Changing dimensions of single European market : implications for the non-member countries : a case study on India's textile and clothing exports

The implications of the single European market on India's exports of textile and clothing industries to the EU can be summarised in the following four statements: 1. The trade creation effect has been witnessed for many of India’s textile and clothing exports. It is the consumption effects, rather than the efficiency related effects, that stimulated the trade creation effect for India's exports to the EU. The benefits of the trade creation for India's textile exports are absolute as India continued to maintain its role as a leading textile exporting nation to the EU. Since India's textile exporters did not witness any intense competition from the geographically adjacent non-member countries, or from the distant non-member countries, the Indian textile exporters continued to reap the benefits of the trade creation effect in the single European market. Even the leading distant non-member countries, which are traditional exporters like China, did not pose greater competition to India's textile exports to the EU. 2. There has been a trade diversion effect in selected product categories. This is particularly true in the case of garment exports. The arrival of the imports from Central and East European countries constituted direct competition to India's exports to the EU. There has also been an intense competition among the garment exporting countries. This is particularly true in the case of the geographically adjacent non-member countries. These countries exploit the maximum benefits offered to them by the EU's OPT with these countries. This is facilitated by the member countries' preference to keep their textile industries at home. 3. There has not been any trade suppression effect witnessed in the EU for India's textile and clothing exports. Though the traditional arguments of customs union theory expected the trade suppression effect to be witnessed in the enlarged market, this has not been witnessed in the European textile and clothing industries. Two reasons could explain the lack of trade suppression effect in the EU. The member countries' success in the OPT dissuade them from resorting to the domestic production of the same goods, which could be successfully produced and imported from the geographically adjacent non-member countries. Though there have been protectionist tendencies in many of the member countries to insulate their textile and clothing industries against low-cost imports, they have not resulted in the trade suppression effect in the EU. Even though the member countries witness a decline in their textile and clothing industries consistently, there has not been any effort to replace low-cost imports by domestic production. This is mainly because of the liberal trade regime, imposed on the developed member countries under the multilateral trade negotiations, which make trade in this industry more competitive. 4. However there has been the trade contraction effect witnessed in one particular product category. The trade in silk woven fabrics witnessed an overall fall in its trade both within and without the EU. But this could not be attributed to the formation of the single European market. The developed member countries' changing fabric preference from silk towards artificial fabric could be attributed to the fall in the EU's overall trade in this product category. Nevertheless the EU's trade contraction effect did not have any adverse effect on India's exports because India is the leading exporter in this product category (accounting for about 46 per cent of extra-EU imports in 1999)

Changing dimensions of single European market Implications for the non-member countries : a case study on India' s textile and clothing exports

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