Ethiopia has entered into an agreement with the United Nations Industrial Development Organisation (UNIDO) to revitalise its textile and garment industry with a significant infusion of funding over the next five years. 

As per the agreement between the two parties, Ethiopia will receive $28 million, primarily from the Global Environmental Facility (GEF), with UNIDO contributing $3 million towards the initiative.

Spearheaded by the Ethiopian Textile Industries Development Institute, the project aims to enhance circularity within the industry by implementing more efficient technologies and promoting recycling programs to minimise both physical and financial waste. Alongside technological advancements, regulatory improvements and institutional capacity building will be key components of the endeavor.

Headquartered in Vienna, Austria, UNIDO has implemented over 300 projects across various sectors in Ethiopia since 1968. Its focus on technical support and capacity building has been instrumental in fostering growth in Ethiopia's textile, leather, and agro-processing industries.

Ethiopia boasts a rich history of cotton production and textile manufacturing, with a considerable number of factories ranging from large-scale to small-scale enterprises. In recent years, international brands like Walmart, H&M, and Jiang Lianfa Textile have invested significantly in the country, with total sector investment surpassing $1.2 billion.

Buoyed by the country’s vast livestock population, particularly cattle, the leather industry presents immense potential for growth in Ethiopia. Despite challenges such as outdated equipment and supply chain inefficiencies, the country remains a key player in leather production, churning out millions of square meters annually.

It has introduced several initiatives initiatives such as the establishment of leather industry clusters and the strengthening of fashion design capabilities to address challenges facing the industry. The recent agreement with UNIDO signals a renewed commitment to provide much-needed support to propel its leather sector forward.

The influx of Chinese fabrics into India has become a contentious issue, raising concerns about unfair competition, job losses, and the fate of the domestic textile industry. This influx raises concerns about legality and the future of domestic manufacturers. The issue is fairly complex.

Policy tailwinds for Chinese fabrics

One major loophole is the Free Trade Agreements (FTAs). India's FTAs with ASEAN countries, including Vietnam, are indirectly benefiting China. Fabric exported from China to these countries can be re-exported to India duty-free, circumventing higher tariffs.

Duty structures are another bane. Import duties on finished fabrics are sometimes lower than on raw materials or yarn, incentivizing import of finished goods instead of boosting domestic production. The Indian government levies lower import duties on finished fabrics (20 per cent) compared to raw materials like yarn at 30 per cent). This incentivizes garment manufacturers to import fabrics instead of making them locally. Moreover, China's government provides significant subsidies and tax breaks to its textile industry, making production costs lower.

Trade Data Review shows a significant increase in fabric imports from China. In 2022-23 (April-Dec), India imported $3.7 billion worth of fabrics from China, a 40 per cent increase over the previous year. As per the Directorate General of Commercial Intelligence and Statistics (DGCI&S), India imported $6.4 billion worth of fabrics from China in 2022-23, primarily synthetic and knitted fabrics. And these are the official figures. 

However, under-invoicing and misclassification is an issue. Experts allege under-invoicing of Chinese fabrics to evade higher duties, making them artificially cheaper. The All India Knitters' Association estimates that 30-40 per cent of imports are undervalued. Misclassification of fabrics as finished garments to attract lower duties is also suspected. Experts estimate that under-invoicing and smuggling could inflate the actual import volume by 20-30 per cent. This illegal activity distorts competition and deprives the government of revenue. 

Then there is third-party routing. Fabrics routed through countries like Bangladesh, with whom India has duty-free trade agreements, raise concerns about circumventing import regulations. Estimates suggest that 10-15 per cent of fabric imports from Bangladesh originate in China, highlighting the scale of this practice.

Polyester and other synthetic fabrics dominate the import scene, accounting for over 70 per cent of the total volume. These are cheaper to produce in China due to economies of scale. Specialty fabrics like high-end silk and technical textiles are also imported, catering to specific market segments.

Impact on Indian industry

Rising imports through backdoor has affected Indian industry. The textile industry is a major job creator in India, with over 45 million workers. Rising imports are linked to job losses, particularly in textile hubs like Ludhiana, Surat, and Erode. Many small and medium-sized textile units are struggling to survive due to unfair competition from cheaper imports, leading to potential closures and loss of livelihoods. Industry associations claim Chinese fabrics are often sold at prices lower than the cost of raw materials in India, raising concerns about unfair competition. This under-pricing puts downward pressure on domestic fabric prices, squeezing profit margins of Indian manufacturers. Uncertainty and lower profitability discourage fresh investments in the domestic textile industry.

Government action and industry response

To curb this malpractice, the Indian government has initiated anti-dumping investigations against specific Chinese fabric imports. Also, there are proposals to increase import duties on certain fabrics. “The government needs to take immediate action to protect our domestic textile industry from unfair competition," says Sanjay Jain, Chairman, CITI. 

Meanwhile, textile industry associations are actively lobbying the government for protectionist measures and promoting domestic production through initiatives like skill development and modernization. They are also asking for stricter enforcement of import regulations and a level playing field for domestic manufacturers.

Indeed, the issue of Chinese fabric imports into India is complex and multifaceted. While trade agreements and policy structures have inadvertently facilitated these imports, the alleged under-invoicing and illegal practices raise concerns about a level playing field. The impact on the Indian textile industry is significant, potentially leading to job losses, factory closures, and economic hardship. Addressing these concerns requires a multi-pronged approach, including stricter enforcement of trade rules, revisions in tariff structures, and support for domestic production. Only then can the Indian textile industry navigate this complex trade landscape and thrive in the global market.