Indian textile exports, especially apparels and denim, may be hit with the signing of largest free trade agreements, the Trans Pacific Partnership (TPP) agreement which the United States is in advanced stage of signing with 11 countires, including Japan, Australia, Vietnam, Singapore and Cananda to enhance trade and investment among the TPP-member countries, promote innovation, economic growth and development, and support the creation and retention of jobs, apart from providing comprehensive market access by eliminating tariffs and other barriers to goods and services.
TPP is the initiative of the US with an aim to protect its domestic industry by gaining duty-free access to markets. The negotiations to enter into TPP began in 2005 and are reaching final stages in 2015. As per a report by IndiaNivesh Securities Private Limited, Asia Pacific is an important zone with respect to trade and all non-member countries are likely to be impacted by TPP.
Quoting industry experts from Textile Export Promotion Council and Wazir Advisors, the IndiaNivesh Securities Private Limited report says that India, along with other textile-producing countries like China, Pakistan, Bangladesh and Sri Lanka, is likely to be negatively impacted from TPP. Due to duty-free access to Vietnam exports, competitiveness of India can be impacted to a great extent.
India has become an isolated country and such a country can't flourish. All such isolated countries don't get free trade benefit. Now, in this TPP, one country will manufacture fibre and another garment all under one pact and no customs duty will be charged. Vietnam's growth is phenomenal and is still one of the lowest wage countries will make it quite competitive. India will have a clear disadvantage, especially in exports of commodities like T-shirts, men's wear, denim, pullovers and sweaters, among other things, said a senior AEPC official.
The impact seen will be in terms of fresh opportunities that had begun to divert to India, which might now again turn in favour of the TPP-member nations. The industry also anticipates a marginal slowing of Indian apparel exports, which was otherwise anticipated to grow at 12-15 per cent per annum for the next few years.
Vietnam is a significant player in the textiles and apparel industry. Vietnam exports of textiles to the US has increased from $2.88 billion in 2005 to $9.96 billion in 2014, signifying 14.8 per cent CAGR over the period, making it the fastest growth for any country with a sizeable market share. Moreover, Vietnam's share in the US import of textile and clothing has increased from 3.2 percent in 2005 to 9.3 percent in 2014, according to the IndiaNivesh report.
But according to Anil Rajvanshi, chairman of Synthetic Rayon Textiles Export Promotion Council, the TPP will not affect Indian textile exports but rather open a window of opportunity for Indian textile companies to invest in Vietnam, which neither grows cotton nor has enough fabric units. Also, Prime Minister Narendra Modi has recently extended credit line of $300 million dollars to Vietnam, strengthening relationship between both countries.
However, both IndiaNivesh report and Rajvanshi are of the view that the yarn forward rule of origin requires textile and apparel products be made using yarns and fabrics from a TPP country to qualify for the benefits of the agreement, Vietnam will require investment from other countries such as India and China, which the former can take benefit from.
With Vietnamese government providing tax holidays, import duty exemption, concession on land lease charges, electricity, among other things for Indian investors, India plans to set up capacities in Vietnam to take advantage of TPP, which would adhere to the yarn forward rule.
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