Ahmedabad
Regional Workshop on Globalisation, Economic Liberalisation and Indian Informal Sector
7th-8th August 2003, Ahmedabad 

AGENDA

                                        OXFAM                                  ICECD                                    CUTS 

DAY I 

                                                                        9.00 – 10.00              Registration 

Session I                                                          10.00-11.00               Inaugural
                                                                                                          Welcome Address
                                                                                                          Mr.D.D. Bhuptani,
                                                                                                          Chairman, ICECD

                                                                                  Project Overview
                                                                                  
                                                                                  Keynote Address
                                                                                  Recent Economic Trends:
                                                                                  Process of Globalisation
                                                                                  and Economic Liberalisation
                                                                                  Mr. Rajeev D Mathur,
                                                                                  Director, CUTS, Jaipur

                 Regional Meeting: Objectives and Expectations
                 Mrs.Hina Shah
                 Director, ICECD 

                 Chief Guest
                 Hon’ble Amitbhai Shah
                 Minister of State for Home
                 Govt. of Gujarat

                11.00-11.15                 TEA BREAK 

Session II                                                 11.15 – 1.00                Handloom Sector: Issues and Challenges 

                            Technology and Product Specific
                            Mr.Zaverbhai Chavda
                            Marketing and Market Related
                            Ms.Mandaben Parikh 

                            Legal standard and protection related
                            Mr.Prabhash Ranjan
                            Finance related
                            Mr. C.D. Kelkar
                            Gender Issues
                            Ms.Usha Jummani        

                                                                                                   Deliberations and discussions  

Session III                                             1.00 – 1.45                   Policy Perspectives and Readjustment
           for Handloom Sector
            Mr. Nainesh Pandya
           Mr. Y. Jacob  

                                                                                                  Deliberations and discussions  

                                                          01.45 – 02.30                   LUNCH  

Session IV                                        02.30-03.30                      Group Work and Discussions 

                                                        03.30 – 03.45                   TEA BREAK  

                                                        03.45 – 05.00                   Group Discussion Continued 

DAY II 

Session I                                          09.30-10.30                      Group Presentation 

                                                       10.30 – 10.45                     TEA BREAK  

Session II                                        10.45 – 12.45                    Evolving and identifying key
                                                                                                 recommendations  

Session III                                      12.45 – 13.30                     Concluding Session 

Backgrounder
 for Ahmedabad Regional Workshop
7th – 8th August, 2003 

         OXFAM                             ICECD                                              CUTS 
 

A Story from Rags to Riches through Embroidery on Handloom Readymade Garments

Mehrunisa Meman belongs to a muslim family. At the age of 38, she is a successful entrepreneur with a thriving business in Idar of Sabarkantha district in Gujarat.  A family of five, with husband being a part-time driver, she yearned for steady income. 

She had a passion for self-employment i.e. to be financially independent through her own business. She knew embroidery as it was taught as a tradition in her family for generations, but just having a working knowledge of the skill did not make her an entrepreneur. She had some basic ideas of how to turn this into a business, but was lost in terms of how to go ahead.  

She got an opportunity to receive the training of Entrepreneurship Development from ICECD. This led her to choose readymade garment products from handloom cloth materials, duly embroidered as per the need of the market. Based on skills of market survey acquired during the training she selected to venture in handloom sector. Local market constituted of a large population of muslims in Idar and nearby villages.  

After having gone through the training successfully, she launched her venture with her own resources of Rs. 20,000 alongwith a loan of Rs. 24,000 from State Bank of India, Idar branch. A subsidy of Rs. 6,000 was provided to her by the government under the Prime Minister Rozgar Yogana (PMRY) Scheme which reduced her loan amount and interest charges. 

She is now producing ladies garment, specific muslim dresses and children garments and earns Rs.5000/- per month. Her venture has provided employment to three persons. She also gives job work to many women during festival times when the demand of her products shoots up. Her success also gets reflected in careful maintenance of savings. 

Her continuous interactions with the Ahmedabad market and guidance from experts through ICECD developed her sense of design, and she has now picked up the designing skills well. Based on her continuous market survey, she changes her patterns of embroidery and handloom cloth design, and these new patterns attract her customers. 

She proudly informs that in her house, she has a definite say in the decision making process. She feels that her social status and credit worthiness has been enhanced substantially along with the increase in her mobility and community interactions. 

She has also started training classes of embroidery for local women, and till now, has trained more than 100 women who have been able to get some job orders either from her or from the market. 

Her regards for ICECD are boundless. She says, “I had a dream but did not know how to fulfil the same. ICECD came and helped me realise my dream. I am independent, confident and on my own due to the timely and focused help provided by them”. Her business-like and mature dealings with people have created a good name for her and her business in the whole of Idar taluka. She is now looking at district and state level markets. 

The only thing she is afraid of is the cheap imported embroidery goods that have suddenly become available in the market. She shares that such goods are not handmade, are mostly machine made, and are proving to be a tough competition. She is looking for some clues on how to deal with this problem, which may become very dangerous for her business.  However, she feels she has now acquired good understanding of client needs and market trends to suit local demand, which will help her to manage the business. 

Relationship with the Case Study 

The story of Mehrunisa Memam is a spectacular one. It highlights four very important issues: 

1.      The entrepreneurship of Indian artisans and weavers, which can take them to astonishing heights.

2.      The kind of support role that institutions like International Centre for Entrepreneurship and Career Development (ICECD) could    play in fostering traditional exports.

3.      The stupendous role that small scale sectors like handloom can play in women empowerment.

4.      The threat that is being caused to the Indian handloom products because of cheap imports. 

It is pertinent to understand that the problem in wake of cheap imports is bound to arise as the import quota restrictions are removed. As it has been discussed in the two sections the dismantling of the MFA would witness more and more imports coming into our country. But this would also improve our market access opportunities. 

