.

Apart from the quota restrictions, the concan•

tration of quota in one or two markets has acted as

a rn~jor constraint on the dem~n~ side. For instance•

in 1982, the U.K. accounted for about half of the

.. 366 ..

decline in India's exports to the Community. The

jecline in exnorts was particularly marked in catego­

ries where India's quota is concentrate~ dispropor­

tionately in the 1. 1.f<. Simil'1rly, concentrntion of

quota on items like fabrics militnted against expansion

in exports as the demand for this items was limited.

Finally, quota administration policy itself worked

to the detriment of fuller utilization of quota.

A major factor in India's loss of competitive­

ness was the adverss mov9mant in exch~noe rates of

Indian rupee with m~tjcn C:uropec::Jn currencies, as well an

major tradin0 rivnls. Thr:~ evid1mce from the rlebelo­

ping countries clearly reveals their significant

r n 1 i n n c l~ on ex c h .:m q e r a l: e p o 1 .1 c y to p u s h up expo r t s •

The movements in Indin's exchange rates with US dollar

indic:.1te a clenr pattern,, continuous cleprecintion

totalling 15 per cent during 1974-76, continuous

appreciation totalling 12.8 per cent during 1977-80

and again continuous ~epreciAtion totalling 47.5 per

cent during 1981-85. The experience of European

currency Unit (ECU) was similar in direction even

though the magnitude of varistions differed. During

1981-85, ECU depreciAted by Sn per csnt, that is much

more thon rupee cieprBci,ation. 1srraci8tion of major

[urnp8nn currr:>ncie~; llllr.in•l F 1i31·-r\:.! llkl' 'eLitEthl r~'Jrk

by 52 pr?r cP.nt, ~-rencl1 F"rnnc by f:n por cent, It:=!J.inn

... 36"1 -

L i r a b y U £~ p e r c n n t , r:1 u t c h G u i. 1 rJ o r b y :; 5 p e r c e n t ,

Oahish :-<:roner by 69 per cent anrl pound Sterling by

64 per cent was f,'ir hiC)her th:'ln of rupHe. Conseq-

que n t 1 y , rupee s h o 1,1 e d s i q n if i c ::1n t ,.J r1 :"' r e c i 8 t ion

agsinst all the major currencies.

Similarly, In,.lian rupee shn1.red Cl!""Jprooiation

against Korean won and ~akistan's rupee. Pakistan

m~intained fixed exch~n1e rnte naainst US dollar

during 1 9 81-8 5 • 1 e pro c J 1 t ion or I< oro an 1J on tot a lle rl

47 per cent during 1974-RO nnd 37 rer cent during

1981-85. Indian rupee, on the other hand, depreciated

by 2 per cent during 1974-80 and 48 per cent during

1981-85. Significant decline in unit values together

with maintenance of exchange rate provided a sign!-

ficant competitive advantage to P3kistan. The Korean

exports iid not show positive resronse to depreciation

of lJOn as the country facnd cuts in quoi-::1 under the

En:-:< ore :::m b i l<J ter::1l og reeme nt.

Prices of Indian textiles ~r8 mo8tly quot~d in

t e r m s o f i.J f·l o r r up B n s J n 1 J e s t ~'·; e r ,., :my 3 n ci US do 11 a r

or Pound Sterlinq in othor cnuntries of the EEt. When

directly affects•' tt-H! fnreign prices iH1' 1 thu~l adverse.ly

local prorluct?rs :1~3 wr•J J. ,·lS thi.rli cr•tmLrj' comootitors.

368 -

: I ·i giHl r n r :!. c e .s r P ''' 1 1 fin IJ f rom r> ·< c h :1 n r) '! r "' 1: e a p D roc i ~~ t i on

rno'>t. 1 ikely inducr::Jd buyers to shift to clltern2tive

sourc:r35 of' ~lupply. ~:,Jrnilarly, t,.lhon prices t,rere qunt.nd

in c:' e p r H c i ::o t in g Cur o p EJ ·" n cur r en c i e s , t h is 1 e ri to 1 o s s

in rupee earnings rrompting the Indian exrorters to

shift their supplies to othgr are2s.

