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The fierce competition in the global textiles and clothing (T&C) market unleashed by the expiry of the World Trade Organization’s (WTO) Agreement on Textiles and Clothing (ATC) on 31 December 2004 has adversely affected Nepal’s ready-made garment (RMG) industry, which ranks among the two top export products of the country. While Nepal’s RMG exports started declining after 2001 due to the combined effects of domestic conflict, the adverse international climate following the 9/11 attacks and the global abolition of T&C quotas covering major Nepalese RMG exports, the ATC expiry almost sounded the death knell for the country’s RMG industry. RMG export earnings declined by a compound annual rate of 14.2 per cent between 2000 and 2007, and by 21.2 per cent from 2005 to 2007. In the United States of America market, earnings declined by 18.5 per cent and 28.4 per cent, respectively, during the two periods.

By Anil Belbase and Paras Kharel
The fierce competition in the global textiles and clothing (T&C) market unleashed by the expiry of the World Trade Organization’s (WTO) Agreement on Textiles and Clothing (ATC) on 31 December 2004 has adversely affected Nepal’s ready-made garment (RMG) industry, which ranks among the two top export products of the country. While Nepal’s RMG exports started declining after 2001 due to the combined effects of domestic conflict, the adverse international climate following the 9/11 attacks and the global abolition of T&C quotas covering major Nepalese RMG exports, the ATC expiry
almost sounded the death knell for the country’s RMG industry. RMG export earnings declined by a compound annual rate of 14.2 per cent between 2000 and 2007, and by 21.2 percent from 2005 to 2007. In the United States of America market, earnings declined by 18.5 per cent and 28.4 per cent, respectively, during the two periods. A revealed comparative advantage analysis shows that Nepal’s RMG sector under Chapters 61 and 62 of the Harmonized Commodities Description and Coding System (HS) as well as the top 12 exports (for 2006) at the HS six-digit level continue to possess a comparative advantage in the post-ATC period in the United States market. However, the RMG sector as a whole as well as HS 61 and HS 62 products are under threat from increased competition in the United States market because the revealed comparative advantage (RCA) indices for the exports of the products have declined. The top three product lines – HS 620342, HS 620462 and HS 611020, representing more than 53 per cent of total RMG exports by Nepal – are also in the threatened category, as are the tenth- and eleventh-ranking product lines – HS 621142 and HS 610510. These results indicate that the ATC expiry has led to a deterioration in Nepal’s competitiveness position in the United States market In contrast, HS 620630, 620452, 620520, 620920, 620292, 620640 and 611120 (ranking fourth to ninth, and
twelfth, respectively, in Nepal’s total RMG exports) appear to have remained competitively positioned even after the ATC expiry.

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