Women like Mehrunisa Memam have the ability to counter the new situation. Her ability to conduct market surveys, innovate new products and work on the colours and designs of the products speaks volumes about her entrepreneurial ability. Thus her remarkable entrepreneurial quality needs proper support from the state and other institutions. If the Indian state is serious about sustaining sectors like handloom it should provide people like Mehrunisa Memam all sorts of support that have been discussed in the two sections. Mehrunisa would have to explore export opportunities by finding out the new kind of products that are in demand in the overseas market, innovate further in design making and selection of colours and develop excellent marketing abilities so that she can sell her skill in the most appropriate manner possible.  

We need to realise that the right blend of entrepreneurship and state and institutional support would go a long way in buttressing our handloom sector.      

Liberalisation of the Indian Economy 

The liberalisation of Indian economy in 1991 was triggered by a host of crisis factors that threatened the very vitals of the economy. The macro-economic indicators at that time presented a horrendous picture with the current account deficit being around US $ 10 billion, and foreign reserves permitting only two weeks of imports. This situation warranted launching a series of fiscal tightening measures that included reducing the fiscal deficit, devaluation of the rupee and change of exchange rate system. The combined effect of these measures was that it resulted in reducing the current account deficit from 2.3 percent of GDP in 1990 to 0.7 percent of GDP in 1993. It also improved the macro economic indicators in terms of inflation figures and wholesale price index. 

In these figures and statistics the real story should not be lost and i.e. the main strategy that was adopted in initiating these reforms. The economic restructuring this time relied on “structural reforms”. These structural reforms took the form of bringing reform in the trade and payments regime and changes in the domestic financial sector. 

The process of economic liberalisation mainly entailed the integration of the Indian economy with the world economy and the above-mentioned measures were initiated with this objective. It is of utmost importance to understand that these measures though initiated because of a host of crisis factors, nevertheless represented the ushering in of a new kind of economic paradigm which reflected a shift from state control and state supervision to encouraging private participation in the economic activity. This is evident in the way the economic crisis in 1991 was handled. It was not the first time that India was confronted with a balance of payments problem but this time around the reaction of the Indian state to such a crisis definitely made a significant departure from the past. In other words this was the dawn of a movement from the license-permit raj to embracement of the Bretton-Woods development paradigm. 

This economic liberalisation is characterised by changing mind-set of the policy makers and the adoption of a particular development paradigm. Ever since the start of economic reforms a series of changes have been initiated that has drastically changed the economic landscape of India. The government launched the policy of removing import restrictions and bolstering exports. This marked a shift from in-ward looking import substitution policies to having policies that had an export thrust. In fact the new economic liberalisation process has made trade sacrosanct and it expects trade to act as an engine of growth. In this regard the Indian policy makers are overwhelmed by the success of the South East Asian countries where trade has played a phenomenal role in their success. An important consequence of giving top primacy to international trade has been India’s acceptance of the WTO-led international trade model. 

Another integral element of this economic reforms process has been the changing attitude towards the foreign producers and foreign investors. This again has marked a significant change in our mind-set and foreign producers are no longer looked with suspicion, in fact they are welcomed by open hands. In order to encourage foreign investment government has simplified the rules and procedures, opened new sectors for foreign investment and is constantly increasing the cap on foreign investment in the already opened sectors. Sectors like insurance and defence production that were once considered to be too sensitive to have foreign investment are in the list of sectors open for foreign investment. It is not just foreign direct investment that is being fostered but also foreign institutional investment. 

The advantages of foreign direct investment are multiple. The most commonly stated advantage is that it provides resources to the countries that have deficient resource base. The resources generated through foreign direct investment could be utilised in various development programmes. Apart from this it is also expected that foreign direct investment would also act as a catalyst for employment generation, ushering new technology and introducing competition in the domestic market. Whether foreign direct investment has actually benefited the host countries or not is a moot point. 

Another important element of this reform process has been the privatisation or the disinvestment drive that has been launched by the governments both at the centre and at the state level. This is primarily guided by the philosophy that it is not the priority of the government to do business and therefore the private sector should step in. The other major reason to privatise or disinvest is to generate revenue, which in turn could be used in a number of development programmes. This policy has seen the disinvestment of many industries ranging from information technology, oil to bakery. 

The cardinal point is that only profit making public sector companies are being sold and not much is being done about the loss making units. Moreover a common criticism i.e. often levelled against the disinvestment drive of the government is that it does not spell out its policy in clear terms about what it would do with the proceeds that it would get from the sale of these companies. 

The need is to look at the process of economic liberalisation in a dispassionate and pragmatic way moving away from all sorts of ideological and dogmatic considerations. With regard to economic liberalisation the question to be asked is - would it serve the people of India in a better way or not. We cannot afford to support or criticise economic liberalisation just for the sake of it. 

Economic Liberalisation and Informal Sector  

The Indian policy makers have always been concerned about the growth of small home based informal sector units like handlooms. The special impetus to these enterprises was provided with the aim that these sectors would considerably contribute to the manufacturing capability and would also generate employment. The growth and expansion of small enterprises in India has not been as remarkable as it has been in other South East Asian countries. The government policy of excessive protectionism has boomeranged and is loosing its efficacy in the new liberalised economic environment. 

The liberalisation of the Indian economy by removing import restrictions has meant that small units like handlooms would face severe competition. Therefore the need is to evolve a mechanism through which the competitiveness of informal sector units like handlooms is maintained. It is of utmost importance to see that such units do not start competing with the bigger industries, as it would completely destroy them. But this also does not mean that the sector should be shielded from competition, as it has been done in the past. The policy of excessive protectionism does more harm than good as there is no incentive to expand and thus the units are not able to reap economies of scale. We have to accept the reality that transnational corporations are here to stay and therefore the role and nature of small informal sector units like handlooms should undergo a change. This is not to argue that sectors like handlooms should be discouraged in favour of the bigger industries. But it is imperative for the growth of handloom units that their role and nature are redefined in the ever-changing global economic scenario. 

