There has been much talk about the impact of the TPP on exports from India… at a recent event many top honchos of textile companies expressed fear of losing out on business at every stage of the textile chain from spinning to garmenting. But are the fears real or are they just a hype?
So what is the TPP for those who are not initiated… TPP or Trans-Pacific Partnership is a trade agreement signed on the 5th of October among 12 Pacific Rim countries to lower trade barriers and establish an investor state dispute mechanism among the member countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, USA, and Vietnam.
According to many industry watchers the signing of the TPP will in the long run adversely impact the global business of Indian industry besides putting immense pressure on India for more trade liberalization and concessions on market access, which many still consider a threat to national interest. Experts feel that with the signing of the TPP, global trade is likely to develop a framework of rules for trade agreements in the future, which will place greater burden of compliance on manufacturing and service standards for access to the markets of the participating countries.
The two major concerns for the textile industry in particular are:
1. TPP members including competitors like Vietnam and Mexico will get preferential access (duty-free) to the US market, which is also one of the major markets for Indian exports in textiles with the country accounting for 48.50 per cent of India’s total exports of textiles and 24 per cent of India’s exports of apparel and clothing.
2. According to the ‘yarn forward rule’, a key feature of the TPP, it makes it mandatory for TPP countries to source yarn, fabrics and other inputs for any product from a TPP partner country to avail the duty-free provision – this implies that the TPP countries will overtime develop such capabilities, threatening the Indian textile industry in its core products also.
As I see it, both the factors are on the surface ‘worrisome’ but on deep analysis the picture is not really so gloomy. Firstly, both Vietnam and Mexico are not really competitors to India even today. Vietnam is flourishing in product categories that are not similar to what India specializes in like jackets, suits, trousers and also its volumes are much bigger. Mexico already enjoys proximity advantage and trade preferences with the United States. All other TPP countries are not into the textile industry in any significant way to be a threat to India.
Secondly, creating capabilities in yarn, fabric and other inputs is a long process and cannot be developed in a few years time… It is expected that the formal signing of the agreement will happen in early 2016 from whereon implementation will happen in phased manner based on terms and conditions of the agreement, on country bases. As of now, Vietnam is an importer of yarn and textiles and India accounts for 16.50% of the cotton yarn imports and 0.58% of textile imports by the country. Negotiations are already on to strengthen the ties in this direction with the PM having met a trade delegation in New Delhi on the same in November last year (AO Nov. 16-30, 2014). Also India already has a FTA with Japan, so business with them is safe.
Admittedly, in the short run there may be no immediate dent to India’s competitiveness in textiles, as capabilities cannot be built overnight, but even the prospects of major impact in the long run are speculations as there are many possibilities that could off-set the impact in the future… There are even talks that India may actually join the TPP in another few years!
In the meanwhile, there are many ways that India can counter the possible adverse implications on its exports to TPP member-markets including quick conclusion of the bilateral free trade agreements it is negotiating with TPP members like Australia and Canada. India is also negotiating the Regional Comprehensive Economic Partnership (RCEP) that includes the 10-member countries from the Association of South East Asian Nations, Australia, China, Japan, New Zealand and South Korea. India needs to speed up at the RCEP-negotiations, given that the agreement will offer its exports greater access to several Asia-Pacific markets, including China.
The long delayed FTA with Europe will now need to be put on high gear as it will be a strong cushion for the Indian garment industry, since exporters lose out from the EU market only on price, though the ability to offer small quantities, high value-added products and complicated styles or ‘headache’ orders as they are commonly referred to is appreciated by the market. India’s biggest safety net is its product and business model that very few countries can duplicate.
Expressing my views at some earlier forums, I had ‘knowingly/unknowingly’ but confidently said that the fear is like the proverbial tiger that never really came… I stand by my statement and would certainly welcome opinions from the industry to convince me otherwise with their perspectives!
