Multi-Fiber Agreement Essay ⋆ Business Essay Examples ⋆ EssayEmpire

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:

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);
Interfaith S. Trade Justice Campaign, “Textiles Trade After the Multi-Fiber Agreement,” 2003, www.trade justiceusa.org (cited March 2009);
Jordanian National Competitiveness Team, “Impact Assessment of Lifting the Multi-fiber Agreement on the Qualified Industrial Zones,” www.competitiveness.gov.jo (cited March 2009);
Adam Nichols, “End of Textile Quotas May Leave Poorer Countries Hanging by a Thread,” The Washington Diplomat, www.washdiplomat.com (cited March 2009);
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);
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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