The Textile and Clothing Agreements

Abstract

Demand for textiles and clothing (T&C) has been rising quickly in the developed world (the European Union and United States), and it is forecast to grow further in the future. At the same time, especially during the past decade or so, low-income developing countries have greatly increased their T&C production, allowing them to develop their T&C industry and utilize their vast resources of low-skilled labor. For 30 years the world's richest countries have imposed stringent quotas on imports of T&C. From 1974 to 1995, the Multi-Fiber Arrangement (MFA) defined the regulations for tariffs and quotas1 on all T&C trade categories. The Uruguay Round (UR) Agreement on Textiles and Clothing (ATC) stipulated that import quotas be eliminated in a four-stage process between 1995 and 2005. Over that period T&C quotas were gradually reduced, and on January 1, 2005, all T&C categories were brought under the regular World Trade Organization (WTO) rules that apply to other manufactured goods. It was certain that after the lifting of T&C quotas there would be winners and losers. Although Canada, the European Union (EU), and the United States have implemented safeguard measures2 as permitted by the general WTO agreement, imports were projected to rise and prices to fall. The T&C producers in these countries would face serious competition and their market shares would shrink. It was also likely that China would capture a large share of the market, leaving smaller developing countries with very little of the market. Aside from these concerns, quotas present many other policy issues in bilateral and multilateral trade. Quotas undermine the competitive advantage of developing countries and restrict them to producing at lower levels than they would have under free trade. Quotas also impose additional costs and distortions owing to the monitoring needed to keep track of country of origin, as well as the rent seeking and rerouting that occur in an attempt to bypass the provisions. Your assignment is to prepare recommendations for a new international agreement for trade in textiles and clothing that would be acceptable to Bangladesh, China, the EU, Honduras, and the United States. Discuss the policy issues with regard to support for and resistance to eliminating the quotas. Justify your recommendations, and assess the consequences for stakeholder groups.