Textile Industry is unique in the terms that it is an independent industry, from the basic

requirement of raw materials to the final products, with huge value-addition at every stage
of processing. Textile industry in India has vast potential for creation of employment
opportunities in the agricultural, industrial, organized and decentralized sectors & rural and
urban areas, particularly for women and the disadvantaged. Indian textile industry is
constituted of the following segments: Readymade Garments, Cotton Textiles including
Handlooms, Man-made Textiles, Silk Textiles, Woolen Textiles, Handicrafts, Coir, and Jute.
Till the year 1985, development of textile sector in India took place in terms of general
policies. In 1985, for the first time the importance of textile sector was recognized and a
separate policy statement was announced with regard to development of textile sector. In
the year 2000, National Textile Policy was announced.
 Its main objective was: to provide cloth of acceptable quality at reasonable prices for the
vast majority of the population of the country, to increasingly contribute to the provision of
sustainable employment and the economic growth of the nation; and to compete with
confidence for an increasing share of the global market. The policy also aimed at achieving
the target of textile and apparel exports of US $ 50 billion by 2010 of which the share of
garments will be US $ 25 billion.

 
The Textile Industry occupies a vital place in the Indian economy and contributes
substantially to its exports earnings. Textiles exports represent nearly 30 per cent of the
country's total exports. It has a high weight age of over 20 per cent in the National
production.
It provides direct employment to over 15 million persons in the mill, powerloom and
handloom sectors. India is the world’s second largest producer of textiles after China. It
is the world’s third largest producer of cotton-after China and the USA-and the second
largest cotton consumer after China.
The textile industry in India is one of the oldest manufacturing sectors in the country
and is currently it’s largest. The Textile industry occupies an important place in the
Economy of the country because of its contribution to the industrial output,
employment generation and foreign exchange earnings.
Outlook for Indian Textile Industry
The outlook for textile industry in India is very optimistic. It is expected that Indian
textile industry would continue to grow at an impressive rate. Textile industry is being
modernized by an exclusive scheme, which has set aside $5bn for investment in
improvisation of machinery. India can also grab opportunities in the export market. The
textile industry is anticipated to generate 12mn new jobs in various sectors.
Multi Fiber Agreement
The MFA was introduced in 1974 as a short-term
measure intended to allow developed countries to
adjust to imports from the developing world.
The Agreement was not negative for all developing
countries. Ex – European Union (EU) and Bangladesh.
But however at the GATT 1994, it was decided to
bring the textile trade under the jurisdiction of the
World Trade Organization (WTO)
Removal of MFA
Bangladesh was expected to suffer the most from the

ending of the MFA, as it was expected to face more

competition, particularly from China.
The removal of quotas is likely to have political, consumer

and efficiency implications for the countries involved.

The main positive impact of removing the quotas was the

overall increase in efficiency as greater competition was

introduced into the market.
Phase-out of MFA
 16 % of the total volume of the imports of the listed textiles and
clothing products on the date of entry into force of the ATC (1st
January, 1995) must be outside quotas.
 17 % of the total volume of imports of the listed textiles and clothing
products on the first day of the 37th month or the end of the third
year (1st January, 1998) must in addition be integrated, adding up to a
cumulative total of 33 %
 18 % of the total volume of imports of the listed textiles and clothing
products on the first day of the 85th month or the end of the seventh
year (1st January, 2002) must in addition be integrated, adding up to a
cumulative total of 51 %
 49 % of the total volume of imports of the listed textiles and clothing
products on the first day of the 121st month or the end of the tenth
year (1st January, 2005) must be integrated. This adds up to a
cumulative total of 100 % and quotas disappear thereafter.
INTRODUCTION TO ATC
•From 1974 until the end of the Uruguay Round, the trade
was governed by the Multifibre Arrangement (MFA) .This
was a framework for bilateral agreements or unilateral
actions that established quotas limiting imports into
countries whose domestic industries were facing serious
damage from rapidly increasing imports

•The quotas were the most visible feature. They conflicted

with GATT’s general preference for customs tariffs instead
of measures that restrict quantities.
 INTRO(CONTD.)
•Since 1995, the WTO’s (World Trade Organization)
Agreement on Textiles and Clothing (ATC) took over
from the Mulltifibre Arrangement (MFA).