The need is to evolve a complimentary relationship between handlooms and larger and bigger textile units. This is pertinent in the liberalisation era as the need is to evolve a relationship of cooperation where every sector has a defined role and the informal sector home based and cottage industries should not be allowed to suffer because of unnecessary competition. It has often been felt that the policies pursued by the government have led to distorted growth and unhealthy competition within the same industry amongst the small enterprises and larger sectors. 

An important element of the liberalisation process has been the policy of dereservation. It has been argued by many that reservation policy has done more harm than good to the handloom sector, as it restricts them from expanding and growing. It is in this line that the Satyam Committee had recommended the abolition of Handloom Reservation Act and removes the Hank Yarn obligation. However the new Textile Policy of 2000 has not accepted these recommendations. Whether continuing the reservation policy for the handloom sector would help the handloom sector to grow or not needs to be seen. 

Thus the need is to evolve pragmatic policies for the handloom sector in order to sustain the exquisiteness and novelty of this sector. Economic liberalisation is a reality and therefore the need is to tune our handloom sector as per the new challenges so that opportunities could be optimised. 

Impact of International Trade on the Handloom Sector
International Trade under WTO: A Reality 

Ever since the World trade Organisation (WTO) came into existence the commercial and economic landscape of all its members has undergone a sea change. Critics have argued that the new international trade model under the WTO has encroached on the economic and political sovereignty of the independent nation states and is thrusting a particular development paradigm on them and thus should be stridently resisted. But the fact of the matter is that this WTO modelled-rule based-international trade is a reality and therefore, whether we like it or not, the starting point of the discussion has to be the existing multilateral trading regime under the WTO. 

But this is not to say that the current shape of multilateral trading regime is flawless. The multilateral trading regime is laden with problems principally with regard to developing countries. The loosely drafted Agreements, the protectionist gestures of developed countries, the propensity to abuse their superior political and economic dominance and the failure in understanding the development needs of developing countries has seriously impeded the most vociferously proclaimed “fairness” element of international trade.

At the same time it is also true that this multilateral trading regime also offers opportunities to developing countries. The opportunities in terms of market access for the products of developing countries, export earnings, exposure to new technology and competition have massively increased in the post WTO era. 

Theoretically a rule based international trade regime should be in everybody’s interest as it removes ambiguity and arbitrariness. It gives an institutionalised framework to the whole process of international trade and thus streamline the conduct of international trade by providing it a rule based shape. But these Agreements have been violated in their letter and spirit, especially by developed countries. Reprehensible implementation of the existing Agreements by developed countries has endangered the existence of this international trade model. The benefits to developing countries have not materialised to the fullest possible extent. This has created a new debate that whether developing countries like India should abandon the multilateral trading regime or should still remain its member. 

The need is to find a pragmatic solution to the problem. The question to be asked is what stand would serve our national interest in a better way, abandoning WTO or being in WTO? Abandoning WTO would mean de-linking with the rule based multilateral trading regime at a time when more and more countries are eager to become its members. Even communist China is now a member of the WTO. This would mean international isolation not only in terms of trade and commerce but also in political terms. Therefore the option of opting out of WTO would not be a rational decision. The need is to continue as a member of the WTO and strive hard with other developing countries to make international trade fair, participatory and accountable within the aegis of the existing institutional arrangement. 

This has to be the ground rule of any discussion on international trade. Therefore instead of questioning the very legitimacy of WTO it would be pertinent to synchronize our energies to make a perseverant effort to make the WTO model of international trade fair and to evolve innovative strategies that would ensure maximisation of gains and minimisation of losses. This is a fierce battle that has to be fought on many fronts. 

At the international level or at the multilateral trading level this battle has to be fought collectively with other developing countries. The developing countries would have to ensure that they are not taken for a ride by developed countries. The need is to develop adequate policy responses. There has to be a collective effort involving the policy makers at the domestic level, the civil society and the people affected by the trade policies at the grass-root level. The primary purpose of including the whole gamut of society in the discussion is to develop a comprehensive response that encompasses all the possible viewpoints. 

Such a response should be able to identify the existing anomalies in the WTO Agreements, suggest solutions in terms of amending the Agreement, and sensitise the trading community and the international trade law about the sensitive and special nature of developing countries. For this to happen there has to be a proper networking of the civil society groups and proper compatibility between the policy makers and negotiators of developing countries. The developing countries have to realise that it is only through collective effort that they could bring changes in the existing Agreements. Since these responses would be based on actual experiences of the people at the grass root level they are bound to reflect the most genuine concerns in the most appropriate manner. 

At the national level the most important need is to first develop a comprehensive understanding about the new international trade model under the WTO. A majority of myths and apprehensions stem from a lack of proper understanding about the issues related to WTO and international trade. This is not to argue that all these fears are unfounded ones or they have no basis. But the point is that some of these fears do not have any economic or rational basis and they cause a lot of harm to the domestic entrepreneurs. A meticulous and pervasive understanding of international trade dynamics would go a long way in melting those myths that have no rational basis and educating people about the real problems and the real causes behind these problems. 

The next important area of action at the domestic level would be to identify the problems that our domestic entrepreneurs confront with special focus on small and village based entrepreneurs. A thorough analysis would reveal that apart from the threats from WTO the indigenous threats in terms of institutional and infrastructure bottlenecks are also no less insidious. The threats from cheap imports or lack of market access opportunities can be countered at the national level if we bring out systematic changes in our national domestic structure. We need to understand the typical problems that our small artisans, weavers or other marginalised entrepreneurs face. 

