National 2 (Spotlight Weekly)

Weaving Panic

Entrepreneurs are nervously watching the events post MFA expiry, wary that ‘efficient exporters’ could eat up their market share

By SANJAYA DHAKAL

Less than a month is passing since the expiry of the Multi Fiber Agreement (MFA) ending the ‘quota-filled’ days of guaranteed market share and the Nepalese garment entrepreneurs are already showing signs of frustration.

Garment factory : Watching with trepidaction

“We are on the verge of life and death situation,” said Prashant Pokharel, second vice president of the Garment Association of Nepal (GAN).

Until now, the Nepalese garment sector had relied on the quota provided by the American market, which consumed over 80% of its total exports. But post MFA expiry, it now will have to compete with other countries to enter into the US market.

And this is where Nepalese garment industry is so fearful about. Given their inherent weaknesses and difficulties, Nepalese entrepreneurs fear that competent and efficient exporters like China and India would swamp the US textile market – which is worth US$ 400 billion.

At a time when the lead time of Chinese exporters is between 35-60 days (for the shipment of goods to the US), Nepalese take almost 120 days for the same. And the cost of production of readymade apparel in Nepal is almost 25% higher than that of India or Bangladesh. “These problems are preventing us from being competitive,” said Pokharel.

“As such, there are a number of uncertainties about how Nepal will fare in the coming years. But initial indications point that Nepal will definitely feel a great pinch,” said Navin Dahal, research director at the South Asia Watch on Trade, Economics and Environment (SAWTEE), presenting a paper on “Phasing Out of Textile Quota: Future Strategies for Nepal” at a program organized by SAWTEE and ActionAid on January 25.

“We are definitely staring at a big challenge. Perhaps we should now concentrate on producing quality products creating niche markets,” said Dr. Shankar Sharma, vice chairman of the National Planning Commission (NPC).

In his paper, Dahal puts forth measures to deal with the situation underscoring the need to ensure preferential market access to the US.

But this measure appears easier said than done. Currently, a bill proposing such access to Nepalese apparels is under the consideration of the US Senate. “But we have been informed that some senators have blocked it because Nepal Electricity Authority (NEA) has not paid what they claim as outstanding dues to the US-based Panda Energy, which is the principal investor of Bhote Kosi hydropower project in Nepal,” said Pokharel. “Though we do not know the exact problem between NEA and Bhote Kosi, we urge the government to quickly decide on this issue. If they think that they do not owe anything, they should come clean and make it public.”

The bilateral preferential agreement with the US is an uphill task nonetheless. Till now the US government has reached into single country duty free agreement with only two countries – Jordan and Egypt. And, that, too, reflecting the importance it attaches to the middle-east peace process. “Many counties are interested in getting duty free treatment. Few have succeeded – Pakistan, for example, was unable to get Administration approval for duty free treatment on textiles even during the war in Afghanistan. In part this is because duty free treatment is always hard to achieve, and in part because it is easier for Congress to deal with regions as a whole rather than debating a long series of specific exemptions. I think Nepal’s chance for exemption from tariffs would be best if it can work with a group of LDCs that have similar concerns,” said Edward Gresser, a director of Washington-based Progressive Policy Institute (PPI), and a former advisor to US Trade Representative during Clinton Administration.

Besides, there are no guarantees that Nepal will be able to achieve dramatic progress if it is granted preferential access. “Just look at its exports to EU, which has granted it the duty and quota free access in addition to derogation from Rules of Origin standards. It has not been able to grab that market in the last five markets in substantial manner,” said Swarnim Wagle, program specialist, Asia Trade Initiative at the UNDP Regional Center in Sri Lanka.

According to Dr. Sharma in the last five years since the EU provided Nepal with the facility, Nepal’s garment exports there grew from US$ 15 million to US$ 25 million – an impressive growth at first sight but the one that pales when compared to the growth from US$ 50 million to US$ 400 million achieved by Cambodia during the same period.

The coming months will show how badly Nepal’ garment industry would suffer from the MFA expiry. But in the meantime, the country needs to make swift moves to clear issues in the domestic front – like updating labor laws, bringing down cost of production, reducing delay/hassles in custom documentation, and above all overcome the paralyzing effects of strikes and bandhs. Without them, the path ahead will be difficult anyway – quota or no quota.