NAMA and Weaver:SAM,Actionaid International

NAMA – India report on leather and textile sectors (first full draft), 7 October 2005

Title suggestions please!
Weaving the threat: the danger of industrial trade liberalisation to India’s textile and leather sectors


1. Introduction

India is up and coming - ready to enter the world league of economic heavy weights
image from the mainstream media is that India is a showcase of the virtues of neo-liberal economic reform because of its growth performance. Reforms are also reported to have been 'painless reforms' (Stiglitz 2003)
reality is different.
ordinary people concentrated in traditional sectors of the economy - many of which have found it difficult to adjust to new reality of economic liberalisation - are battling to cope in the new liberalised environment while the well off and well educated are picking the cherries and relishing the opportunities brought about by global market place
while India's gradual approach to trade liberalisation clearly has contributed to increasing growth in some sectors in recent years and saved the country from serious de-industrialisation as experienced by many other developing countries that had no choice but to follow the 'big bang approach to liberalisation' advocated by the World Bank and the IMF economic reform has been no painless experience for small scale manufactures concentrated in India's traditional sectors of mass employment. Both in textiles and leather many people have lost their livelihoods and those still employed have seen their wages and conditions of work deteriorate.
India is under pressure to liberalise its tariffs on industrial goods at the WTO
The US and the EU have a strong interest in increasing market access to large developing country markets like India, Brazil and China and they are pushing hard for this to be realised in current NAMA negotiations at the WTO
the negative impact of drastic reductions in India's industrial tariffs as a consequence of NAMA will be significant for large sections of India manufacturing industry as this paper shows




PART I
2. Trade liberalisation in India - the true story

2.0 A brief history of reforms
India set about to drastically reform its economy in the early 1990s. Serious balance of payment difficulties demanded a change in economic policy and like in most other developing countries guided by the World Bank and the International Monetary Fund (IMF) structural adjustment and liberalisation became the order of the day. Public enterprises were privatised and public investment was cut back while production levels, interest rates, exchange rates and prices were left to be determined by the market.

On the trade front India rejected the big bang approach favoured by the IMF and the World Bank. Instead a more cautious and gradual process of liberalisation was initiated, starting with the elimination of export subsidies and gradual reductions in barriers to imports and exports. These autonomous reforms coincided with the Uruguay Round of multilateral trade negotiations and by the end of the round in 1995 India had undertaken commitments that promised to change its international trade regime substantially in the following decade. Under these commitments, India agreed to increase its percentage of bound tariff lines from only 6 percent to 72 percent of all tariff lines by 2005 (see box 1).[1] For industrial products, the bound tariff rates had to come down from peak levels at 355 percent to average levels of 40 percent.[2] Today India has gone further down the road to liberalised trade than what was warranted by these commitments. During the last five years average bound industrial tariffs have been reduced to 34.3 percent[3], whilst average applied tariffs on industrial goods have been reduced to 21.7 percent.[4] Since 2001 average tariffs for chemical products and rubber industries along with traditional sectors like textiles, garments, leather and leather products have fallen from approximately 35 percent in 2001 to 20 percent (see figure 1).

Box 1: WTO tariff speak explained
Bound tariffs
As part of WTO negotiations on industrial tariffs countries are asked to 'bind' an increasing number of tariff lines. In practice this means that they are asked to commit to a maximum tariff level above which tariffs cannot be raised in the future.

Binding coverage
A country's binding coverage or level of tariff binding refers to the percentage of total tariff lines the country has bound at the WTO.

Applied Tariffs
Applied tariff rates are the actual tariff rates importers have to pay when importing goods from abroad. These will always be equal to or as it is most the case lower than the bound tariff rates.
















Almost simultaneously with the latest round of tariff reductions, India did away with a large number of quantitative restrictions on agricultural goods and a large range of import sensitive industrial goods and textiles. These restrictions had been in place since the onset of liberalisation partly to protect vulnerable farmers and small scale producers in India from the competition of cheap imports and partly to avoid balance of payment difficulties in the post-liberalisation period. However, following a successful challenge by the US and others at the WTO's dispute settlement body, India was forced to do away with practically all its quantitative restrictions over a period of a couple of years ending 1 April 2001.[5]


Source: Kevan (2005) & Jha (2005)


2.1 The impact of trade liberalisation
The big idea behind the unleashing of market forces in India was the familiar notion that less state, more private initiative and international competition leads to more efficient outcomes. The Government of India wanted its economic reforms to restructure production towards areas of international comparative advantage in order to put the country back on a path of sustainable export fuelled economic growth. As India's areas of international comparative advantage are seen to be labour-intensive the Government of India predicted that after an initial period of net job losses trade liberalisation would create more sustainable employment.[6]

The macro picture - steady progress
So what are the results? Have India's economic reforms resulted in higher economic growth, restructuring of the economy and increased employment? In terms of economic growth the answer appears to be yes. Economic growth rates have been impressive over the last couple of decades but interestingly the onset of economic growth does not coincide with the timing of extensive trade liberalisation. As table 1 clearly shows the growth rate of India's GDP picked up in the early 1980s; a decade before any serious trade reform was undertaken. Tariffs in India were actually higher during the 1980s when economic growth took off compared to the low growth period of the 1970s. Only tariffs on capital goods and components for manufacturing were lowered in the early 1980s onwards. And despite significant reductions in tariffs during the last 15 years India is still a relatively closed economy. Currently it has a score of 8 on the IMF's Trade Restrictiveness Index (TRI) which places it amongst the most restrictive of the world's economies.[7] Consequently, it is partial liberalisation of the import regime, along with an increase in government spending, that has kick-started and sustained India's economic recovery and not broad based liberalisation, as it is often suggested.[8]

Table 1: Annual growth of India's gross domestic product 1950-2002

1950-52 to 1960-62
1960-62 to
1970-72
1970-72 to
1980-82
1980-82 to
1990-92
1990-92 to
2000-02
Annual growth of GDP (%)