The next step is to examine how these problems have got convoluted because of international trade and what possibly could be done at the domestic level to meet these challenges. The cardinal principle to confront the international trade challenge is to improve the quality of our products, make them more competitive in the world markets by reducing the cost of production and to evolve a proper marketing strategy. The governments, both at the centre and at the state level need to work in tandem to help the small and marginalised entrepreneurs to meet the challenge. 

Improving the quality of our products would foster our market access opportunities and thus boost our export earnings. Given the linkages of such sectors it would have a very significant impact on our rural economy in terms of employment generation and poverty alleviation. Quality improvement would also help our local and small artisans and weavers to meet the challenges of cheap imports. But for this we need to develop an export vision, as increasing our market share in the international market would not be easy because of the stiff competition from countries like China, Indonesia, South Korea etc. 

Therefore the need is to adopt a two pronged strategy; one at the international level and the other at the domestic level. We have to assiduously campaign for making trade fair at the international level and to undertake a complete capacity building exercise at the domestic level. 

Overview of the WTO Agreements that Affect the Handloom Sector 

There are a lot of Agreements under the WTO that affect the Handloom sector. Textiles in particular are of crucial importance to developing countries because of the tremendous export potential that this sector promises. Therefore all those Agreements that have a direct or an indirect impact on the textiles sector of developing countries are very important for them. An important and indispensable element in evolving an appropriate policy response would be a painstaking understanding of such agreements. 

For textiles and clothing, the Agreements in the WTO, could be divided into two parts.

1. The Agreement that exclusively deals with textiles and clothing.

2. The Agreements, which are not exclusively on textiles and clothing but nevertheless are important for the textiles and clothing    
    sector. 

1. Agreement on Textiles and Clothing (ATC) 

This Agreement seeks to ensure the integration of the Textiles and the Clothing sector into the multilateral trading regime by adopting an institutionalised approach. The ultimate aim of this Agreement is to liberalise the textiles and the clothing sector. 

Before the Uruguay Round (UR), for textile products discriminatory Quantitative Restrictions (QR) could be applied under a cover provided by the Multi Fibre Agreement (MFA). These quota restrictions were fixed on the basis of unilateral or bilateral arrangement. Both these aspects of the MFA i.e. fixing discriminatory quotas and adopting a unilateral or bilateral approach were inconsistent with the basic philosophy of GATT. The ATC after coming into force in the UR has provided for a structured phase out plan of products under the MFA. This implies that the products that had been so restricted under the MFA, would be brought under the GATT rules and thus the restrictions on textile imports and exports would be removed based on a plan. 

This phase out plan is a 10-year plan. ATC requires all the contracting parties to phase out their QRs on imports of textile products over a period of 10-years, i.e. by 1^st of January 2005. This would facilitate the integration of the textile sector with normal GATT rules. This is to be done in four stages starting from 1^st January 1995. The Agreement provides for a list of textile products that are to be integrated. The base year for integration would be 1990 i.e. minimum  percentages of the products in the phase-out plan would be subject to reduction on the basis of the volume of the country’s imports prevalent in 1990. The Agreement also stipulates that products from all the four categories of textiles namely tops and yarns, fabrics, made up textile products and clothing be included. 

The Agreement also provides a specific transitional safeguard mechanism to protect members from increased imports of textile products that have not been integrated into GATT. Such a provision could be invoked when a member country is able to demonstrate that increased imports are causing damage to its domestic industry. 

Thus the ATC has a direct bearing on the textile sector because it encompasses issues like market access opportunities, liberalizing the textile sector by allowing imports into the markets of developing countries, allowing the countries to invoke the safeguard clause against increased imports. Therefore it would not be wrong to say that the most important international trade law governing the trade in textiles is the ATC. 

2. Agreement on Anti-Dumping ( ADA) 

This Agreement is intended to ensure that no country is able to dump its products into the markets of another country in such a manner so as to cause material injury to its domestic industry. In other words whenever a country is able to prove that dumping has taken place that has caused material injury to the domestic industry and there is a causal link between dumping and material injury to the domestic industry, that country could slap anti-dumping duties on the dumping country. This is a trade remedial measure aimed at protecting the interests of the member country whose domestic industry could suffer because of dumping by the industry of a particular country. This Agreement, in theoretical terms, should favour developing countries, as developed countries are more likely to indulge in the practice of dumping. But the reality has been just the opposite of what was anticipated. The developed countries have led from front in imposing anti-dumping duties against developing countries and in most of the cases these anti-dumping duties have been arbitrarily imposed after exploiting the existing loopholes in the loosely drafted ADA. 

 These anti-dumping measures, in a number of cases have been slapped against the textile products of developing countries. The cotton – type bed linen case and unbleached fabric cotton case against India is an ample testimony to the fact that how developed countries abuse the anti-dumping provisions against the products of developing countries. These two cases involved textile products from India. This also demonstrates how these Agreements could possibly affect even the textiles sector. 

Thus there is a need to completely understand this Agreement as well, as it could have possible ramifications for the handloom sector. Gradual opening up of the textiles sector by virtue of removal of QRs is bound to witness more and more non-tariff barriers in the form of anti-dumping duties. 

Agreement on Subsidies and Countervailing Measures. (ASCM)  

This Agreement provides for the imposition of countervailing duties when a particular country provides subsidies to its domestic industry and these subsidies injure the industry of the country where such exports are destined. In the imposition of the countervailing duties like in anti-dumping the need to prove the causal link between the subsidies being provided and the injury caused is of paramount importance. 

