Clothing and Textile sector accounts for roughly 5 per cent of India’s GDP, 15 percent of its industrial output and export earnings and provides livelihood support to 55-60 million people directly or indirectly. With India not a party to the Transpacific Partnership Pact (TPP) comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the US. TPP will hurt India’s trade with its most important export market — the US.
As the US is a key export destination it will have serious implications for India’s textile and clothing sector especially post-Brexit turmoil in Europe, as it will further increase India’s dependency on US markets.
When it comes to export of readymade garments and made-ups, the US alone accounts for over 30 per cent of India’s total exports. TPP will affect textile and clothing sector of India (and of all non-TPP member countries such as Brazil or China) in two ways.
First, exporters from TPP member countries will get preferential access in the US market vis-à-vis the exporters from non-TPP member countries like India.
This will put India’s apparel exports (to the US) at a disadvantage as the US import duties on apparels are quite high with average duty ranges around 7.9 per cent and duties on many clothing items are as high as 32 per cent as per WTO database.
Secondly, a key feature of the TPP, ‘yarn forward rule’, makes it mandatory to source yarn and fabrics used in making clothes from any or a combination of TPP countries to avail duty preference. This is likely to disrupt regional and global supply chain in textile and clothing.
Thus, YFR will induce garment manufacturers in the TPP countries to source their inputs from TPP countries at the cost of non-TPP countries such as India or China even if the suppliers in TPP regions are not the least cost. This will be a clear case of trade diversion i.e. moving trade away from more efficient producers to less efficient producers, according to a study.