3.9

3.5

3.5

5.6

5.6
Source: Reproduced from Ghosh (2005)

Liberalisation has also impacted on the structure of the Indian economy but not necessarily in the way it was anticipated. The general decline of the importance of agriculture in national income has continued post liberalisation but whereas the services sector received a major boost from the onset of liberalisation and increased its share of GDP from 41.6 percent in 1990-92 to 49.2 percent in 2000-02 the share of industry stagnated at 24 percent. [9] After a period of remarkable growth from the mid 1980s to the mid 1990s the growth rate of Indian manufacturing production decreased from 1997 onwards to reach a low point of 3 percent annual growth in 2001. In recent years performance has once again improved and annual growth in manufacturing production reached approximately 7 percent in 2004-05. This is however, still lower than the double digit growth rates of the late 1980s and early 1990s.[10]

Impact on exports and imports
As intended India's trade reforms have resulted in increased export orientation, as well as increased imports. From 1980-81 to 2003-04 the share of exports to Gross National Product (GNP) increased from 5.14 percent to 11.71 percent. Imports' share of GNP rose from 9.61 percent to 14.33 percent in the same period.[11] However, India still accounts for only 0.8 percent of global trade.[12] The largest increase in both imports and exports have taken place in the first half of the present decade following the second phase of tariff reductions and the phase out of quantitative restrictions. Both imports and exports doubled during this period. Export growth was mainly concentrated in resource intensive industries like wood, paper, metals and chemicals whereas import growth was highest in textiles and textile products, metals and machinery.[13]


Beneath the surface - The harsh reality of adjustment
Recent improvements in the performance of Indian manufacturing, as well as significant growth in exports and imports, coincide with the latest round of tariff reductions and the abolition of quantitative import restrictions in 2001. To some this will suggest that the sluggish performance of the manufacturing sector in the latter half of the 1990s was not a problem of liberalisation as such, but one of too little liberalisation. A more disaggregated look at the manufacturing sector shows why this argument is misleading.

Impact on textiles, leather and garments sectors
In the myriad of sub-sectors which make up India's manufacturing industry only a relatively small proportion have responded well to recent trade reforms. Scale and capital intensive sectors like chemicals and chemicals products, transport equipment and machinery have all seen sustained or rising growth rates, as well as increasing shares of total manufacturing export in the first half of this decade. However, the opposite is true for a number of industries within India's traditional sectors of mass employment such as for example textiles, leather and leather products and food products. In a number of these cases the impact of changes in domestic industrial policy, import liberalisation and the eradication of barriers to export have been declining or negative growth rates, as well as declining shares of manufacturing exports. In the case of cotton textiles for example the average annual growth rate went from 2.9 percent in 2000-01 to -3.1 in 2003-04 while the share of total manufacturing exports declined from 10.1 percent to 7 percent.[14] The case studies in section 3 of this report provide more details of the hardship experienced by particularly small scale manufactured within these industries post liberalisation.

The notable exception to this pattern among traditional sectors is garments. The average annual growth rate of India's garment sector was 7.8 percent between 1991-95. It dropped to 5.2 per cent between 2001-2003 but increased significantly from then onwards reaching xx percent 2004-2005. In terms of export performance the value of India's garments exports grew by 144 percent between 1990 and 2000 and growth continued following the second round of reforms in 2001, albeit at a less robust pace.[15] The garment sector currently constitutes 16 percent of total manufacturing exports and 12.5 percent of total exports from India.[16]

While growth in the garment industry has increased employment in the sector by 165 percent since the early 1990s liberalisation has overall been a sad event for India's masses of unskilled labour.[17]
More than 2 million workers have already lost their jobs in India's textiles sector post liberalisation[18] and substantial labour retrenchments have also taken place in the leather sector.[19]
And while garment workers have seen job opportunities increase their wages as a share of total manufacturing costs in the garment sector have decreased from 26.86 percent between 1973-74 and 1990-91 to 17.07 percent between 1991-92 and 1999-00[20] and the terms and conditions of employment in the sector have deteriorated significantly post liberalisation. As one of the local trade union leaders in New Delhi summed up the situation facing garment workers today: “Because of the globalisation, industries are gaining day by day, they are getting higher profits. But the benefits are not being passed to workers. Workers are not getting anything”.[21]

Jobless growth
In general, it is true to say that trade liberalisation in India has not been good for labour intensive sectors as the Government of India predicted it would be.[22] Economic growth in India post liberalisation has practically been jobless growth. Despite good average growth rates in recent years organised manufacturing has only created 350.000 new jobs between 1993-94 and 1999-2000. Growth in total manufacturing employment (organised and unorganised) averaged only 2 percent in the same period with the majority of the growth taking place in the unorganised sector. This is only 1 percent more than the annual growth of the labour force between 1993-94 and 1999-2000 and well below that of earlier periods.[23]

There are a number of different reasons why the last 15 years of sustained economic growth have not translated into increased job opportunities for the masses. Changes in domestic industrial policies as well as increased import competition and the relaxation of export restrictions have all worked against the interest of small scale producers who make up the most labour intensive forms of urban employment and dominate urban manufacturing.[24] That this is the case is clearly reflected in ActionAid's research among silk and cotton handloom weavers, as well as footwear makers, in India (see section 3).

Trade liberalisation failure to boost the number of organised job opportunities in traditional areas of mass employment is only exacerbated by the fact that other sectors of the economy have been unable to compensate for the slow growth in organised manufacturing employment for the unskilled. Even though the services sector has expanded dramatically in recent years and now account for the most dynamic element in national income growth services employment has not increased fast enough to compensate for lost job opportunities elsewhere in the economy. Most often jobs created in the organised services sector are also skill intensive and therefore not comparable to the jobs lost following the onset of liberalisation.[25] This corroborates evidence from many other developing countries which suggests that liberalisation tends to favour skilled labour over unskilled.[26]

