Multi-Fiber Agreement Essay

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During the 1960s, the Kennedy administration implemented  a quota  system to protect  domestic  cotton producers. In 1962 the Long Term Agreement Regarding International Trade in Cotton Textiles (LTA), a set of bilateral quota agreements,  was signed under  the General  Agreement  on  Tariffs and  Trade  (GATT). This agreement  was renegotiated  several times until finally in 1974 the Multi-Fiber Agreement (MFA) was signed. The MFA was adopted within GATT to essentially protect the industrial nations’ textile and clothing industries from the growing competition of developing countries  that  were able to produce  products more cheaply due to lower labor costs. The MFA covered products  made of cotton, synthetic fibers, wool, silk, and ramie. Under  their  jurisdiction  all exports were subjected  “to quotas  when total  exports  from exporting countries  reach[ed] a certain share of total imports in the country of destination.”

Initial signators of the textile-and-clothing-protected  quotas  in  the  1950s and  1960s were  Japan, Hong  Kong, China,  India,  and  Pakistan;  however, there  was a growth  rate on the quotas  imposed  on the proceeding arrangements so the European Union (EU), Austria,  Canada,  Finland,  Norway,  and  the United States applied the quota almost exclusively to developing-country  exports.  Japan and  Switzerland were two other signatories that did not impose MFA quotas but instead viewed their act as merely a signal that, if they needed to, they would apply the quota.

The  MFA  was  a  complicated  system  of  quotas that  acted as an incentive “to large name brands  to move  their  production units  to  multiple  countries and to the developing countries  to open their countries to investors.” Under the MFA’s quotas, and with encouragement of international financial institutions, dozens of poor countries developed apparel industries that created millions of jobs and guaranteed  sharing of world clothing.

Significance And Impact

The MFA’s original intention of the quotas was to offer protection to the declining textile industries of developing countries. However, with quotas effectively guaranteeing market access, textile manufacturing industries began showing up in countries like Jamaica and Sri Lanka, which before had no significant textile industries. The reason for these textile manufactures in unlikely countries was because the MFA guaranteed market access for them along with neoliberal policies imposed  on them  by international institutions  such as the International Monetary  Fund (IMF). In Keith Yearman’s article he provides this example of how the MFA created textile access for other countries:

The elimination  of agricultural  price-stabilization programs and the removal of tariffs and quotas on food imports  in many countries  over the past 20 years has forced countless farmers off their lands and into the urban economy, where a formal garment  factory job, however low-paid and tedious, can look a lot better than eking out a living in the informal sector. Under  the structural  adjustment programs many nations adopted as a condition  of refinancing their foreign loans, governments privatized public-sector  enterprises,  often resulting  in mass layoffs and further softening labor markets.

In addition,  the  U.S. textile and  apparel  companies feared an increase in competition from abroad, but by implementing  the quotas established by the MFA, it in fact turned out to benefit larger nations such as the United States with unskilled workforces and acted like an affirmative action program for poorer nations.

Phase-Out

From 1992 to 1994, GATT met at the Uruguay Round, and  on January 1, 1995, MFA was replaced  by the World  Trade  Organization’s (WTO)  Agreement  on Textiles and Clothing  (ATC). According to Junyuan Tan, it was originally meant for a transitory  phase  between  the  MFA and  the  full integration of the textile and clothing industry into the multilateral  trading  system;  Canada, the EU, Norway and the US carried their MFA restrictions into the AFC.

This new agreement  inaugurated  a 10-year removal of MFA’s quota, preference system, and full adoption of textile and clothing products into GATT rules. The transition  of ATC is best seen through  two processes incorporated in three phases: first, as Tan writes, the “integration of products into the GATT and out of the ATC,” and second  to “increase in the quota  growth rates that remain under the ATC, allowing developing countries to export more goods under restrictions.”

At the beginning of each phase, importing  countries  had  to  integrate  a specific minimum  portion of their textiles and apparel imports.  The first phase began on January 1, 1995, with a 16 percent  integration, followed in 1998 with a specified minimum  rate of 17 percent and an increase of the quota growth rate to 25 percent higher than the previous stage rate. The final phase was in 2002 with targets of 18 percent and 27 percent quota growth rate. By January 1, 2005, the Multi-Fiber Agreement  officially ended and trade in textiles and clothing was, according to the Interfaith U.S. Trade Justice Campaign, “completely liberalized leaving the future of the industry in less competitive countries in a free fall.”

Post-MFA Period

Now, in the period known as the post-MFA period, only members  of the  WTO  can  benefit  from  the textile and apparel quotas that the WTO has implemented.   Nonmember  countries   such  as  Vietnam and the former Soviet republics are limited by bilateral quotas  or other  arrangements with the United States and other  countries.  Ironically, the countries that pushed to end the quotas are now suffering the most.  Countries  such as Indonesia,  Pakistan, Bangladesh, Colombia, and others  that  were economically heavy on textile exports are now receiving less access than  anticipated  to  the  U.S. and  European markets for their exports.

The greatest danger, however, in the removal of the MFA’s quota system has been with the shifting of textile manufacturing power to China. As MFA’s initial purpose was to protect  textile manufacturing in rich countries  from growing Third World  exports, many of these countries  thought  that with this they would gain even more market  share once the MFA’s quota was dropped. However, during 1994, China was not a member of the WTO or GATT, thus it was not allocated a quota. In 2001 China joined the WTO and has since dominated  the world textile industry  so much that  instead  of opportunity in the  industry  shifting from rich nations to poor ones, the elimination of the quota  has shifted production out of the developing countries  and into just a few: China and India. Now countries are inundated  with clothing made in China and India, while up to 30 million garment  workers worldwide are unemployed.

Also, during this post-MFA period, there has been speculation  of lower prices for the consumer; however, this  may also lead potentially  to  a long-term negative impact on the economy. As stated in a document about the MFA,

The quota system in the past had restricted competition and had allowed less competitive  exporters to export more than their competitive share. These less competitive  exporters  will lose their  market share. Export countries  previously limited by the MFA will gain from increased market access. However, exporting countries will face lower prices as a result of increased competition,  although production and export will be rationalized, with a move to more efficient sectors.

In addition, according to trade observers:

with a more  economically interdependent world the impact is shortsighted  to ignore the ill effects on developing nations when the spoils of an open market system go to the most powerful.

Bibliography: 

  1. Marco Chi-Keung, Chester Kin-Man, and Zhiming Zhang, “MFA Fibers and Cotton Imported  to the United  States From China and Hong Kong: A Structural Change  Analysis,” Journal  of the Textile  Institute  (v.99/1, 2008);
  2. Interfaith  S. Trade  Justice Campaign,  “Textiles Trade After the Multi-Fiber Agreement,” 2003, www.trade justiceusa.org (cited March 2009);
  3. Jordanian National Competitiveness Team,  “Impact  Assessment  of  Lifting the Multi-fiber Agreement on the Qualified Industrial Zones,” www.competitiveness.gov.jo  (cited  March  2009);
  4. Adam Nichols, “End of Textile Quotas May Leave Poorer Countries  Hanging by a Thread,” The Washington Diplomat, www.washdiplomat.com (cited March 2009);
  5. Junyuan Tan, “The Liberalization of Trade in Textiles and Clothing: China’s Impact  on  the  ASEAN Economies,”  2005, www.econ.stanford.edu  (cited March 2009);
  6. Keith Yearman and Amy Gluckman, “Falling Off a Cliff,” Dollars & Sense: The Magazine of Economic Justice,  dollarsandsense.org (cited March 2009).

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