The impact of change in trade regime on Lithuanian textile and apparel industry

Two recent events had a tangible impact on Lithuanian textile and apparel industry. First of them was Lithuanian EU membership and entrance to the single market, the second one being the final abolition of quantitative restrictions in the sector from the beginning of 2005. The outcomes of the first event are less significant as tariffs in trade with the EU were removed in line with the bilateral free trade agreement concluded long before Lithuanian EU membership. The EU membership resulted in more changes in the trade regime with the third countries. Before membership Lithuania applied only a few restrictions while the EU common trade policy envisaged the application of both quantitative restrictions and tariffs. A more tangible impact on Lithuanian textile and apparel industry had the abolition of quotas which affected to a less extent Lithuanian market and to a larger extent the EU market where 90% of Lithuanian sector exports are supplied. The purpose of the article was to explore the situation in the sector after these two major events, to identify the problems and to disclose the prospects for the development of the sector in the light of new challenges and to look for the possibilities to increase and diversify the sector's exports. Lithuania is one of the EU countries most specialized in the textile and apparel sector. In 2004, the sector produced 13.8% of manufacturing value added and exported 11.6% of the total Lithuanian exports. 63% of the sector's exports are apparel exports. 80% of the sector's output is assigned for export. The abolition of quantitative restrictions and application of low tariffs for textile and apparel products for imports from third countries have caused severe problems in competition with imports from China and other countries of cheap labour. The textile subsector was growing steadily until 2003, however, since January 2005, when quotas were abolished, textile outputs are shrinking..