This Agreement also provides for a trade remedial measure. But practice has shown that even this Agreement has been abused for protectionist purposes especially by developing countries. Countervailing duties have often been levied arbitrarily without there being sufficient proof of subsidies being provided to the domestic industry. 

The misuse of this particular Agreement just like the ADA is bound to increase in the light of disappearing QRs in the textiles sector. 

Relevance of International Trade for the Handloom Sector 

One could ask the question that how is international trade connected to a small sector like handloom or how would changes at the multilateral trading level affect a small artisan or weaver residing in a remote part of the country. 

In today’s globalised world where everything is inter-connected what happens in one part of the globe has a definite impact on the people and their lives in the other part of the globe. This glorified economic globalisation has the potential to touch the lives of a lot people. Ever since India embarked on the path of economic liberalisation, its entry into the rule-based multilateral trading regime under the WTO was a logical corollary. Now India is a well-recognized member of the WTO and thus sensitive to the positives and the negatives of the multilateral trading regime, which has the capability to touch almost all the trading and manufacturing activities. 

The relevance of international trade for the handloom sector can be gauged from the fact that now the Indian markets are open for handloom imports from other countries and the Indian handloom manufacturers are free to sell their products in the overseas markets. This has brought a monumental transformation in the way handlooms are manufactured, purchased and perceived. 

The gradual phasing-out of the QRs in textiles under the ATC over a 10-year period would undoubtedly benefit developing countries. The developing countries are bound to gain in terms of market access for their products, as textiles are of considerable significance to developing countries. On the flip side, imports into the markets of developing countries would witness an increase. Therefore the impact on the entire textiles sector including handlooms would be immense. 

In India’s context the exports of Indian cotton handloom products (fabrics plus made-ups) witnessed a continuous rise from Rs. 1491cr in 1995-96 to Rs. 2008cr in 1998-99. However during the year 1999-2000, these exports contracted to Rs. 1892cr, showing a fall of 5.8 percent constituted by fabrics and made-ups. Compositional pattern of cotton handloom exports has also witnessed a distinct shift from fabrics to made-ups in recent years. For the years 2001-02 to 2002-03 the export figures of cotton yarn, fabrics and made ups paint a very dismal picture. These items collectively registered a negative export rate of 12.42 percent during this year. Hand-made carpets also registered a negative growth rate of 17.37 percent during this period. However the imports during this period of cotton yarn and fabrics registered an increase of 56.36 percent. 

Barring USA, cotton handloom products and made-ups are outside quota restrictions in all the countries. The quota restrictions on power loom and on mill made products facilitated handloom exports to these countries, as handloom exports could meet the excess demand of fabrics and made-ups. But with the phasing out of the MFA the competition for the handloom exports is bound to increase from countries like Pakistan, China and other South-East Asian countries.    

These figures and analysis indicates that as the quantitative restrictions regime gets dismantled the imports into our country would increase and so would the imports to all other countries. The dismantling of the quota regime would also witness increasing level of competition that Indian handloom exports would have to face in the overseas markets. These figures are a pointer to that direction. Thus the Indian handloom products not only have to compete with the imports that are coming into India but also have to make a place for their products in the international markets by displacing the exports of other rival countries. Thus the challenge is two-fold.  

The impact of Agreements like ADA and ASCM would also be important on the textiles sector including the handlooms sector. The abuse of these trade remedial measures is bound to increase as more and more QRs are being removed. This would hamper the exports of Indian handloom products that could benefit from the dismantling of the quota regime. 

Thus the relevance of international trade for the handlooms sector is phenomenal, as it could literally make or break this sector.  

Handloom Sector in India 

In India the handloom sector is very important from the point of view of its size and employment potential. It provides direct and indirect employment to more than 30 lakh weavers and is the largest economic activity second only to agriculture. The relevance of the handloom sector in the agrarian economy is massive because of its linkages with crucial and sensitive sectors like agriculture. It uses agricultural products as raw materials and therefore provides an ever-ready market for agricultural goods. It gives employment to a lot of women and thus plays its role in women empowerment. The traditional significance of this sector along with its inseparable links with our ancient cultural heritage further expounds the vitality of this sector. This sector also contributes nearly 23 percent of the total cloth produced. Therefore in an economy where majority of people for their livelihood depend upon the agrarian sector the significance of handlooms is well understood. 

If the importance of the handloom sector is of such colossal character then the question to be asked is why this particular sector is in shambles? The weavers are not a happy lot and are facing a series of problems ranging from unorganised nature of their business to threat from cheap imports. The problems that the weavers confront have compounded in the recent times. This has led to closure of many handloom units and thus has resulted in massive unemployment. 

The handloom industry is facing this problem because of a host of factors. The poor weavers and the artisans are not getting proper institutional support and thus their skills largely remain untapped. The government has made many policies for the handloom sector like starting Weaver Service Centres, establishing Indian Institute of Handloom Technology, incorporating National Handlooms Development Corporation, which seek to ensure the regular supply of raw material to the handloom sector. The Parliament also passed the Handloom Act in 1985 with the aim to shield handloom weavers against power loom and textile mill operators by reserving certain textile items for exclusive production by handlooms. But the benefits of these policies and the legislation have not reached the targeted weavers in the manner in which they should have and thus the dignified objective of having a buoyant handloom sector has not been achieved. The institutional support in the form of marketing facilities, design development, training, infrastructure, information about the new international trade regime and developments etc. is grossly missing and hence the current fate of the handloom sector. Thus even where this institutional support exists it suffers because of faulty, inadequate and delayed implementation. Red tapism of the bureaucracy, long, tardy and complicated fiscal procedures and general indifferent attitude of the state has taken its toll on the handloom sector. 