During 1981-85, India experiencorl higher rate

of inflation and much lower nominal exchange rate

depreciation com)Jared to not only Pnk.istnn but also

some major EEC f·iernbor ritclte!..l liko thn U.~<. and

W e s t G e r m an y • 0 n th >J w r10 1 B , t h n rEI ::~ 1 rJ e p r ,., c i a t i o n

of rupee by 11 por Cf:lllt IJas <'lccornpnnJnd ''ith 13 per

cent increase in unit v:Jll.Jes. !l~ll<isl::1n, on the other

han~, managed a re8l nxch~ngo rlte 0errP~i~tion of

16 per C~3nt anc5 D rat.hor sh3rp fall ln uni.t values by

67 per cent. Even South Korea mnnagerl to de~re~ia~e

her currency by about 11 per cent and reduction in

unit v~lues by 7 per cBnt. Thus Pakistan And to some

extent S'Juth l<orea l.tBl'f! successful in irn~roving their

r.~rice c:--:rnpetitivenest> through price rwluct.ion and

iepreci~tion of real axchnn~e r?tAs.

The recession3ry conjitions in the EEC and the

general weakening of· [uropaan currencies also had

siQnificant impAct nn currency invnicing. Thus, the~e

u a s s i g n i f i c a n t ~! e c 1 i n o j_ n t h t:J •_; h :' r r~ o r P. o u n d S t e r 1 i n C)

2 n d ·1 ~1 i n t h e c u r r m1 c y in v o i c i n ·--. o f T w 1 i 'J 1 ~) ex p o r b>

- 369 -

during 1979-80 to 1983-84. As rupee deprsc!ated

against major European currencies, it became profi­

table for exporters to shift away from p~unrl sterling

2 n c1 -J ·, • a n d e v en r up e e t o U S do 11 8 r • T h a t ex p o r t to

EEC ccunlries '"'ere infltwnced by exdnnoe rate varia­

tions is brought out clearly by the feet that

exporters shifted to rupee invoicing nn large scale

and away from US dollar and Pounj St8rlihg. It is

clear thereforB, th<Jt tho tr:v1e tr.r~ns~1ctions IJere

influenced not only hy the quality oF goods and unit

prices but also thE! currency of invcd.cinq. This tJas

bas.i.c<111y due to thr.~ r"'nn'lrinllr, <offn,..+·~: rf Tr··-li:o,n

exporters to maintain their competitiveness and to

avoid the risk of exchange loss.

It is difficult to make a quantitative assess­

ment of the impact of India's trade and investment

policies on India's export oF textiles to the EEC.

The empirical ev i rlence n everth el es s shoiJS thaL.import

replenishment became less important artar 1980-81 as

the growth momentum of export of garments slackened.

On the other hand, cash compensatory support gained

importance as cotton textiles including handloom became

eligible for it • l,./hi lB increBsed C[S •-Jirl help in

increasing exports, 11 I.JH13 not ~;uffiol.nnt enough to mokl?

clent into the EEC rn<nket. Th.i.~> t,l:t':l p-:~rtiy tiue to U·p::t

- 370 -decline in implicit subsidy after 1!J8D--81 resulting

from decline in ~EP and premia thereupon. Apart from

the adverse trends in lmplieit subsidy- ~ompetltiv~nese

of India in textiles was also affected by structure of

domestic tariffs which became gradually more restrictive

and retrogressive. The effective rate of tariff on

textiles has gone down with rel2tively hinher increa~e

in tariff on inputs than on output. Tho investment

policy too has not proved conducive tn taxtile production

and export. The textile policy resulted in virtual

ceiling on weaving cap8city.

Most of the major compotitors, particularly, the

East Asian countries gnined competitiveness also due to

more effective export promotion efforts and more

e f f i c i e n t ex p o r t. s or v i c e s • /\ s o t 3 t. e d e <H 1 i e r , In rl i a h a s

a large network of trarle agencies in the EEC. However,

trarle rrnmotion efforts of those agencies are marred by

the lack of coordination, lack of cooperation by the

visiting trade delegations and lack of aptitude and

experience of the personnel manning these agencies.

