US restrictions on some textile imports from Xinjiang in China could augur well for the Indian textile exporters: ICRA

While there were speculations of a more broad-based ban on the products originating from the region, the restrictions have been limited to a few entities for now.

Sep 16, 2020 11:09 IST India Infoline News Service

In a recent announcement on September 14, 2020, the US has imposed restrictions on the import of certain products originating from the Xinjiang Autonomous Region in China, citing concerns on illegal and inhumane forced labour in the region. ICRA expects the development to benefit domestic textile exporters. While there were speculations of a more broad-based ban on the products originating from the region, the restrictions have been limited to a few entities for now. Besides banning imports of other product categories, including hair products and computer parts, the ban includes restrictions on some entities from the region involved in manufacturing apparels and producing and processing cotton. Xinjiang is a major cotton-producing belt, which accounts for an estimated 80-85% of China’s cotton output.

Commenting on this, Jayanta Roy, Senior VP and Group Head, ICRA Ratings, said, “While the immediate impact, in terms of the market catered to by the identified entities, is not quantifiable, this development could have major repercussions for the global textile trade. With China being the leading apparel exporter, accounting for more than 35% of the global trade and more than three-fourths of China’s cotton originating from the Xinjiang region, any extension of the ban to a wider base in China could trigger a material shift in global apparel trade in coming years.”

Amid concerns on origination of the coronavirus from China, there have already been reports of several international buyers looking at diversifying their sourcing base across countries.

As per ICRA’s channel checks, several major apparel exporters from India have either already started receiving increased orders or are in active discussions with large international buyers, looking at increasing their sourcing from India. The shift, which was previously expected to take place gradually over the medium term, could be expedited in the light of this recent development.

“While over the past few years, Vietnam and Bangladesh have been the key beneficiaries for a shift away from China, India also stands to gain from any such market opportunity which may arise, given its strong presence in the cotton-based apparels,” Roy added.

Widening of the scope of the ban could, however, be practically challenging as the existing systems are not adequate to track the origin of the raw material. Accordingly, cotton originating in the Xinjiang region could end up as yarn or fabric in another region/ country, which could be processed further to manufacture apparels. Further, there could be likely retaliatory actions by China, as seen over the past couple of years amid the ongoing US-China trade war, which could prevent widening of the scope of the ban. This is more so considering the significant dependence of the US on China for its cotton exports. This could also have implications on the progress on the trade deal, which was executed in January 2020, to settle the ongoing trade war.

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