The measures taken by the government or the policies adopted by it have to be understood in the backdrop of the WTO- modelled international trade paradigm. In other words their efficacy has to be examined on the touchstone of preparation of Indian weavers and artisans to meet the twin challenge of cheap imports and increasing exports. Today, the handloom sector is facing the brunt of cheap imports and non-availability of new export markets, notwithstanding the fact that that the skills and talent of Indian artisans and weavers knows no bounds.  

Evaluation of Regional Impact: Opportunities and Threats in Handloom Sector 

I.   Import Regulations for the Handloom Industry

The Indian handloom industry is the largest of the traditional industries in terms of employment generation. Gujarat is one state in India which has contributed a lot in handloom sector.  But in the era of liberalisation and WTO, it is unfortunate that handloom products (mainly garments) have been increasingly subject to quota restrictions. 

In 1974, under the first MFA, cottage-industry handloom fabrics and handmade products of handloom fabrics, as well as traditional folklore handicraft textile products, were exempted from such restrictions, provided that they were properly certified.  Problems have since arisen because of an unforeseen increase in imports of handloom products, and also the issue of unsatisfactory certification by the Indian authorities (so that power-loom cloth was often passed off as handloom, owing partly to difficulty in identification but also to indifference on the part of the inspection authorities). 

Thus, in India's two biggest markets, the EEC and the USA, the 1983-86 Textile Agreements placed quotas on a variety of handloom garments - the former on 10 of India's most successful exports (including women's blouses, skirts, dresses, shirts, trousers), and later on the entire range of garments. 

Over and above, almost all textiles and garments are subject to duties.  Handloom industry offers employment to millions of under privileged and deprived people all over Gujarat, which is presently facing competition from the organised sector.  In such a situation, quota restrictions are hardly appropriate on exports of handloom goods where demand exists.  This is a politically sensitive issue and urgent attention is needed to resolve the problems. 

II.     Transport Cost 

Transport costs can be determined more accurately than any other factor of price and compared with freight rates of competing countries of all the major exporters to USA. India's freight value ratio is the highest, partly because its unit value is also the lowest.  The low unit value is a result of the low to medium quality of most handloom products. 

As transport costs are one of the main factors that influences price and therefore demand for export, government needs to intervene to equalise transport costs comparable with other competing countries. 

III.   Trading Network in Gujarat 

The process of collecting handicrafts/ handloom products from the primary producer and exporting those items to the customer in another country (usually in the developed world) involves many organisations and people.

As this involves many people, the most successful firms doing export is the one that has or can make substantial investment in design and development activity.  Trade stands a better chance of growing if exporters and importers are committed to product lines and to suppliers and buyers.  Control of quality and delivery schedules is very important for proper outreach and positioning in the global market. 

This talks about the immense opportunities available, where products can reach international market with good price and thereby helpful in improving the economic conditions of skilled artisans/ informal sectors.  The only condition for this to happen is to develop demand through design, technology development and promotion.  The ensuing problem lies here is that most people working in informal sector do not have access to organisations, information on new technologies, and competitive designs. Hence, they fail in reaching the competitive standards and hence fail in marketing.  This is a matter that needs to be looked into through policies and regulations that could help in providing the information access for facing competition and lead to survival of handloom workers. 

Policy makers must also realise that in Gujarat the hereditary system of skill transfer among weaving families is increasingly strained because of the rising cost of living, the uncertainty of employment from unstable national/foreign demand, market access, and increasing opportunity cost of new training.  The result is a lowering of skills and quality.  To arrest this decline, artisans and their children must be induced to remain in the sector through skill enhancing schemes and greater efforts that assure steady income and employment. 

The problems are the absence of finance/capital available from various financial institutions for skill up-gradation, technology transfer and knowledge sharing through exposures.  This is an important issue which needs to be looked into by policy makers, which arrests the progress of killed people to face competitive tides from other countries and ultimately their decline and withdrawal. 

Strategies at the National Level 

As the above parts of the section succinctly indicate that the WTO-led international trade regime poses threats and also offers opportunities. Therefore the need is to evolve a national strategy that maximises the opportunities offered and minimises the threats. The basic thrust of such an approach should be to make the Indian handloom industry competitive so that it is not only able to face the onslaught of cheap imports with firm conviction but is also able to compete with the products of other rival countries in the international market. 

The Indian handloom products have an inherent advantage in terms of diverse patterns and excellent craftsmanship. The rich and varied traditional history of India gets reflected in our handloom products. As every state in India has a different traditional history the handloom products vary in their design and shape from state to state. This adds to the variety of handloom products that are manufactured in India. These products are exclusive in their characteristics and nature and cannot be replicated anywhere else in the world. 

At present there are a number of factors that constrain the growth of handloom exports. The Indian handloom exporters lack marketing infrastructure, no concept of brand building, unavailability to reach a large number of potential customers, no knowledge of the new international trade regime, constant disappearing of the handloom exporters from the Indian markets. These factors also restrict the ability of Indian handloom manufacturers to compete with the imports entering the Indian markets. 

Therefore the need to have a pragmatic and sound policy for the handloom sector cannot be over emphasised. The strategies therefore need to focus on revitalizing the handloom sector keeping in mind the overall global scenario. 

• The recent trend in handloom industry is that hand woven fabrics are fast disappearing from the market because they are unable to compete with the power loom sector. Many handloom producers have switched over to power loom production. In this light there is a pressing need to identify those products that cannot be produced in the power loom sector. Such identification would help the handloom industry to exclusively focus on those products that are handloom specific and also have an export potential. This would also reduce the in house competition between the handloom and power loom products. This needs to be done so that the role and significance of the handloom sector in the changing environment is understood in proper perspective.