The experience of 1974-85 thus sugqests that

Indian exports h3ve suffers~ to a very great extent

due to supply side constraints emerging out of the

faulty trade and investment policies relating to the

textile sector. [Vgn though non-tariff bArriers put

an effective restrnint on m:•rkot nccess, grot,Ji:.h in

- 371 -textile gDrment exnorts, at lADst till 1080-81 was

to a gre~t extent due to demand expansion in the EEC.

Prospects_ of _In d i ~~_§_--~-~Fl t i_tJ~t:"'~~2 .... ·::..r::'.SL_tl_~~tL-for

a Policy Initiativ~.

The prospects of India's competitive export

performance in the EEC would hA influenced basically

by four sets of factors. These are : (a) the emergence

of net.! competitors; (h) the li.kel'/ trenriF:; in the compe··

titivity of t!1e EEC tnxtilo industry; (c) the future

implementation of the new textile policy and it's likely

impect on the productivity of the Indian textile industry.

Avail~blo rlatn from the GATT indicates that

barring 1987, tho CEC (12) have ohown increase in their

share in world ex~ort~s of textiles as I.JB]l as clothinge

Four major Asian countries, th3t is, Republic 9f China,

Taiwan, Hongkong and Republic of Korea taken together

have shown improved performance in textiles but in

clothing their share in world exports h8s shown decline.

P.part from India, D<Jkistan ;m I Th3il;1nrl, many nelJly

emerging cornpBtitoro 1.i.ke Turkny, I'~Aurittu~~, ~lorocco,

T u n i s i a , e a. n g 1 a d e s h , In rJ o n e ~;;i_ a , f·1 a 1 a y ~li. a 3 n rl 5 r i L. an I< a

h<JVe shown stronr) export perform:.mce Ln clothing exporb3.

~lost of these cornnf?Ll.t.nrs h'IVB f·nuil i)<;;tt:er than India

- 372

in terms of!hheir relative share between 1984-87.

This trend is likely to continue as most enjoy better

market access and more Blastic aupply rossibilities

as they e.stablish morn modern pro'iuctinn units, follot.r

more outLJard or i en t.t'3 d pol ic ian ~Ill·:' f ;1ce le~'3ser.

p res sure of dome ~=• t i c de rna n d. r1 1110 n g the E as i: As ian

countries, Republic of China is likely to make further

gai.n i.r1 tiH~ ECC.

ll.s far as m;=JrkBt aocess :f.:> concerned, disturbing

trt:mr!B b:nmrclfl incrwt~i.lnrJ tr.J,le barriers and fiscal

subs i d i o e , inc rea f:l in g r B sort to b i 1 ~! t era 1 ism and

grnwing respect for: protHction1st polJciEIS tJill ensure

continued restrictions on imports of textiles and

clothing from developing countries even after -the

present MFA expires in 1991, Much would depend on the

outcome of Uruguay round porticularly on wheather the

G .n. T T w o u 1 d em erg e s t ron g e r t o h ;• n d 1 e p r n b 1 ern s 1 i k B

textiles which was the objective set in the

Punta del Esta declaration.

The negotiat:lono on the 11-ruguay Pol..Jnd are going

to be completed in December, 1990. There haa been

a general :view ''· to phase out the prE'?~:>ent dispenaa .....

tion by mid-nineties. The USA and the EEC initially

took different positions ln the negotiations, the

f o r me :r f :w our in g a g 1 o I:• a 1 quo t n t o r e p l ,, c e t h e p res en +~

~ispensation, The EEC favours the conUnUJtions of the

.. 3'1:S -Mr:A

o-pini'on 't the TnxtUe!:l fJBgot.iat.loq Group is t.hat

(a) the restrictions tJlll bFl phnsed out by 1995 begi­

nning with yarn and ther-eafter on fabrics and finally

on clothing; and (b) gradually increasing the quota

on clothing items to facilitate complete phase out by

1995.

While it is a positive development that the

USA has shown her willingness to be the first to

undergo the surveillance by GATT of it's trade poli­

cies• it has at the some time threatened action against

India under it's Trada Act. Simil8rly there has been

increasing demand in the EEC for reciprocity and fai~

trade. Theee developments enhance the fear of the

developing countries that after the expiry of the MFA,

the developed countries will apply safeguards most

likely under GATT's emergency protection. The litmus

test nf the Uruguay Round would therefore be the

commitment by the rleveloped countries not. to introduce

protectionist measures snrl to phase out trade distor­

ting measures which are inconsistent with the GATT.