•By 1 January 2005, the sector was fully integrated into

normal GATT rules.

•In particular, the quotas came to an end, and

importing countries are  no longer be able to
discriminate between exporters. The Agreement on
Textiles and Clothing no longer exists: it’s the only
WTO agreement that had self-destruction
KEY ELEMENTS FINALIZED
REGARDING ATC ARE AS FOLLOWS:

(a)the product coverage, basically encompassing yarns,

fabrics, made-up textile products and clothing

(b) a programme for the progressive integration of these

textile and clothing products into GATT 1994 rules.
STAGES YEAR CHANGES

Stage 1 1 January,1995 integration by Members of

products representing not less
than 16 per cent of that
Member's total 1990 imports

Stage 2 1 January 1998 Not less than a further 17 per

cent was integrated.

Stage 3 1 January 2002 not less than a further 18 per

cent will be integrated

Stage 4 1 January 200 all remaining products

(amounting up to 49 per cent of
1990 imports into a Member) will
stand integrated
Along with the integration process, there is a programme for
liberalizing the existing restrictions, that is, for enlarging the bilateral
quotas carried over from the former MFA on 1 January 1995 until such
time as the products are integrated into GATT, at which time the quotas
terminate.
These former MFA quotas, when carried over into the ATC on 1 January
1995, represented the starting point for an automatic liberalization
process.
The former MFA growth rates applicable to each of these quotas were
increased on for the first stage of the Agreement and the new growth
rate was applied annually in the following way:
STAGES YEAR CHANGES

Stage 1 1 January,1995 Growth rate increased

by a factor of 16%
annually

Stage 2 1 January 1998 Growth rate increased

by a factor of 25%
annually
Stage 3 1 January 2002 Growth rate increased
by a factor of 27%
annually
 ATC
Provisions relating to the commitments undertaken in
all areas of the Uruguay Round as they relate to
textiles and clothing require that all Members “shall
take such actions as may be necessary” to abide by the
rules and disciplines of WTO so as to achieve improved
market access, to ensure the application of fair and
equitable trading conditions and to avoid discrimination
against textiles and clothing imports (Article 7).

If an exporting Member is found not to be complying with

its obligations, the Dispute Settlement Body or the
Council for Trade in Goods may authorize an adjustment
to the quota growth for that country which is otherwise an
automatic growth.
Textiles Monitoring Body (TMB)
The Textiles Monitoring Body has been established to supervise
the implementation of the ATC and to examine all measures taken
under it, to ensure that they are in conformity with the rules.
 It is a quasi-judicial, standing body which consists of a Chairman
and ten TMB members, discharging their function on an ad
personam basis and taking all decisions by consensus. The ten
members are appointed by WTO Member governments according
to an agreed grouping of WTO Members into constituencies. There
can be rotation within the constituencies. These characteristics
make the TMB a unique institution within the WTO framework.
 It monitored actions taken under the agreement to ensure that they
were consistent, and it reported to the Goods Council  which
reviewed the operation of the agreement before each new step of
the integration process.
Cont…
 The Textiles Monitoring Body also dealt with disputes under the
Agreement on Textiles and Clothing. If they remained
unresolved, the disputes could be brought to the WTO’s regular
Dispute Settlement Body.

 In January 1995, the General Council decided upon the

composition for the TMB for the first stage. In December 1997,
the General Council decided upon the composition for the
second stage (1998-2001).

 When the Textiles and Clothing Agreement expired on 1 January

2005, the Textiles Monitoring Body also ceased to exist.
 IMPACT OF IMPLEMENTING
QUOTAS & ATC
The impact of implementing the ATC has several dimensions –
there is the political gain related to the credibility of the
multilateral trading system at a time when the system is
experiencing considerable strains.

there are the efficiency gains from eliminating highly distorting

quotas that have lead to an inefficient global allocation of textile
and clothing production.

There is the loss of quota rents on the part of ATC exporters.

There is gain to consumers.

