impact of free trade on indian garment industry 1;

8/8/2019 Impact of Free Trade on Indian Garment Industry 1;

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Presented by-

Neha Kasat

Aakanksha Dugar

Sonal Malhotra


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y Free trade is a system of trade policy that allowstraders to act and or transact without interference

from government. According to the law of comparativeadvantage the policy permits trading partners mutualgains from trade of goods and services.


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y The theoretical questioning of protectionism

began in England and other parts of Europe

during the sixteenth century. Rationalizationswere made to advocate the policy of free trade.

Adam Smith, in the mid-eighteenth century,

proposed the thought that free trade was the

reason for the prosperity of most of thecivilizations.

y The emergence of the Dutch as an

economic power, after the dominance of Spain

declined, brought the free trade versus


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y Free trade policies have battledwith mercantilist, protectionist, isolationist, comm

unist, populist, and other policies over thecenturies.

y Wars have been fought over trade, such asthe Peloponnesian War between Athens andSparta, the Opium Wars between China andGreat Britain, and other colonial wars.

y The theory, known as import Substitutionindustrialization, is largely considered to beineffective for currently developing nations, have

determined that export-oriented


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y Under a free trade policy, prices are a reflectionof true supply and demand, and are the soledeterminant of

y Free trade differs from other forms of tradepolicy where the allocation of goods andservices among trading countries are determinedby artificial prices that may or may not reflect the

true nature of supply and demand.

y These artificial prices are the resultof protectionist trade policies, wherebygovernments intervene in the market through

price adjustments and supply restrictions.


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y Interventions

include subsidies, taxes and tariffs, non-tariff

barriers, such as

regulatory legislation and quotas, and even inter-government managed trade agreements such as

the North American Free Trade

Agreement (NAFTA) and Central America Free

Trade Agreement (CAFTA) (contrary to theirformal titles) and any governmental market

intervention resulting in artificial prices.

y Free trade agreements are a key element


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y Trade of goods without taxes (including tariffs) or

other trade barriers (e.g., quotas on imports or subsidies

for producers)

y

Trade in services without taxes or other trade barriersy The absence of "trade-distorting" policies (such

as taxes, subsidies, regulations, or laws) that give

some firms, households, or factors of production an

advantage over others

y Free access to markets

y Free access to market information

y Inability of firms to distort markets through government-

imposed monopoly or oligopoly power

y The free movement of labor between and within countries


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y Current free trade areas with more than threemember countries.

y Status of WTO negotiations has changed.

y

Most countries in the world are members ofthe World Trade Organization which limits in certainways but does not eliminate tariffs and other tradebarriers. Most countries are also members ofregional free trade areas which lower trade barriers

among participating countries.y Most countries prohibit foreign airlines

from sabotage , and foreign landing rights aregenerally restricted, but open skies agreements havebecome more common.

y Notable contemporary trade barriers include


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IMPACT OF

FREE TRADE-

SWOT

ANALYSIS


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A technique that enables a group or individual tomove from everyday problems and traditionalstrategies to a fresh perspective.


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S Strengths

W Weaknesses

O Opportunities

T Threats

Internal Environment

External Environment


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Any existing or potential resources or

capability within the organisation that

provides a competitive advantage in the

market.

Example:

Strong distribution network Intense Staff commitment and loyalty Increasing profit margin


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Any existing or potential force which could

serve as a barrier to maintaining or achieving a

competitive advantage in the market.

Example:

Lack of a clear company strategy Lack of training opportunities for using a newsoftware


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Any existing or potential force in the external

environment that, if properly leveraged, could

provide a competitive advantage.

Example:

Organization's geographic location

New technology


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Any existing or potential force in the external

environment that could erode a competitive

advantage.

Example:

A new competitor entrant A recession, rising interest rates, or tightcredit lines


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1. Take advantage of strengths and

opportunities.