In the EEC, unification of internal mAtket in

1992 will be of fnr reaching importance. It is likely

to be of Gdvantage to ciFJVelopinq countrins as the

excise duties multiplicity of country quotas and other

national restraints undAr ~rticls 115 would be

dispensed with. Moreover, the uniflc3tion is likely to

374

add 4 to 7 per cent. tn r;np nf rr-r n:nmt.r:i.es and there­

fore their needs to import more. A stronger EEC may

also be particularly intArested in increasing trade ahd

economic cooper~tjon with countriAB like India

which have large domeotic markets.

In all , a c cor cl in rJ to p r el i m in a r y es t i mate e,. on

account of benefits from 1992, textile exports ~! L~Cs

may increase by 8 per cent in terms of ECU. Removal

of country quotas un r!En EEC' s b ila ter8l arrangements

and elimination of restrictions unrler Article 115 of

the Treaty of Rome (free circulation within the EEC)

applied by France, Italy and Iralrtnri wlll certAinly

benefit India. The estimates regarding the benefits of

elimination of Article 115 on MFA products euggest an

improvement in quotCJ utilisation by 5.1 per cent for the

LDCs as a whole and by 4,5 per cent for India, 1.2 per

cent for Pakistan, 4 por cent for South Korea, 6.8 pe~

cent for Taiwan and 5.2 por cent for Hongkong.

However, as stated above, the EEC is most likely

to take selective measures to protect it's industry

against surge in imports. This cnuld inclurle enhanced

aid to industry, communitisation of quota (in the

period before the expiry of the rlFA), increasing

recourse to GATT's emergency protaction or insistence

on s n rn e new s 8 f e g u 8 r ri , c la u ~~ e 8 n ~-i i ncr e c:~ s 1 n g

anti-durnpir.g action. In this rBt;J<lrc!, it m<Jy be noted

- 375 -

that the EEC has initiated an enquiry against

Indian yarn being dumped into the EEC. Against

the LDCs as a whole the number of anti-dumping

actions initiated by the EEC increased sharply

from 9 in 1984 to 23 in 1988.

The natural course for d8veloping countries

like India is to simultaneously press for liberal!~

sation of MFA and strengthening of ~ATT. Bringing

textiles back to the GATT is es~ential for India

for two reasons. Firat, even though like the other

countries it can rsalise higher unit vglues due to

fVJFA restrictions, It'~.; loss in b31:n1s of rn<n·kelt share

is much more aF> it npsr~1tes <:Jt the liJwer end of the

m a r k e t • S e co n d , d u r in g t h e 1 as t throe ye.er s , it ' s

quotn utilisation hns improved sh~rply and the quanti­

t a t i v e r El s t r i c t. i on B h :1 v e no t..J em c: r 'l e cl as th e b in ding

c o n s t r a in t s o n h En' n x p o r t a • 0 n f q F .!\ , t h f'' s e co u n t r i e s

rnuBt t~1ke advrmt3ge of tho t3rnerging lib,c·ral approach

Germany, ~Jnt:.herlmlcls, U.K. ~mrl -lenmark.

On the GATT, these countries should hJrgain for reform

in emergency protection in lieu of the expressed

desire of developed countries to inclurJe services Ljnder

the GATT. India, in the interim period must press for

further concession frnm the ~r~ fnr all cotton items

3nd a new definition for smaller exporters. Th~ latest

b i 1 :-1 t e r a 1 t ex t i 1 e ' g r e em en t: ( 1 9 P. 7- 9 1 ) tJ i t h t h e E E C

- 376 -

shows some improvom8nt in markPt ~csnss. SimilArly,

the 1989 CSP h::1n novel f~:3at:unJs tdh Lch 1.1ill r1J:1ke cross···

country transfer r-:1uch n~1si13r. IJhiln lho rr8ci~3e impact

of these measures LJOul : be knotJn c! f ter sOilli=~t ime,

statistical evidence rloes suggest a strong revival in

world exports as well aa that of India. Extra-EC

imports of MFA products increased by 16.7 per cent and

23.2 per cent respectively in 1986 and 1987 in terms of

quantity. India's overall quota utilisation improved

by around 60 per cent in 1987. Tn most major categbries

I n d i a i ~:; n o \.J a p p r o ::1 c h i n g t h e rp1 o t a c 8 l 1 :i. n 'l s •

