Model Answer
0 min readIntroduction
The Agreement on Textiles and Clothing (ATC), often referred to as TRIMS, was a crucial outcome of the Uruguay Round negotiations under the World Trade Organization (WTO), coming into effect on January 1, 1995, and being fully phased out by January 1, 2005. Prior to TRIMS, the Multi Fibre Arrangement (MFA) governed the global textile trade, imposing quotas on imports from developing countries. TRIMS aimed to dismantle these quotas gradually, bringing the textile and clothing sector under the general rules of the GATT (General Agreement on Tariffs and Trade). This transition had profound implications for India, a major player in the global textile industry, necessitating significant adjustments in its policies and industrial structure.
Salient Features of TRIMS
The Agreement on Textiles and Clothing (TRIMS) was designed to eliminate quotas and other restrictions on textile and apparel trade over a ten-year transition period. Key features include:
- Integration into GATT: TRIMS brought the textile and clothing sector under the purview of the General Agreement on Tariffs and Trade (GATT), subjecting it to the same rules as other sectors.
- Phased Elimination of Quotas: The agreement mandated the gradual and staged elimination of quotas imposed under the Multi Fibre Arrangement (MFA). This was done in three stages: 1995, 1998, and 2002, with full elimination by 2005.
- Access Integration: This involved increasing the quota volumes progressively, allowing greater access for developing country exports.
- Double Transformation: TRIMS allowed for ‘double transformation’ – meaning that a fabric originating in one country could be processed in another and still qualify for the exporting country’s quota.
- Safeguard Measures: The agreement allowed importing countries to impose temporary safeguard measures (like tariffs) if imports surged and caused serious damage to their domestic industry.
Impact on the Indian Textile and Clothing Sector
Positive Impacts
The removal of quotas under TRIMS presented several opportunities for the Indian textile industry:
- Increased Exports: The abolition of quotas led to a significant increase in India’s textile and apparel exports. According to data from the Ministry of Textiles (as of 2004, knowledge cutoff), India’s textile exports grew at an average annual rate of 12% after 1995.
- Enhanced Competitiveness: Indian manufacturers were able to compete more effectively in the global market, leveraging their cost advantages in labor and raw materials.
- Investment and Modernization: The prospect of a quota-free regime encouraged investment in modernization and technological upgrades within the industry.
- Diversification of Markets: Indian exporters began to diversify their export markets, reducing their dependence on traditional markets like the US and EU.
Negative Impacts
Despite the opportunities, TRIMS also posed challenges for the Indian textile sector:
- Increased Competition: The removal of quotas led to increased competition from countries like China, which had a more efficient and technologically advanced textile industry.
- Price Pressure: Intense competition resulted in downward pressure on prices, squeezing the margins of Indian manufacturers.
- Infrastructure Bottlenecks: Inadequate infrastructure, including ports, roads, and power supply, hampered the ability of Indian exporters to capitalize on the new opportunities.
- Small and Medium Enterprises (SMEs) Vulnerability: SMEs, which constitute a significant portion of the Indian textile industry, were particularly vulnerable to the increased competition due to their limited resources and technological capabilities.
- Non-Tariff Barriers: Developed countries increasingly resorted to non-tariff barriers, such as stringent quality standards and sanitary regulations, to restrict imports from developing countries.
Industry Restructuring and Government Response
The TRIMS regime prompted significant restructuring within the Indian textile industry. The government responded with several initiatives to support the sector:
- Technology Upgradation Fund Scheme (TUFS): Launched in 1999, TUFS provided financial assistance to textile units for upgrading their technology.
- Special Package for Textiles: The government announced a special package for the textile industry in 2000, providing various incentives and concessions.
- Export Promotion Schemes: Various export promotion schemes were implemented to encourage exports and enhance competitiveness.
- Focus on Skill Development: Initiatives were undertaken to improve the skills of the workforce in the textile sector.
| Aspect | Pre-TRIMS (MFA) | Post-TRIMS (2005 onwards) |
|---|---|---|
| Trade Regime | Quota-based | Quota-free |
| Competition | Limited, based on quota allocations | Intense, global competition |
| Pricing | Relatively stable, influenced by quota rents | Downward pressure, driven by competition |
| Industry Structure | Fragmented, with many small units | Consolidation, with larger, more efficient units |
Conclusion
The Agreement on Textiles and Clothing (TRIMS) fundamentally reshaped the global textile and apparel industry. While it presented significant opportunities for India, particularly in terms of increased exports and enhanced competitiveness, it also posed challenges related to increased competition, price pressure, and infrastructure bottlenecks. The Indian textile industry responded by undergoing restructuring and modernization, supported by government initiatives. The long-term success of the Indian textile sector hinges on continued investment in technology, skill development, and infrastructure, alongside proactive engagement in global trade negotiations to address non-tariff barriers and ensure a level playing field.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.