2. Minimize weaknesses and eliminate

threats


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A Department/Business Unit

y When the team has not met its targets;

y Customer service can be better;

y A new business unit to pursue a new business;

y A new team leader is appointed; etc


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Job Holder

y

When supervisor has issues with work output;y Assigned to a new job;

y New financial year fresh targets;

y Job holder seeks to improve performance on thejob; etc.


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ASWOT analysis is usefulonlywhen action

plans and strategies are developed from theresults

PrepareAction Plans

Analyze Internal& External

Environment

Perform SWOTAnalysis and

Document

Step 1 Step 2 Step 3


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SWOT analysis will be useful if:

y You are thinking outside the box

y Availability of varied perspectives groupdiscussion

y Liberty to say your mind

y Willingness to break away from traditionalmethods

y Appetite for change


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y

No idea is stupid,everyones contributionis valid and important

You dont have toagree with anyone else

Build on the ideas of others-use initial ideas as a jumping

-off point for more ideas

Always ask questions Seek first to understandbefore being understood Have fun!!!Be open-minded

Everyone mustparticipate


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y Free Trade Areas (FTA) This is the

simplest kind of trading bloc and

incorporates a two or more countries that

have agreed to eliminate tariffs and other

barriers to trade amongst members, but

individually each country retains its owntariffs on imports from other non-member

countries. Perhaps the best example of a

FTA is the North American Free trade Area


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Some of the important free trade agreements

operating among the various nations of the world

are listed below:

y North American Free Trade Agreement (NAFTA):Mexico, Canada and the US.

y European Economic Area (EEA) : EU and non-

EU members of Europe

yASEAN Free Trade Area (AFTA) : Southeast

Asian nations

y Latin American Integration Association (ALADI) :

South American countries


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y In June 2007, the European Union (EU)s European

Commission and the Government of India started

negotiating a Free Trade Agreement (FTA). This new

generationF

TA covers many areas other than tradein goods viz. trade in services, investment,

intellectual property rights, competition policy,

government procurement etc. So far, five rounds of

the negotiations have been completed and a

proposed sixth round which was meant to take place

in New Delhi in the last week of November has just

been postponed. In addition to the EU, India is

currently negotiating with 20 other countries and

regions including Japan and the European Free


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y Massive reductions in tariff

y Import surge.

y Impact on livelihoods.

y Unequal impact of tariff reductions

y Automatic extension of MFN clause to EU.y Imposition of full reciprocity; undermining Indias special

and differential treatment

y Inclusion of Singapore Issues

y Expansive liberalization in services and investment

y TRIPS-plus intellectual property protectiony Creating advantages for MNCs through effective

competition

y Liberalizing government procurement

y Extreme and unwarranted secrecy in negotiation.


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yAs perICRA report India , all other Asian

economies have increased their market

size and share even during this period.

y The drawback over the last four years has

come down , in case of cotton yarn the

reduction in benefits is 43 % and in fabrics

the reduction is by as much as 19%y The short and medium term solution for

increasing exports of cotton textiles could

be achieved by restoring the


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y Additional allocation of RS 1,400 crore to clear the entire

backlog of Technology Upgradation Fund Scheme

(TUFS)

y All items of handicraft to be included under Vishesh

Krishi and gram Udyog, Yojana (VK&GUY).

y Across the border cut of 4% in the ad-valorem cenvat

rate till 31.3.2009.

y Interest subvention of 2% upto 31.3.2009 on pre and post

shipment export credit.

y Provision of additional funds for full refund of terminal

Excise Duty/Central Sales Tax.

y Enhanced back up guarantee to ECGC to cover for

export to difficult market / products.


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yLarge Industry 3% of GDP,27% ofForex earnings, 21% of

total employmentyVery large unorganized sector about 76% of total fabricsproduction

yMarket is very diverse, does

not lend itself to comparative


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yThe end of the MFA arrangement

yCompetitiveness ofIndian industry L

ow level of modernization Fragmented nature low capacities Infrastructure, Labour laws

yExports have risen by 10% but at thesame time Chinas exports have risenby more than 20%, even countries likePakistan and Bangladesh have done

better


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impact of free trade on indian garment industry 1;

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