Increasing inequatliy
Because of its tendency to increase the return to education liberalisation in India has enriched the few and impoverished the many. According to the World Bank the sale of unskilled labour is the most important source of income of poor people so without new employment opportunities for the unskilled trade liberalisation in India can hardly claim to be pro poor.[27] While it is true that poverty in percentage terms have decreased since the mid-1970s the rate of decline in poverty levels has slowed down in recent years and the actual number of poor people in India may in fact have gone up.[28] And importantly, commentators now agree that liberalisation has caused a substantial increase in inequality within India. Post liberalisation the top 20 percent of the population has experienced the most drastic increase in per capita consumption since India's independence. While the next 40 percent of the urban population and the top 20 percent of the rural population also increased consumption substantially over the period per capita consumption of the bottom 40 percent of the rural population declined.[29] Inter-state disparities have also widened post liberalisation with the larger and better off states maintaining and strengthening their supremacy. In fact, whereas the richest states were 2.6 times richer than the poorest in the early 1990s this difference has now grown to more than 4.5.[30]

Trade liberalisation has also had a negative impact on public revenue in India. The liberalisation of import tariffs have reduced the proportion of customs revenue in gross tax revenue from close to 36 percent in 1990-91 to just under 20 percent in 2003-04.[31] The consequence has been reduced public spending on essential public services of key importance to poor people as well as the introduction of alternative taxes that in some instances have hit those parts of the Indian population which have already experienced increased hardship as a consequence of liberalisation. One case in point is the weaving community in Varanasi which was hit hard by an increase in excise duty on hand loom and power loom products in 2003.[32]


3. Traditional sectors of mass employment - the losing lot

3.1 Textile sector
The textile sector has traditionally been one of India's thriving sectors of mass employment. Abundant raw materials and an unlimited supply of cheap labour have contributed to its success in the past. However, as the previous section showed international trade liberalisation and domestic economic reforms have impacted negatively on parts of the sector. Overall, production has stagnated; production units have closed down and unemployment soared. Increased imports of cheap textiles from China, rising input prices because of increased export of yarn and mechanisation have all contributed to the decline.

Handloom weavers who make traditional items such as saris, dhotis, bed sheets and shawls have been hit the hardest. Out of the 38 million people employed in the textiles sector 12.4 million, or close to 33 percent, are concentrated in this declining part of the sector. [33] The majority of them are low caste and extremely poor, working in small family units. More than sixty per cent of weavers are women. [34] Following the second phase of trade reforms in India the number of handloom production units going out of business every year has gone from xxx in xxx to xxx in xxx [awaiting this statistic – SAM].[35] Between 2000 and 2005 the average annual growth rate of handloom production was -6.99 percent. The impact on the livelihoods of handloom weavers and their families has been devastating. They have suffered declining incomes, increasing debt and significant job losses. As a result, hundreds of weavers have committed suicide or are reported to have died from starvation and malnutrition as their trade increasingly has become concentrated in the less labour intensive power loom units.[36]

Silk handloom weavers, Varanasi
The Banarasi silk saree made in Varanasi, has been famous for centuries for its luxurious, intricately-designed cloth. It was the must-have for all Indian weddings. More than 500,000 weavers live in and around Varanasi, weaving mainly for the domestic market.[37] But since the 1990s, the silk handloom weavers who make the Banarasi saree have seen their fortune vanish.

There are many reasons for the problems facing Varanasi weavers: increasing competition from powerloom weaving, changes in government protection policies[38], increasing prices in raw silk and shifts in market demand. But in the last five years, an increase in imports of cheaper silk fabric from China has exacerbated the poverty of Varanasi silk weavers. Between 2000-01 and 2004-05 imports of silk fabric into India more than doubled in value terms and as figure 2 shows this rapid growth in imports coincided with marked reductions in average applied tariffs on silk fabrics.[39] In 2001 India also abolished its quantitative restrictions on silk imports on demand from the WTO. Since then annual growth rates of silk imports have soared.

Figure 2: Changes in Indian silk tariffs and silk imports: 2000-01 to 2004-05
Source: Indian Department of Commerce and Karan 2005[40]

The impact of this increasing competition in recent years on sari weavers has been dramatic. Workers’ wages have been halved since the 1990s, and weavers complain that there has been no increase in wages for the last five years.[41] Local traders estimate that half the weavers have shifted to other jobs – such as fishing, rickshaw pulling or construction work – to earn more than the pittance they now get for weaving.[42] In some villages, women have gone to work as hired labourers, doing tasks such as sari cutting or nari bharna (bobbin-winding) or as domestic helpers to supplement their family’s income.[43] Many weavers and their family members are reported to have died from starvation in the last three years, and some have even been driven to suicide (see box 1).

Box 1: Vishambar: gave up sons in hope of a better future

Thirty-five year old Vishambar lives in a thatched hut in Sankarpur village, about 12 kilometres from Varanasi. His father taught him to weave when he was a child but now he sees no hope for the future. As a result of the downturn in the weaving sector, he lost his job and his silk looms. His wife, Jigna, took a loan to buy some land but the land given to them was infertile, and they could not grow anything. His family started to suffer from hunger and malnutrition. In April 2005, his wife died from hunger-related illnesses, and a few days later, his daughter also passed away. In May, his two-month old son also died of hunger and malnutrition.

“I feel sad about the future filled with more deaths and everyone suffering,” says Vishambar. “There is no work. I am just sitting and begging… I want work for myself and for other people in the village.”

Today, Vishambar has given his three other children to a local charity, in the hope that they will see a better future. But many of the weavers in Vishambar’s village have suffered similar problems – just a few days before our visit, Kanhaiya, a 40year old weaver was reported to have died from chronic malnutrition.


In September 2005, many of the Varanasi weavers and community leaders came together for a convention to discuss the problems they face. Whilst calling on the Indian government to help them in their plight, they are not ignorant of the threat of increasing international competition.“If the WTO is going to increase the business of powerlooms and the Chinese then our craft will die. The government should see the situation and then decide on their policies.” says Mohammed Mohsin, a father of five and a leader in the weavers’ community. Dr Lenin Raghuvanshi, convenor of a local organisationsupporting the weavers community agrees: "we want to exclude textiles from the WTO. They want to bring equality among unequals. We want to fight in the WTO to stop Chinese imports. Due to the WTO there has been a flooding of Chinese cloth".