The liberHlisation of trade in textiles Would

also depend on the: success of r<~structuring programme

for textile indu~try in the EEC. luring 198~-87, shar~

of the EEC in t.Jorlt] exports of ct_nt.hin'} increDsed from

3.? oer cent to 3.7 per cont. Th,:J ~;hiliA of t.oxtile and

clothing in tot:d. e><ports of tho[['~ of rnanuf<3ctured

8.7 pnr. cr:1nt during tlds period. Thf1S8 tronris nre

1 i k e 1 y to con t in u ~~ in v j e t.l of L il r~ An 1 en· g ern 8 n t of the

'~ r.· i.: i. n ·1 9 (_i 5 o rn b r ., c i n ~"! ' ;· r t. u g zo~ l rm ;! S p ·d n 2 n d p r o s p e c t s

of Turkr-ty joininC) thr.• r·cc, goo, I r'l\/ilnl in dem;md and

increcJsing inve:c:;trnunt: i.n micro-elPct.rnnics based techno-

logy. It is the view of some obs~rvers that the Community

would grarlually meet incrAasinq sh~re of ~em~nd f~om

intern2l production. I - ;

- 377 -

Another assessment has indicated

that if markets of the trade partners are opened up,

the EEC Yill be able to close it's trade gap in textiles

and clothing, estimated at around 5 billion US dollars

in 1987. That this could be a distinct possibility is

suggested by estimated 9 per cent groYth in EEC groYth

exports of clothing in 1989 against 0.5 per cent in

1988. Growth rate or EEC imports on the other hand,

declined rrom 10.4 per cent to 7.7 per cent. rr these would

assessments come true, India's perrormance/depend

critically on her ability to increase productivity of

inputs and mora careful evolution of trade and exchange

rate policies.

ror India, there is considerable scope for

export expansion if the neu textile policy is imple­

mented in right earnest. Implementation of policy

provisions such as flexibility in fibre use, easier

availability of raY material and capital goods and mora

relaxed entry and exit rules are likely to have salutary

impact on competitiveness. Trends however indicate that

between 1985-86 and 1987-88, mill sector has shown no

production improvement, availability of synthetic fibres

has not easened as imports have shown decline, tax . burden on the industry has not been reduced and cotton

have pricesLehoYn continuous upward trend. The new policy

has also failed to achieve the objective of increased

export competitiveness. India's share in world export

378

of textiles and clothing has not sho~ed consistent

improvement in terms of US dollars. Competing Asian

countries have on the other hand improved their share

in world export of textile articles. In the EEC,

India's gains were significant in 1986 and 1987. The

growth in textile exports in EEC, however, disappeared

in 1988.

To boost exports certain oasic !tees needed

are : (a) there should be a re-orientation in export

strategy in favour of yarn as in the last three years

this item has shoun dynamism; (b) t~e up~ard trend in

synthetic fibre production and more particularly of visco~

staple fibre should be a-ccelerated; {c) the mo-dernization

programme should be undertaken in right earnest to reduce

cost and improve labour productivity; (d) it is ne.cessary

to re-structure industry ecven if it c-aus-es s-ome t-ransi-

tional unemployment, addition:a.l inv-est.mgnt would be

nece-ssary to re-locate 1 abou_r-; ( 6) t:hST'S !s nee'd to

rationalise the duty structure by r-educing rate:s o-f duty

on raw materials, intermediates and capital goo-ds; (f) to

inc-r-eacse e-fficiency o.f en~rgy i:rlputs, t~h-e:r-e is neg-d to

link en-ergy c.osts to expo~rt performance an'lf (g) th-e.re is

need to provide additional expo-rt incentives particularly

linked to modernisation p~ogrammes and to neutralise

disadvantages due to internal transport co~ts and lower

prices that rejects retch in the domestic market. It is difficult to envisage that India would compete with deve­loped countries or even the East Asian countries in

automation; nevertheless, the search for technology

379

improvement should continue as it may ultimately

emerge as the major rector in export competitiveness

in textile and clothing by the turn of this century.