By Gurudas Aras
Independent Director (Rossari Biotech group) and Strategic Advisor (ITA GmbH, Yamuna Machine Works and Rabatex Industries)
The world today is one big global village. Post WTO, trade across the world has multiplied with more and more countries participating in inter-country trade. The global textile market offers immense opportunities for Indian T&A exporters. The benefits of globalisation and free trade are in terms of Access to low-priced & higher-quality goods, Increased efficiency, Creation of more jobs, Lower supply chain cost and Economic growth.
FTAs (Free Trade Agreements) create fair trading relationships between participating countries and can help to increase the country’s exports by reducing trade barriers and creating a transparent trading environment. Indian companies get a price advantage when the Indian exports become duty-free (zero import duty) and get a level playing field against the companies from other countries. The best example is that the textile exporters from Vietnam, Bangladesh, Cambodia, and Sri Lanka get preferential treatment with zero duty access to EU and US markets which the Indian exporters do not get. Indian T&A exporters have to pay 12% import duty in the case of the EU and about 28% in the case of the US due to which they lose competitiveness against countries with zero import duty status.
India has been negotiating FTAs with many partners to increase the exports of locally manufactured goods and has succeeded in closing some of them. Presently India is negotiating the two most important FTAs with the EU bloc and the UK, both of which offer very big market opportunities for T&A exporters.
India has the following major existing FTAs:
- ASEAN-India Free Trade Area
- Asia Pacific Trade Agreement
- India-Japan Comprehensive Economic Partnership Agreement (CEPA)
- South Asian Free Trade Area (SAFTA)
- India UAE Comprehensive Economic Partnership (CEPA)
- India Australia CEPA
- India-Korea CEPA
- India-Singapore CEPA
The FTAs are very important for increasing global trade. India being one of the leading textile producers in the world, needs to push exports of textile goods like garments, made ups and others in the competitive global markets against stiff competition from countries like China, Vietnam, Bangladesh, Pakistan, Indonesia, Cambodia etc. In such a global competition amongst textile-producing nations, trade agreements play a very important role in giving preferential access to certain trading blocs or importing countries. The US, EU and Japan are the top markets for textile exporters.
The textile ministry has set a very ambitious target of $100 billion in textile exports by 2030 from the present figure of $40 billion. It is a herculean task to achieve this target in the coming 6 years and the FTAs (both the existing and the ones under discussion) will play a very crucial role in this endeavour.
While making the reality check on the existing FTAs, it is evident that India has failed to exploit the opportunities. The best example is of CEPA with Japan where the agreement has been in existence for nearly a decade. However, India’s share in the apparel imports of Japan is around 1% compared to 54% of China. The reason is that Indian textile manufacturers fail in quality consistency as well as in supplying products that the Japanese buyers want. Indian exporters want to supply only those goods which they manufacture where the basket is very limited.
In the absence of FTAs with the major textile markets like the US, EU and UK, Indian T&A exporters have to pay high import duty which works as a trade barrier. The Indian government has been working hard over the last few years to give shape to the FTAs with the EU and UK. India-UK FTA has entered a final stage of discussions and hopefully will be closed soon. As per the UN-COMTRADE database, the UK imported apparel worth $14.36 billion from India in 2023. This number is expected to grow significantly once the FTA is closed.
EU is the 2nd largest trading bloc after the US and is a very important market for Indian textile exporters. India is presently continuing the negotiations with the EU for FTA. The 7th round of negotiations with the EU bloc of 27 nations started in February 2024. India has advocated for labour-intensive textiles and apparel products to be classified as non-tariff items during the FTA negotiations with the EU. Presently India is in a disadvantageous situation vis-a-vis China (leading supplier to the EU), Vietnam and Bangladesh due to import duties of 10-12% levied by the EU on Indian textile products.
India and US Trade Policy Forum is a Forum established to promote bilateral trade for discussing concerns including the issue of free market access for selected products. Signing an FTA with the US is far away dream as there are lots of hurdles to cross.
The signing of FTAs with EU and UK will certainly benefit the textile exports but that alone is not enough. Indian textile exporters need to act on the following points to strengthen their global position.
- Attaining quality consistency
- Diversifying the product basket with more MMF-based products
- Following the best global manufacturing practices
- Embracing Sustainability, Circularity and Traceability in the Supply Chain
- Leveraging the government schemes for building world-class capacities in MMF and Technical Textiles
- Developing the products which are in high demand in the importing countries rather than looking to export only what is manufactured
- Watching out for new fashion trends in the importing countries
- Engaging more closely with the buyers to build trust
- Improving compliance through certifications like GOTS, OEKO-TEX, ECOCERT, ZDHC, BSCI, SAC, BCI, Bluesign, Higg etc.
Trade and Economic Partnership Agreement (TEPA) has been signed by India with the European Free Trade Association (EFTA) consisting of Iceland, Liechtenstein, Norway, and Switzerland. India is also separately pursuing an FTA discussion with Switzerland as both countries complement each other’s needs in the textile arena. In the absence of a formal FTA, the CITI (Confederation of Indian Textile Industry) and Swiss Textiles signed an MOU in November 2023 to promote bilateral trade and investment.
India is gradually emerging as a reliable supplier for sourcing textiles with good quality products adhering to global standards. The elimination of import duties in the importing nations through FTAs will further stimulate textile export growth.