In the last year, the Indian government has tried to stem the problems facing silk weavers by increasing import tariffs and bringing an anti-dumping case against Chinese silk fabric.[44] But these short-term protections and the future of the Banarasi weavers could be doomed by further tariff liberalisation under the WTO's non-NAMA negotiations (see section xx).


Cotton handloom weavers
Throughout the twentieth century, cotton handloom weavers have experienced peaks and troughs in their fortunes, but for the past fifteen years the situation of millions of weavers has reached crisis point. Changes in government import and export policies have been significant factors contributing to the serious problems facing cotton handloom weavers today.

Following the first wave of reforms in 1991, a number of export restrictions on the export of cotton and cotton yarn was abolished and the impact on yarn exports was dramatic (see table 3). As a consequence of this domestic availability of cotton yarn declined significantly and the price sky rocketed. Cotton handloom weavers were hit hard by these developments as the cost of yarn constitute 70 per cent of their total input costs.[45] In the last two years, the situation has worsened as the Indian government lifted all remaining export restrictions on yarn and cotton exports in 2002.[46] Yarn prices rose again from 10,000 rupees to 12,500 rupees per bale between November 2003 and February 2004 leading to further hardship for weavers and their families. [47]

Table 3: Exports of cotton yarn by India (quantity, million kg)
1988-89
1990-91
1992-93
1994-95
1996-97
1998-99
40.38
90.11
128.63
228.53
464.9
486.78
Source: Report of expert committee on textile policy, 1999

Like silk handloom weavers, cotton weavers have also been hit by the rise of the mechanised power loom. Tariff reductions on machinery imports in the range of 75 percent since 1991 have resulted in significant increases in imports of second-rate machinery from Europe and Asia.[48] It is estimated that the value of imports of textile machinery alone grew ten times between 1991 and 1996.[49] As a result powerloom production has now overtaken production from handloom weavers, accounting today for 83 per cent of total cloth production.[50]

The government of India has attempted to maintain a share of the market for cotton textiles for handloom weavers through policies such as the Handloom Reservation Act (1985) which at first reserved 22, and then only 11, varieties of cloth for handloom production. But this measure, alongside others such as the Hank Yarn Obligation act (1985), has not been fully implemented and has been considerably weakened over the last ten years.[51] Recent measures to bolster the sector have yet to make a significant impact.[52]

As a result of the increase in the cost of cotton yarn, increased mechanisation of production and the lack of will within the Indian Government to enforce reservation policies thousands of looms in many of the primary weaving districts in Assam, Manipur, Tamil Nadu, West Bengal, Utter Pradesh and Andhra Pradesh have become idle and tens of thousands of weavers have become jobless.[53] This is not surprising considering that one powerloom is estimated to displace 12 handloom weavers.[54] Many weavers have also seen their wages stagnate or decline to insufficient levels. A 1995-96 census estimated that average monthly income per household from handloom weaving was 568 rupees. This is completely inadequate to support a family, and many households have either had to find other forms of work to supplement this income or have incurred large debts.[55] Many men have moved away from weaving as its status and income have declined, with women taking up weaving on the household loom, or working as paid labour processing yarn for powerloom weavers to supplement the family’s income.[56] But in many areas, weaver families are reported to have died from malnutrition and starvation and a number have even committed suicide to escape crippling debts and a bleak future (see box 2).

Box 2: Cotton handloom weavers suffer starvation deaths and suicides

Ganji Venkataramanama (38 years old) from Chirala in Andhra Pradesh started weaving the well-known ‘jacquard’ saris when she got married. At that time, life for her and her husband was comfortable. Her husband, Ganji Shankara Rao, used to weave three units of sari (one unit is equivalent to six saris) each month and earned 1500 rupees. But in recent times, her family has become increasingly indebted. Her husband took out several small loans from various money lenders to help set up a co-operative society to assist the other weavers in the community. He travelled around the district meeting with state officials to get support for the weavers’ problems – but as a result his debts escalated beyond 20,000 rupees. Their financial situation became so difficult that they had to take their daughter out of school. In January 2005, their situation became so hopeless that Ganji Shankara Rao committed suicide.

Today, Venkataramanama struggles to support her family by weaving saris for which she earns about 1000 rupees a month. But life has become a lot harder. “We have cut down on expenses like food,” says Venkataramana. “We have less intake now and it is less nutritious. The is some decrease in the quality of the food – no vegetables. We are just living on pickles and rice.”

In the neighbouring village, Medikonda Vanaji, 42years, and his wife Medikonda Shanthamma, 40 years opened a small shop in recent years to supplement the meagre income they earn from weaving. “We used to get more income in comparison to now,” says Vanaji. “We used to save a little money. But the prices of essential commodities have gone up. Coolie rates [wages] have come down. Since the last seven years there has been a steady rise in the prices of hand yarn, colours and raw material and there has been a steady decline in wages.”


Concerns have been raised within the Indian fabric industry that further liberalisation of tariffs on cotton yarn in key export markets as a consequence of NAMA negotiations at the WTO may lead to yet more exports of cotton yarn from India.[57] This would undoubtedly add to the cost disadvantage of traditional handloom weavers and could literally mean ruin for millions of weavers like Vanaji and Venkataranama. Reductions in the tariffs on cotton fabric imports could also prove fatal for cotton handloom weavers should this result in import surges like the ones experienced in the silk sector. Without adequate support and protection many weavers are very likely to lose their livelihoods. As one weaver, trying to organise other weavers in Chirala to campaign for their rights at the local and state level expressed it: “In a global competitive environment there should be a special package for handloom weavers. Then only would this sector survive. If there are the same conditions for everyone then handlooms will face losses and low prices. If the necessary preparations are made then we will survive.”

3.2.The leather sector
The leather industry is important to the Indian Economy. Not only because of its potential to generate employment, export and foreign exchange but also because small scale, cottage and artisan production units account for 75 percent of production in the sector.[58]

As discussed in the previous section the sector has experienced large fluctuations in growth rates post liberalisation, with the most recent decline coinciding with the second round of reforms in 2000. While larger export oriented units have managed reasonably well (export of leather and leather products increased grew by more than 25 percent between 1998 and 2003), small scale production units producing primarily for the domestic market have faced increased hardship as a consequence of tariff liberalisation and the abolition of quantitative import restrictions.

