The end of the Quota System:

Boon or bane for South Asia?

Book edited by Saman Kelegama

Reviewed by Hemant Dabadi

THE quota system - represented by the Multi-Fibre Arrangement (MFA) and subsequently by the Agreement on Textiles and Clothing (ATC) - which governed global trade on textiles and clothing (T&C) for the last four decades expired on 31 December, 2004.

The T&C trade was brought into the ambit of the World Trade Organisation (WTO) rules since 1 January, 2005. The ATC, concluded under the Uruguay Round (UR), was meant to end the prevailing distortions in T&C trade and usher in a competitive milieu.

Trade in T&C is a major issue as most of the countries embark on industrialisation with the development of T&C sector.

Although the quota system was initially meant to protect the industries in the developed world, it also fostered the growth of this sector in many developing countries that were not necessarily most efficient producers of T&C products.

The end of the quota system has been a contentious issue since the conclusion of the UR and the establishment of the WTO in 1995. It was expected that larger developing countries like China and India would gain at the cost of smaller economies.

The issue is about the extent of gain or loss for the latter and what adjustments need to be made for vulnerable economies.

South Asia after the Quota System: Impact of the MFA Phase-outreviews the immediate aftermath following the end of quotas as well as discusses the likely long-term and short-term impacts.

Published by Institute of Policy Studies (IPS) in co-operation with Friedrich-Ebert-Stiftung (FES), Colombo, the book is divided into three parts, viz., introduction, South Asian experience and Sri Lankan case studies.

The South Asian experience consists of the analyses of the likely impact on five South Asian countries: Bangladesh, India, Nepal, Pakistan and Sri Lanka.

The quota phase-out has been a mixed experience for South Asia. Bigger economies like India and Pakistan have maintained their strong positions in the global textiles industry while some of the LDCs have been experiencing shocks.

Nepal has been the most adversely affected in South Asia as its T&C exports have been steadily declining in its major market, viz., the United States, in 2005.

The book contains useful analysis of emerging market access issues in the T&C trade; implications for labour such as social protection and decent work; and system of preferences provided under bilateral and multilateral schemes.

Initiatives taken by the governments and business to take advantage of the quota phase-out and counter the negative impact of the full integration of the T&C trade in the WTO regime are also discussed.

One important issue, which still remains to be analysed is how the T&C sector will perform in each of the South Asian countries in the post-MFA era under different scenarios in future.

The challenge is to come up with reliable quantified gains and losses under different scenarios. As a collection of articles of various writers, the book does not provide quantifiable gains or losses for each country.

The authors rely solely on secondary data, which is probably the biggest drawback of the book. In the case of smaller economies such as Nepal, the unavailability of data required for such quantification also poses a problem although the two chapters on Bangladesh and India attempt to quantify the impact by the research of the authors themselves.

However, as these calculations were done for another study and the assumptions are not the same, a suitable comparison of the impacts does not become possible.

It may be derived from this book that there cannot be a common South Asian outlook on the impact of the quota phase-out. The experience of Sri Lanka proves that economic size and lack of raw materials do not stand in the way to develop a niche in the T&C industry.

Although the book has been published after the expiry of the quota regime, the analysis (except for Nepal) is mostly based on information prior to the expiry of the ATC. It would suffice to state here that the book enhances our understanding about the issues emerging from the ATC expiry.

(Dr. Dabadi is Research Director at SAWTEE)