 IMPACT OF QUOTAS
a quota is equivalent to a tariff and as such it increases the local
price of the product in question in the importing country, and
reduces local demand for the product. However, while the
increased price in the case of tariffs partly benefits local
producers and partly the government through tariff revenue, the
increased price due to the MFA/ATC partly benefits local
producers and partly accrues to the exporters as quota rents.

Another impact of the quotas (and tariffs) is that when the

importing country is large, quotas lower the price of the product
in question in unrestricted markets because the large country's
reduced demand is sufficient to reduce total world demand.
CONT…
If the quotas are set at a level higher than local demand at world
market prices, then the quota will not be binding, and will have
no effect besides the administrative costs of managing the quota
system, which may still be significant both on the exporting and
importing side.

India also has a number of domestic distortions that if eliminated

would improve the performance of the clothing and textiles
sector substantially. Thus, according to a study by the World
Bank, the welfare gains to India from the elimination of the ATC
quotas would be three times as high if combined with domestic
reforms.
 IMPACT OF TERMINATION OF ATC
At the end of December 2004, the Agreement on Textiles and
clothing was terminated.
All textiles and clothing products were fully integrated into
WTO rules, and bilateral quotas removed.
Full application of WTO rules to international trade in textiles
and clothing was a very positive and long-awaited development
for the industries and millions of consumers who will benefit
from a more open, non-discriminatory and transparent trading
environment in this sector.
As part of these negotiations, we hope to see tariff reductions in
the area of textiles and clothing.
Changes to existing WTO rules or new WTO disciplines which
might be agreed may also have an impact on international trade
in this sector i.e. resulting in better trade relations between
countries as a result of increased transparency.
IMPACT OF APPLICATION OF WTO
RULES
 As of 1 January 2005, WTO rules have been applied to trade in textiles
and clothing as in all other areas of trade. These include the core WTO
principles of transparency and non-discrimination.

 Tariff preferences for developing countries under the Generalised

System of Preferences and initiatives for least-developed countries, such
as the European Union’s “Everything but Arms” initiative and the
United States’ “Africa Growth and Opportunity Act” will remain.

 Regional trade agreements will continue to be an important feature of

the trading system with their preferential market access features.

 WTO rules on anti-dumping and security have the following impact:

- prevent unfair trading practices
- prevent injurious trade flows

 Members will have the right to use the WTO’s dispute settlement
mechanism to resolve any trade disputes that might arise in this area.
GLORIOUS PAST
Known as world’s textile hub from the pre-
maurya civilisation.
 Transit for the golden silk route.
British colonial rule help to establish eastern
Manchester in Ahmedabad and part of Bombay
presidency.
Post independence boom- due to favoured
quota import policy by developed nation.
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PRESENT SCENARIO
Global manufacturing backyard
Supply to all textile and retail majors like Dolce and
Gabbana, Gap, Mark & Spencer, Zara and Harrod’s.
Global VC major like Blackstone picking up shares
in Gokaldas exports and Himatsingasiede.
Knit ware hub at Ludhiana and Tirupur and
dedicated textile SEZ by Adidas in Nellore, AP.
Indian majors Spentex, GHCL and Welspun making
buy-out the iconic brand like Roseby.

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SLOWDOWN IN GROWTH
The growth rate in the textile industry became 0.8 % in
2008-09 (April-August).
The growth rate of Wool, Silk & Man-Made Textiles
sector became negative (-1.2%) in the first five month
in the year (April-Aug).
The jute textile segment also declined in 2008-09 by
7.4% as compared to the 33% growth in 2007-08.
Textile products picked up slightly (5.8%) in 2008-09
as compared to 3% in 2007-08.

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Recommendations
 Excise Duty on Textile Machinery & Spares to be
reduced

 Reduction of Custom Duty on Textile

Machinery

 Exemption route to be extended to Export

Oriented Units (EOUs)

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Recommendations(cont.)
Fringe Benefit Tax under Sec 115 of the Income Tax Act

Refund of State Taxes & Duties to Exporters

Uniform rate of VAT on Industrial Inputs

Reduction of Excise Duty on Man–Made fibre Products

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