• There is also an urgent need to correct the demand-supply mis-match that occurs in the handloom sector. There are certain areas that are overburdened because of heavy demand and are not able to meet the demand and at the same time there are certain areas where there is no demand at all. The solution to this problem lies in coaxing those areas that are overburdened to export and their gap in the domestic market could be filled by those areas that are at present facing lack of demand. This would help the handloom industry to channelise its productive energies in the right direction.

• It has often been found that the handloom weavers suffer because of lack of unavailability of information regarding yarn prices, availability of yarn, the kind of colours and designs that would be received well in the international markets. The need is to provide this information to the exporters on a regular basis through monthly circulars or through any institutionalised mechanism. The Handloom Export Promotion Council (HEPC) is expected to play a major role in this regard. It has carried out this effort in the past but had discontinued this practice. A proper survey of all the potential and target export markets should be done to find out the present choice of colours and what sort of designs are in demand in these markets. Such a focused and in depth survey would allow the Indian exporters to adapt their products according to the demand of a particular export market.

• The lack of infrastructure support, training to weavers, institutional support, have also daunted the handloom weavers. The new textile policy of 2000 talks of having a comprehensive scheme for the handloom sector under “Deen Dayal Hath Kargah Protsahan Yojna” to take care of the entire gamut of activities for the handloom sector. But whether this scheme would be able to deliver results or not only time would tell. The efficacy of this scheme like other government schemes would hinge on how it is implemented. Most of the government schemes, though appear very attractive, have failed because they have not been properly implemented.
  
• A major problem that is encountered by most of the weavers and handloom exporters is the lack of proper marketing of their products. In today’s global world of fierce competition marketing is a potent weapon for market penetration. The HEPC has developed some products under the Development of Exportable Products and their Marketing (DEPM), which has got a good response. But a lot more needs to be done. It is imperative for the survival and growth of the handloom industry that it inculcates the culture of brand building. In this regard the HEPC should endeavour to exploit the opportunities to develop marketing tie-ups with major international brands. Publicity and sales promotion should be undertaken with renewed vigour.

• An important need is to revamp the entire structure of the HEPC. It is very important to understand that export promotion is a professional job and thus requires people with expertise in this regard. Lack of professionalism in the HEPC is a major cause of concern.

• The protection and further promotion of exquisite designs of handloom sector requires that Computer Aided Designs be introduced. Therefore Computer Aided Designs should be installed in the areas of handloom concentration. The new textile policy talks of establishing a network of CAD\CAM and extending computerized colour matching and testing facilities in the clusters of decentralized textile sector. How effectively it would be done needs to be seen. The installation of CAD in the Weavers Service Centre would be useful but here the basic problem is that there are many weavers who do not know anything about these centres. Therefore an integral element in this whole programme has to be to educate the poor weaver about the facilities that exist around him so that he could take advantage of these facilities.

• Some other steps like setting up information portal on the internet, engaging in B2B and B2C commerce, and bringing in the role of information technology also need to be taken.

• Exploring new avenues and focusing on new and specific sectors that consume handloom products in a big way also needs to be undertaken. For instance focusing on hospitality industry could provide a huge market for the handloom products.

Strategies at the Multilateral Trading Level 

A vociferous and determined effort is needed at the multilateral trading level to counter the existing incongruity in the international trade regime. The most important element of such a determined effort has to be the formation of a collective front of all those who are interested in making this international trade fair, participatory and accountable. The policy makers, the negotiators, the civil society, the small farmers and marginalized producers all have to come together to denounce the current form of international trade. The effort should be to ensure that the producers of developing countries get a fair deal. In other words the producers of developing countries should get a fair price for their products and should be able to undertake the process of capacity building. The WTO – led international trade model is heavily loaded in favour of developed countries and thus is inhumane, exploitative and arbitrary. The overall aim of the strategies at the international level should be to give it a humane face so that international trade acts as an engine of growth and development and not as a surrogate of the interests of developed countries. 

This would have to be done at two levels: 

1. The first strategy would be to ensure that the existing Agreements under the WTO are followed in their letter and spirit.
2. The second and perhaps the more important strategy would be to provide adequate policy responses with the larger aim of changing or amending the present unfair rules of the trade.

The first strategy is to make the existing multilateral trading regime fair by ensuring that the existing Agreements are not violated by developed countries. The existing Agreements have their limitations in terms of loose drafting and often-inadequate provisions for developing countries. But still these Agreements are a massive improvement over the earlier model of trade where there were no rules. The immediate need is to see that these existing Agreements are implemented and followed properly. It has often been witnessed that developed countries have not respected these Agreements especially from the developing countries perspective. The loopholes in these Agreements have been exploited by developed countries to their advantage and this has often defeated the pith and substance of these Agreements. 

There are numerous instances that have witnessed a blatant violation of the existing Agreements. 

 In the ATC the back loading of the integration of textiles in the multilateral trading regime by developed countries has effectively delayed the integration of the textiles sector in the multilateral trading regime and hence has postponed the immediate benefits that could have accrued to developing countries because of this integration. Moreover the textile products that are of major export interest to developing countries would be integrated only in the last phase of integration. This is patently against the spirit of ATC. 

Similarly in the Agreement on Agriculture (AoA) developed countries have abused the provisions of the Agreement so that they could continue to provide mammoth subsidies to their farmers. Developed countries have very cleverly shifted subsidies from the prohibited Amber-Box to the non-prohibited Green Box with the sole aim to eschew their obligations under the AoA. These subsidies are trade distorting as they play a major role in reducing the prices of US agricultural products in the international markets, it depresses world prices and thus hampers the export interest of developing countries. This is again a gross violation of the AoA that aims to seek some sort of parity in Agricultural trade at the international level. 