One example is the footwear industry. Footwear production for the domestic market has in many years been reserved for small scale industries by the Indian Government but recent reforms have practically rendered this reservation meaningless. [59] Cheaper imported shoes from China are rapidly taking over the market. Imports of readymade sports shoes from China increased significantly post 1999-2000. From March 1999 to October 2000 imports increased from 4.68 lakh pair to 5.7 lakh pair and as a consequence production levels in the domestic shoe industry fell by 11.24 percent compared to 1998-99 and the market share of the domestic shoe industry decreased from 74.09 percent to 57.81 percent.[60]

On top of this India's small scale shoemakers have suffered from increasing scarcity, as well as increasing prices, of raw materials. Exports of leather hide increased 147 percent between 1999-2005[61] after India, under pressure from the EU, did away with a specific export licensing system which had effectively bared the export of leather hides throughout the 1990s.[62] The combined effect of increased import competition and rising input costs has been a serious increase in livelihood insecurity among small scale shoe manufactured in prime shoemaking cities such as Agra,Kanpur and Lucknow.

Agra shoe-manufacturers
Agra, home to the famous Taj Mahal, has been one of the most important centres in India for leather and shoemaking since medieval times. The city used to have a virtual monopoly on footwear trade for several centuries – but today it accounts for around 65 per cent of domestic shoe sales.[63]

There are between 5000-7000 small-scale units making shoes for the domestic market and another 200 larger export-oriented factories in the city.[64] 200,000 people are employed in the sector; primarily in small, home and family-based workshops where women tend to do the physically demanding tasks of hand-stitching and hand-knitting as well as finishing jobs.[65] The majority of the shoe-makers in Agra belong to Chamaar, Jatav and Khatik castes (‘low castes’) or are Muslim.

Since the onset of liberalisation, the city has seen a steady decline in the production and earnings of its small-scale shoe-making units. Initially small scale shoe manufactures in Agra responded to the scarcity and high prices of leather hide, alongside changes in consumer tastes brought about by imports, by resorting to cheaper synthetic materials (micro-foam) imported from China. Traditional leather shoemakers were able to produce shoe uppers from micro-foam for a little while but recently an increase in imports of ready-made shoe uppers, shoe kits as well as finished shoes have put many small scale shoemakers out of business while others complain that their income has decreased significantly.[66]

Many of the artisans who have been forced to leave the industry have turned to construction work, selling fruit and vegetables or pulling rickshaws to earn enough to support their families.[67] Job losses and declining incomes have resulted in increasing reports of alcoholism, depression and domestic violence against women. In households where income has declined significantly, women have been going without food.[68] According to Mr Bharat Singh, president of the ‘Agra Joota Dastakaar Federation’, a local organisation which supports small-scale shoe makers, the health, nutrition, food security and wages of shoe makers in Agra has deteriorated in the last ten years (see box 3).













Box 3: Agra shoe makers suffer loss of traditional livelihood and income
Hosiyar Singh, 42years and father of seven children, has been a shoe maker in Agra for 28 years. In the Chakkipat district of Agra, he has a simple, small workshop with a mezzanine where his children sleep. His wife and himself sleep in the workshop. Previously he used to make leather shoes, but two years ago he closed his workshop because he could no longer cover the cost of production. Since the end of 2004, he started making shoes but now he makes synthetic and leather trainers for a major international brand, which are sold in the domestic market. He works, with a handful of other labourers, from eight in the morning until eight in the evening. But life is much harder now.

“My business has shrunk down,” says Hosiyar. “Once in a week I used to have one day off, now I have two days off. Many years ago, there was enough demand that I used to work the whole month. If we just follow the routine timetable then we can’t feed ourselves. We have to do overtime.”

Hosiyar blames the increasing imports of Chinese ready-made shoe parts and finished shoes for the problems he faces. “The work is reduced now, because of the government,” says Hosiyar. “They keep importing shoes from outside. They are not exporting anything from here. We have become jobless. I used to make 150 pairs a day, now I’m down to 32 pairs in a day.”

One of Hosiyar’s neighbours, Devabina (35 years) has stopped doing shoe stitching in the last six months. A mother of six, her and her husband could no longer support their family from making shoes. Her husband, Mahesh, now works as a wage-labourer in a shoe factory, doing sole fixing. Her son also helps Mahesh in the factory. But their income is more fragile now and life has become a lot harder.

“Before, we were more secure and we used to earn more,” says Devabina. “Presently we earn 570 rupees a week/month, before it was 1500 to 2000. We normally eat rotis but we haven’t had any food today. We used to have more nutritious food.”


By focusing on export growth, whilst ignoring the plight of the millions of small-scale leather and shoe makers involved footwear production for the domestic market, the Indian government is condemning millions of the poorest and most vulnerable manufacturers to further hardship. Increased access to European, American or Asian markets could be a source of potential revenue for many shoe makers like Hosiyar or Devabina. However, the prospect of further tariff reductions, possibly even tariff elimination, on footwear imports as a result of NAMA negotiations at the WTO and the absence of adequate government support, they will be unable to take advantage of such new opportunities.


