Government and Business Case Study

Abolition of Quota A Zero Sum Game for the South Asian Textile and Garment Industry?

OR

Abstract:
1 January 2005 witnessed the removal of the last phase of textile and clothing quotas, hitherto maintained by the industrial countries, under the Multi Fibre Agreement (MFA). Since quotas guaranteed a fixed amount of exports to the European Union (EU) and the US market, manufacturers sprang up even in those countries, which had no significant textile and garment industry, before the quota system. Hence, the removal of quotas would alter the competitiveness of those countries. South Asia (India, Bangladesh, Pakistan, Sri Lanka and Nepal) had been traditionally enjoying a competitive advantage because of the availability of cheap labour in the labour intensive textile and garment industry. In the 1980s and 1990s these countries gradually captured a substantial share of the US and EU textile market. However, in 2001 China's entry into the World Trade Organisation (WTO) transformed the scenario. As a WTO member, China gained guaranteed access to the US and EU textile and garment market. As the quotas were abolished in phases, China, with its huge infrastructure and cheap labour, gradually snatched a substantial amount of market share in different countries of South Asia, North America, Central Europe and Latin America. Further, due to the US' preferential treatment of the North American Free Trade Agreement (NAFTA) members, Mexico surpassed South Asia in terms of market share in the US textile and garment industry. In a quota free-regime, the market would be driven by cost and convenience. Modern plants, efficient operations and responsiveness to the market would be the key ingredients for success. Given such a backdrop, debates regarding the South Asian textile and garment industry, inevitably cropped up. This case questions whether it would be a zero sum game where some countries in South Asia would gain at the cost of their neighbours or would South Asia as a whole, lose its share in the US and EU textile and garment market?

Pedagogical Objectives:

Keywords : Multi Fibre Agreement (MFA) and its aftermath, World Bank, Textile Industry in South Asia, US textile market, Indian textile and garment industry, Sri Lanka's textile industry, Pakistan's textile industry