The developed countries have also abused the trade remedial measures like anti-dumping, countervailing measures and safeguards principally to erect non trade barriers for the products of developing countries. Developed countries have used every small pretext to impose these trade remedial measures. This too frequent and arbitrary imposition goes against these Agreements, which talk of exploring alternative remedies before such actions are initiated especially against developing countries. 

Such tardy and improper implementation of these Agreements has meant that the benefits to developing countries have not materialized to the extent the international trade regime had promised. This has brought the need to launch a campaign to make international trade fair.  

A significant international movement called the Fair Trade Movement has been launched with the aim of projecting the most powerful responses to the problems facing the commodity producers. Fair Trade is a trading partnership, based on dialogue, transparency and respect that seeks greater equity in international trade. The aim is to provide better trading conditions to the marginalized producers and workers especially in developing countries. 

This Fair Trade campaign works through various national fair trade initiatives that are coordinated through an umbrella organization called Fairtrade Labelling Organisations International (FLO). The Fair Trade campaign has developed the concept of a Fairtrade mark on the products. This mark is meant to guarantee the consumes that farmers in developing countries get a fair deal for their products. At present different countries have different fairtrade marks. A central responsibility for FLO is to collect data and ensure the audit of all fairtrade-labelled products from the producers to the supermarket shelf. One of its aims is to see the introduction of a single fairtrade-label all over the world. 

One of the most glaring examples of Fair Trade in Action is how the fair trade campaign has changed the lives of cocoa producers in the Ashanti region of Ghana. A local trade cooperative called the Kuapa Kokoo cooperative is working with the fairtrade organizations and has helped 35,000 members to get their fair share of profits generated by cocoa.  

This cooperative sells its products to its fair trade partners in Europe who provide the cocoa producers a guaranteed minimum price as well as a ‘social premium’ which is utilized in building the social infrastructure like schools, hospitals and other basic ameneities. This has brought about a huge transformation in the lives of those small producers who completely rely for their earnings on exports of cocoa. 

Such a result could be achieved only because of the sustained pressure that has been created by the Make Trade Fair campaign. Such campaigns ensure the effective implementation of the existing trade rules and thus bring benefit to the small-scale producers of developing countries. This also drives home the point that effective implementation of the existing Agreements could prove to be very handy in reducing, if not completely solving, the problems of small-scale producers in developing countries. 

The need is to replicate similar achievements in India for the handloom producers. The handloom producers who generally belong to the lower strata of the society firstly encounter problems in finding export markets and even if they find such markets they are not ensured of a fixed income. They are often subjected to vagaries of international trade sometimes because of illegal anti-dumping and countervailing actions and sometimes because of arbitrary quota restrictions. Therefore the need is to initiate a trade fair campaign to ensure that the handloom producers are able to get proper return for their products.   The local cooperatives could play a major role in this regard. It is imperative for India to take active part in such campaigns and play its bit in ensuring proper enforcement of the existing Agreement.  

Proper enforcement of the existing Agreements alone would not make international trade fair. It is pertinent to understand that any endeavour to make international trade fair cannot succeed till the unfair rules of the game do not change. The existing Agreements of the WTO suffer from too many drawbacks. Their loose drafting, ambiguous nature, generalized provisions and inadequately incorporated needs of developing countries have made them improper and unfair rules of trade. Developed countries have often taken advantage of these agreements. Therefore apart from proper implementation an important element in arresting the propensity of developed countries to exploit these agreements would be to ensure an amendment of the Agreements. These amendments should aim at changing those rules that unduly favour developed countries. Unless or until these Agreements are amended international trade would continue to suffer from arbitrariness, unfairness and parochialism. 

Two important problems that are patently obvious on the face of any WTO Agreement are:

1.       Too generalised provisions and very open-ended language.

2.       Insufficient understanding of the needs of developing countries. 

The biggest disadvantage of such generalized provision is that they could be interpreted in many ways. The developed countries often take advantage of such provisions and often attempt to interpret it to their advantage. Given their superior economic and political clout they are in a much better position to prove their interpretation as the correct interpretation. Thus the need is to make the provisions more specific in nature and provide specific timeframes wherever necessary. This would ensure the fixing of responsibilities in the implementation of the Agreements, and would also reduce the chances of disputes arising and being taken to the Dispute Settlement Body. (DSB). 

The second problem in most of the Agreements under the WTO is that they do not adequately comprehend the needs of developing countries. This is notwithstanding the fact that almost every Agreement under the WTO has a provision for developing countries under the Special and Differential treatment clause. Although this clause, in principal, captures the essence of the need to provide special and differential treatment to developing countries, it is not backed by sufficient substantive and procedural provisions to really make it effective. For example the ADA talks of same levels of de-minimis margin for dumping for both developed and developing countries. in the AoA the greatest worry of developing countries are the huge subsidies that developed nations  provide. Therefore the need is to rein in all kind of subsidies that distort trade at the multilateral trading level. The AoA looks at agriculture only from the trade point of view i.e. the typical comparative advantage theory and often ignores the non-trading concerns of Agriculture like employment generation or poverty alleviation. In the ATC the first five years of integration did not witness any commercially meaningful integration of the textile products into the multilateral trading system. Those textile products that are of benefit to developing countries would be integrated in the last phase. 

The sustainability of the multilateral trading regime to a great extent hinges on the involvement and participation of developing countries. To ensure efficacious participation of developing countries it is pertinent to understand the special and varied needs of developing countries. Developing countries are at different levels of technological, social and economic paths. Their development aspirations and social ethos are different from those countries that have already developed. The role that international trade is expected to play for these countries is different from the role that it has played for developed countries. In this light it is important that both substantive and procedural provisions of Agreements under WTO effectively reflect the aspirations of developing countries.  

List of Participants
Regional Workshop on Globalisation, Economic Liberalisation and Indian Informal

7th-8th August 2003, Ahmedabad