4. The threat of NAMA
3.1. What is on the table?
Negotiations on non-agricultural market access (NAMA) form a key part of the ongoing WTO negotiations under the Doha Round. The framework for negotiations on NAMA is contained in Article 16 of the Doha Ministerial Declaration from 2001 and it specifies that while the aim of the negotiations is to reduce or in some instances eliminate non-agricultural tariffs 'the negotiations shall take fully into account the special needs of and interests of developing and least developed country participants, including through less than full reciprocity in reduction commitments'.[69] Despite this commitment, developed WTO members have been pushing hard for a very aggressive tariff liberalisation agenda which is far from the interests of developing countries. A radical proposal put forward by the EU, the US and Canada in August 2003 has completely dominated discussions to date.[70]

The negotiating text on NAMA (referred to as Annex B) in the WTO’s July 2004 Framework contains three key components:
1 Tariff bindings: the current NAMA text demands that members make a substantial contribution to increase their level of tariff bindings (see box in section 1). Developing countries would be expected to increase their level of binding coverage to at least 95 percent while least developed countries are asked to 'substantially increase' the percentage of tariff lines bound at the WTO. Future negotiations will ultimately determine what 'substantially' means in this context. For all categories of products, the suggestion is that tariffs are bound at twice the applied rate for currently unbound tariff lines. (CHECK WITH TIM THAT IS CORRECT) TAKE IT FROM THE JULY FRAMEWORK

2) Reducing bound tariffs – the swiss formula: Developed country members, such as EU, US and Canada, are demanding an ambitious ‘Swiss’ formula, applied line by line. This type of formula will automatically mean greater cuts in higher tariffs than in lower ones leading to tariff harmonisation. According to current proposals all countries, except least developed countries and a dozen developing countries[71], would be subject to tariff reductions using this method.[72]

3) The sectoral initiative: The sectoral initiative is an attempt to push forward much greater liberalisation in specific sectors, either through harmonisation of tariffs or complete tariff elimination. Seven sectors, deemed of export interest to developing countries have been proposed to be included in the sectoral initiative (footnote that proposed by NAMA chair). These were electronics and electrical goods, fish and fish products, textiles and clothing, footwear, leather goods, motor vehicle parts and components and stones, gems and precious metals.


3.2 What is at stake?

The approach to the NAMA negotiations currently enshrined in the WTO’s 2004 July Framework poses a clear threat to developing and least developed countries a like. If nothing changes all developing countries stand to lose a lot more than they will gain. Their policy space will be seriously reduced as the majority of their tariff lines will be bound. Many stand to lose huge sums of public money as a consequence of declining customs revenue post tariff reductions. In many countries NAMA also pose a real threat of de-industrialisation as domestic industries are completely unprepared for sudden exposition to the strong winds of foreign competition. The result is undoubtedly an increase in human suffering and poverty and not sustainable development.[73]

Loss of policy space
In the particular case of India a commitment to increase binding coverage to 95 percent is no trivial matter. Although India has currently bound 69.8 percent of it industrial tariff lines the 30 percent that have been left unbound are considered crucial for the protection of Indian industries and are classified as import sensitive.[74] Some product categories have been left almost completely unbound, including footwear, fish and fish products, furniture and toys, works of art and arms and ammunition. Other categories, such as leather and travel goods, wood pulp, paper and paperboard articles, wood, charcoal and cork and textiles and clothing, have had two thirds or almost half of their tariff lines left unbound.[75] Out of all unbound tariff lines close to 20 percent are reserved for the small scale industrial sector.

However, the issue for India is therefore not so much one of drastic tariff reductions as a consequence of an increase in binding coverage but one of lost policy space. With the binding of almost all its tariffs at the WTO India will lose the flexibility to raise the applied tariff level above the bound level should it want to for either developmental or industrial reasons. This means that in the future India would not be able to significantly raise tariffs to protect vulnerable groups like the silk handloom weavers in Varanasi against import surges which threaten their livelihoods. Given that one fifth of unbound tariff lines are dominated by small scale and cottage industries, the Indian government’s potential to protect many of these small scale producers in the future could be jeopardised. Universal binding of tariffs at relatively low levels would also leave India unable to provide temporary protection for emerging industries not yet internationally competitive as it is currently doing in the automobile sector.[76] This is a serious problem since according to Dr. Yilmaz Akyuz, former director of UNCTAD's Division on Globalisation and Development Strategies, as countries develop, their pattern of optimal tariffs change over time and it is therefore of fundamental importance for the future growth of countries like India that they maintain a high degree of policy autonomy in the NAMA negotiations.[77]


De-industrialisation
India, along with all other developing countries at the WTO, is under significant pressure from
developed country members to accept tariff reductions on the basis of an ambitious Swiss formula. Not only will the application of such an ambitious formula threaten the sustainability of a number of Indian industries it will also turn the principle of ‘less than full reciprocity in reduction commitments’ enshrined in the Doha mandate upside down. Given that tariffs in developing countries are higher than tariffs in developed ones the application of the same ambitious formula across the board will lead to deeper cuts in developing countries' tariffs than in those of their developed counterparts.

The application of a Swiss formula as the one currently promoted by particularly the EU and the US to India's industrial tariffs is bound to lead to immediate reductions in applied tariffs. As we have seen above the simple average of India's applied and bound tariff rates on industrial goods are close together (21.7 percent and 34.3 percent respectively). A reduction in average bound rates of for example 50 percent, which is entirely possibly under current proposals, would therefore de facto lead to reductions in applied tariffs rates as well. On top of this a number of India's traditional sectors of mass employment are in danger of seeing their tariffs eliminated completely as a consequence of the sectoral initiative. This will not only lead to further restriction of India's policy space but will also reinforce the crisis currently experienced by elements of Indian manufacturing sectors and could possibly lead to a process of de-industrialisation of the country.

Computational scenarios of the impact on the Indian economy of a 25 percent reduction in applied tariffs as a consequence of the current NAMA negotiations confirm that the current approach will lead to outcomes far from what one would expect from a so-called development round. While overall GDP? is expected to increase India's terms of trade will turn negative. Imports will increase significantly more than exports, particularly in sectors such as food products, textiles, garments, leather and leather products which are already suffering from increased import competition. While the return to capital and skilled labour will increase, unskilled labour will reap no benefits.[78] Simulations of the impact of the sectoral initiative leading to complete tariff elimination in certain sectors predict even higher overall GDP gains for India as well as significantly higher increases in imports. Returns to skilled labour and capital also increase while unskilled labour still gain nothing.[79] [Add in sentence on poverty impact of high returns to skilled labour vs unskilled labour?]

