ASIA: India and Pakistan may grow at the same rate following quotas

ISLAMABAD: Pakistan and India will grow at the same rate, while China takes the lead, after end of the textile quotas, according to the World Economic Outlook 2005.

The annual publication of the International Monetary Fund (IMF) has projected 6.7 per cent GDP growth rate for Pakistan and India, and eight per cent for China, during 2005.

The report released on 13th April expects the three Asian economies to take the lionís share in textile trade after abolition of quotas, and added any restrictions against China by US or EU would benefit the other two. However, the Fund expects Pakistan to sizzle under heavy inflation of 7.9 per cent, with growing current account deficit.

The report also expects the international oil prices to remain high during the remainder of 2005. The 10-year transition period for phasing out quotas conceived in the Agreement on Textiles and Clothing (ATC) of 1995, under the World Trade Organization (WTO), has ended, eliminating textile quotas from January 1, 2005.

Of the four WTO members that maintained import restrictions under the Multi Fiber Agreement (MFA), which was replaced by ATC, only Norway eliminated its quotas ahead of schedule, while Canada, the European Union and United States back-loaded liberalisation. As a result, 83 per cent of quotas covering about 80 per cent of the value of imports under quotas during the ATCís reference period were left to be eliminated in 2005.

The United States and European Union alone accounted for more than half of the almost $400 billion in world imports of textiles and clothing in 2003, and developing countries for almost two-thirds of world exports. For about half a dozen countries textiles and clothing exports represent more than 50 percent of total exports.

Textile is the mainstay of Pakistani exports, accounting for almost 66 per cent of total exports of $12.3 billion last year. During the current fiscal year, exports from Pakistan have already touched the $10.2 billion mark in July-March period, showing 14.6 per cent growth. The government expects exports to be more than $14 billion by the end of the fiscal year in June 2005.

During the month of February and March, exports have shown much faster rate of increase from Pakistan. "Experience from the elimination of earlier quotas, model simulations, and exportersí relative success in quota-free markets all indicate that only a handful of countries-in particular, China, India, and Pakistan-may end up reaping the benefits of liberalisation," the report maintained.

The phasing out of some textiles quotas in 2002 led to a sharp change in the structure of imports into the European Union and the United States. For these products, only China, Romania, and the Czech Republic were able to increase their exports to the European Union, while only China, Pakistan, and India increased their exports to the United States. "The experience of traditionally quota-free countries also suggests that the liberalisation might lead to a consolidation in the number of source countries and confirms the competitive strength of China, India, and Pakistan."

The prospects for rapid and substantial change in world markets have prompted protectionist action targeting mainly China. Calls by some developing countries at the WTO to extend the quota system for a number of additional years were unsuccessful. The US manufacturers have filed a flurry of petitions under the special textiles safeguards included in Chinaís WTO accession protocol, which allows limiting temporarily the increase in imports of Chinese textiles and clothing products that cause "market disruption."

In contrast, the European Commission has not yet taken recourse to safeguards, but has indicated that it would take action if Chinese imports were diverted to the EU market as a result of US safeguards. The European Commission has also proposed to exclude imports of Chinese textiles and clothing from its Generalized System of Preferences scheme (GSP).

The IMF report suggests that restraining Chinese exports may slow the speed of structural change in the textiles and clothing sector but would not eliminate it, in part because other competitive suppliers-for example, in south Asia-could be expected to take advantage of restrictions on China.

From a multilateral perspective, the IMF report says, successful and appropriately ambitious trade liberalisation under the Doha Round remains critical to support medium-term global growth. The priority now is to translate the mid-2004 framework agreements into a more specific policy package to be taken up at the December 2005 World Trade Organization (WTO) Ministerial Conference in Hong Kong.


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Added: April 14, 2005 Source: Agencies
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