In both simulations, but particularly in the sectoral one, growth in textiles and garments contribute significantly to overall welfare gains. Output and employment are predicted to increase in both but since no increases in real wages are predicted then it seems that future growth in these sectors will hinge on a continuation of the current practice of technological intensification and labour exploitation. Imports are also set to increase dramatically in these sectors and while some are likely to fuel exports of these sectors, others will undoubtedly be competing for the domestic market , where most of the small scale cottage industries concentrate their production. As we have seen this is already happening in the case of silk handloom weavers in Varanasi and Agra's footwear makers and by the looks of it present NAMA proposals are only going to exacerbate the problems experienced by these small scale industries.

Indian Government’s position on NAMA

The Indian Government is aware of some of the threats posed to its traditional sectors of mass employment by the NAMA negotiations and as the Minster of Commerce and Industry recently put it India will resist: 'reduction in tariffs at an artificial pace to be forced upon [it] by the developed countries. He went on to emphasise that: 'the July Framework also provides for flexibility for developing countries either by not undertaking formula cuts on certain lines or keeping unbound a certain number of tariff lines. We intend to fully utilise these flexibilities in those sections of our industry where we have domestic sensitivities'. [80]

As part of its rejection of the ambitious approach promoted by developed WTO member India, along with Argentina and Brazil, have recently put forward a proposal for tariff reductions on the basis of a modified Swiss-type formula, which they feel satisfies the requirements of the July Framework and at the same time takes care of the concerns of developing countries.[81] TIM: developed countries reaction to the ABI proposal?

India clearly has offensive interests in securing further market access for its garment exports, and for other sectors such as services. Yet gains in these sectors must not be won on the back of significant losses in traditional sectors of mass employment such as textiles and leather. Without adequate protection and support millions of poor workers in such industries will lose their livelihoods.


Loss of public revenue
Tariff cuts on the basis of an ambitious formula as the one favoured by the EU and the US will not only entail considerable loss of policy space for India as well as increased hardship for key sectors of its manufacturing industry. It will also have serious implications for its public revenue as customs revenue still constitute 20 percent of gross tax revenue in India.[82] Gross tax revenue as a proportion of GDP has been declining since liberalisation and deep and rapid tariff cuts at this stage will only increase the pressure on public spending in India at a time when there is a desperate need for further spending on public services, infrastructure. Such public revenue will also be vital for supporting and developing traditional sectors of employment, such as handloom weavers and the small-scale leather sector.

Conclusion and recommendations

India’s progression towards trade liberalisation has been more successful than many other developing countries. Its gradualist and cautious approach has resulted in high economic growth rates, increases in exports and imports and positive growth rates in certain sectors. But this growth has been jobless growth, bringing with it increasing inequality and a deceleration in the decline of poverty rates. Only a small proportion of India’s manufacturing industries have performed well: traditional sectors of mass employment, such as textiles and leather, have seen declining growth rates, job losses and decreasing incomes. Millions of poor workers in traditional sectors of employment are facing increased hardship and poverty as a result of liberalisation policies and a lack of adequate protection and support.

By pushing a highly aggressive agenda in NAMA negotiations, developed country WTO members, are threatening the future path of industrialisation and development for many developing countries, including India. A significant increase in tariff bindings will close down the policy space of countries like India to determine and amend future tariff levels to protect vulnerable and emerging industries from damaging increases in imports. Furthermore, radical cuts in tariffs under the Swiss formula and the sectoral initiative will threaten the growth and sustainability of a number of industries in developing countries, such as the textiles and leather sectors India.

The current NAMA negotiating text – Annex B of the July 2004 Framework – goes against the spirit of the Doha Development Agenda which places development at its core. It contravenes the principle of ‘less than full reciprocity’ by prioritising the self-interests of developed countries and their corporations, over the needs of developing countries. In doing so, millions of the poorest and most vulnerable communities in India and other developing countries will be condemned to a future of increasing poverty, injustice and food insecurity.

Recommendations

ActionAid believes that the current, aggressive NAMA agenda will be harmful to industrial development and poverty reduction in developing countries, including India. ActionAid calls on developed and developing country members to:
halt the current NAMA negotiations
reject the current NAMA negotiating text of July 2004 and bring forward an alternative, pro-development and pro-poor text
carry out a full, independent assessment of the potential developmental and environmental impacts of the NAMA negotiations.

The following principles should guide any new NAMA negotiating text:

The interests of all developing countries – but particularly LDCs – should be at its core.
The principle of less than full reciprocity must be fully respected.
Proposals for effective and meaningful special and differential treatment for developing countries in all aspects of the negotiations must be front and centre of the negotiations.
Preference erosion and the use of anti-dumping and other measures to block developing country imports must be adequately addressed.
Assistance and capacity building should be forthcoming to enable developing countries to participate fully and effectively in the negotiations.
Developing countries must be able to retain the flexibility to choose which lines they bind (a new binding is itself a commitment that contributes to the predictability of the trading system), and at what level.
Developing countries must retain the flexibility to choose tariff reduction commitments (requiring line-by-line cuts according to a non-linear formula is not acceptable and contravenes the Doha Mandate).
LDCs should be exempt from all commitments and should have immediate duty free and quota free market access to developed country markets.
Developed countries must address tariff peaks, tariff escalation and non-tariff barriers.
Sectoral initiatives should be dropped – such initiatives, by their very nature, create a two-tier WTO membership and developing countries will face pressure to join these negotiations.






[1] Do we need to explain what bindings are?
[2] JHA, 2005
[3] Ibid
[4] Karan, 2005
[5] WTO, 1999, India quantitative restrictions on imports of agricultural, textile and industrial products, report of the panel and report of the appellate body, WT/DS90/R & WT/DS90/AB/R http://www.wto.org/english/tratop_e/dispu_e/distab_e.htm
[6] Ghosh (2005)
[7] Rajan R., (2005) speech by Economic Counsellor and Director of Research Department IMF: India a hub for globalisation? available at: http://www.imf.org/external/np/speeches/2005/010705.htm
[8] Ibid.
[9] Ghosh 2005
[10] Karan (2005)
[11] Karan 2005
[12] JHA 2005
[13] JHA 2005
[14] Karan 2005 : 25
[15] Ibid p17
[16] Jha (2005) op cit p66
[17] Jha 2005 op cit p66
[18] Karan 2005
[19] JHA 2005
[20] Ibid
[21] Interview with ActionAid, Delhi, September 2005
[22] Pandey 2004
[23] JHA 2005
[24] Ghosh 2005
[25] Ghosh 2005
[26] Rama (2003)
[27] World Bank 2004
[28] Ghosh 2005
[29] Ibid
[30] Ibid.
[31] Karan 2005
[32] Karan 2005
[33] Yadagiri Tadaka (2005) Globalisation and rural industries: a study of handlooms.Department for Political Sciences, Nizam College, Hyderabad; K. Srinivasulu Handloom weavers’ struggle for survival in Centre for Handloom Information and Communication (2005) Victims of globalisation: handloom weavers in India. Hyderabad, India
[34] Indrani Mazumdar (2005) Approach paper: vulnerabilities of women homebased workers. Centre for Women’s Development Studies, Delhi p13; Anita xxx and Lenin Raghuvanshi (2005) Banarasi saree weaving sector of Varanasi: a study of the working conditions of the unorganised workers of these sectors. Varanasi.
[35] Karan 2005
[36] An estimated 200 weavers committed suicide are reported to have died of starvation or resorted to suicide in the aftermath of trade liberalisation reforms in 1991. From ‘Liberalisation, textile policy and handloom sector’ in Globalisation: weaving the noose. Forum Against Globalisation. Date?
[37] Outlook India Looms of Doom, 27 September 2004
[38] For example, in 1996 the government reduced the number of items reserved for the exclusive production from handloom weaving from 22 to 11. This original policy had been introduced with some limited success in 1985. See Indrani Mazumdar (2005) Approach paper: vulnerabilities of women homebased workers. Centre for Women’s Development Studies, Delhi
[39] Indian Department of Commerce (2005): http://dgft.delhi.nic.in
[40] Tariff data from Anup's data. Not sure where it is from.
[41] Anita xxx and Lenin Raghuvanshi (2005) Banarasi saree weaving sector of Varanasi: a study of the working conditions of the unorganised workers of these sectors. Varanasi.
[42] Neelam Raj Great Fall of China and Brand Banarasi takes a beating in the Sunday Times of India, New Delhi, September 4, 2005
[43] Bharti, A (2005) op cit p11 and p13
[44] Government of India, Ministry of Commerce and Industry, Directorate General of Anti Dumping and Allied Duties, 18 May 2005 source
[45] ‘Struggle to survive: crises from the past haunt AP weavers’ by A. Krishnakumar in Frontline magazine, 10 March 1995
[46] http://dgftcom.nic.in/exim/2000/pn/pn01/pn5901.htm
[47] Estimates for 40-count yarn. Prices for 80 count yarn increased from 21,000 to 24,000 rupees per bale. The government lifted the restrictions requiring spinning mills and exporters to ensure 50 per cent of their yarn was compatible with handlooms (as ‘hank yarn’). See Mazumdar (2005) op cit p16.
[48] Average applied tariffs on machinery imports were 75.58 percent in 1991 and 20 percent in 2004-05. See JHA 2005 and Karan 2005
[49] From interview in Chirala with Mohan Rao, district president of RCKS Union, AP (?? September 2005)
[50] In 1989-90 cloth production stood at 11,632 million sq metres, provisional figures for 2004-05 place it at 37,524 million sq metres. From GOI (1999) op cit; and GOI (2004-05) op cit
[51] Explain policies from Mazumdar (2005) op cit p16
[52] Reference TUFS and other support schemes (Textile Turnaround)
[53] Frontline op cit
[54] Mazumdar (2005) op cit p14
[55] Mazumdar (2005) op cit p13
[56] Ibid p14
[57] JHA 2005
[58] JHA 2005 op cit p 71
[59] See policy of reservation on http://exim.indiamart.com/ssi-policies/policy-reservation.html
[60] Government of India, Ministry of Commerce and Industry at: http://commerce.nic.in/ad_pre02.htm
[61] Government of India, Department of Commerce website: : http://commerce.nic.in/ad_pre02.htm
[62] http://www.euroleather.com/india.htm
[63] CEC (2003) The Shree Jee fire that killed 44: report on the accident in the footwear manufacturing unit of Agra. New Delhi p9
[64] Ibid
[65] Bharti, A (2005) Leather Industry: a preliminary status report. ActionAid, India
[66] From interview with Mr Bharat Singh, corporator with Agra Municipal Corporation and President of Agra Joota Dastakaar Federation (Shoe artisan federation), 18 September 2005, Agra
[67] From interview with Mr Bharat Singh, corporator with Agra Municipal Corporation and President of Agra Joota Dastakaar Federation (shoe artisan federation), 18 September 2005, Agra
[68] Bharti, A (2005) op cit p7 and p8
[69] WTO Doha Ministerial Declaration, WT/MTN (01)/DEC/1, Nov.-14, 2001 Doha
[70] The EU/US/Canada proposal was clearly reflected in Annex B of the draft Cancun Ministerial Declaration in September 2004 and despite developing countries' rejection of the Annex at Cancun the exact same text is still on the table
[71] known as article 6 countries in Annex B of the July Framework
[72] According to Annex B Article 6 countries are exempt from tariff reductions but they are expected to increase their level of binding coverage from their current level of less than 35 percent to 100 percent.
[73] Refer to Bound and Tied for full analysis and examples of this.
[74] Karan 2005
[75] Ibid.
[76] The automobile sector has seen phenomenal growth in production and export since 2000 and is therefore viewed as a 'sunrise industry' in India and accorded tariff protection above 100 percent. Karan (2005)
[77] Third World Network 2005
[78] JHA 2005
[79] JHA 2005
[80] Address by Shri Kamal Nath, Minister of Commerce and Induatry, Government of India, at the UNCTAD stakeholder consultations on Non-Agricultural Market Access, New Delhi, June 28, 2005
[81] Inbid
[82] Karan 2005