Jan 10, 1986

GRADUAL PHASE-OUT OF MFA SEEN AS POSSIBLE COMPROMISE.

GENEVA, JANUARY 8 (IFDA/CHAKRAVARTHI RAGHAVAN)— A gradual phase-out of the Multifibre Arrangement (MFA), according to an agreed time-table, is seen as a likely compromise solution in a briefing paper of the north-south institute of Ottawa, Canada.

In the briefing paper institute researcher, Janet Mark, advocates that although the MFA is likely to be renewed on expiry in July, textiles and clothing trade should be put on the agenda of any new round of Multilateral Trade Negotiation in GATT.

The objective of including the issue on the new round, the paper adds, should be the "phasing out discriminatory restrictions and reinstituting normal GATT trade rules in this sector".

For over 30 years, the paper notes, textiles and clothing trade has remained relatively immune from the liberalisation trends in international trade that began after world war two.

The roots of the Multifibre Arrangement (MFA) could be traced in fact to the British and French protection to their domestic producers against Japanese competition in 1931-32 and the U.S. voluntary agreement with Japan in 1936.

And despite the formation of GATT and its principle of non-discrimination, as early as the 50's Canada, U.S. and Europe had negotiated "voluntary" export restraints with exporters from Japan, Hong Kong, India and Pakistan.

This was followed by the Short-term Textiles Agreement (STA) of 1961-62, the Long-term Textiles Agreement (LTA) lasting till 1970, and followed by the MFA and its successive extensions.

Over the past decade, the MFA and its bilateral accords, and protocols of extension, had "effectively deflected the arrangement away from its original aim of promoting liberalisation in trade and adjustment in importing countries".

The evolution of the MFA has demonstrated the difficulty of "managing" international trade in an area as dynamic as textiles.

"The continuation of the MFA will doubtless further erode confidence in the GATT on the part of the smaller developing countries. the MFA has removed the textiles and clothing trade from the rules-based international trading order and replaced it with a system shaped by power relations".

It is difficult to argue in the 1980’s that the textiles and clothing trade deserves special status and exemption from the GATT or that it warrants special protection, with its own system of regulations and constraints.

The integrity of international trading system is now at risk, and third world countries are reluctant to cooperate in moves towards freer trade, or even to participate in new GATT initiatives such as the new round of MTNS, unless there is a prior commitment to dismantle the MFA.

"A sign that the MFA will eventually be dismantled would send a signal to developing countries that GATT disciplines are going to be taken seriously".

"The system of quantitative restrictions embodied in the MFA, and the discrimination against the third world, has been shown to be a "costly, inefficient approach to protecting job".

"There is no doubt that the MFA has contributed to north-south economic tensions by discriminating against the industries on which many developing countries are most dependent for their economic development and foreign exchange earnings".

The northern conceptions of "market disruption from low-cost imports" are as misguided today as they were during the 1950's and early 1960's.

If nothing else, the MFA experience has shown that the GATT has failed to protect the developing countries from northern protectionism in the product areas most important to them.

"If the developing nations are going to participate in a new round of GATT trade negotiations in a manner commensurate with their growing importance in the international economy – indeed if they are going to be able to repay their massive foreign debts - then developed countries must stop breaking the rules they themselves fought so hard to establish".

And while some of the newly industrialising countries must answer northern demands for taking on full GATT responsibilities, and however legitimate this demand, "it should not be linked to the MFA negotiations as a bargaining tool".

"The merits of returning the principle of non-discrimination to the textiles and clothing trade stand on their own".

On the view that without an MFA, there would be "selective safeguards", the paper warns that adoption of selective safeguards would not only risk further possible irreparable damage to GATT’s credibility, but also would ensure even deeper north-south divisions in the international trading relations.

The costs of MFA have been economic and political.

It has decreased dynamism and efficiency of domestic economies both in importing and exporting countries, resulting in slower adjustment to changes in international markets and comparative advantage.

MFA has resulted in higher clothing costs for consumers in importing countries and an eventual. if not always immediate, loss of international sales in the export sectors.

The MFA has reduced the benefits of industrialisation and manufactured goods for the new smaller suppliers of textiles and clothing.

For the more established exporting countries, the MFA is a temptation to prolong investment in textiles and clothing because of the large protected market shares they hold.

The MFA has also resulted in a proliferation of perverse economic effects, inefficiencies and distortions within and between industries, as producers on both sides have become locked into uncompetitive production patterns.

The MFA's political costs stem from the violation of non-discriminatory trade rules in GATT, and the enabling of bilateral restraint agreements between exporting third world and east bloc countries, and the importing industrial countries.

These bilateral agreements have caused enormous north-south tensions and have fostered accusation of bad faith because they exploit the relative weakness of the third world.

"In a trading system composed of diverse countries having varying degrees of political and economic power, there is a great need for rules that treat all members equally".

The introduction of "selectivity" by way of the MFA has shown that small exporters will always be at a particular disadvantage when dealing with more powerful importing countries on a bilateral basis.

This lesson should not be lost on countries like Canada that benefit from an open multilateral trading system based on principles of non-discrimination, the briefing paper urges.

History has shown that temporary and selective protection usually becomes entrenched as a permanent measure when no mechanism exists strong enough or effective enough to counter vetted interests.

In the case of textiles and clothing, the result has been creation of a "semi-permanent and institutionalised system of protection" that remains a glaring exception to GATT rules.

The paper is also critical of the failures of the MFA’s monitoring and dispute settlement mechanisms.

Given the over-riding influence of the importing countries, the MFA’s provisions for surveillance and dispute settlement, embodied in the Textile Surveillance Body, have been insufficient to maintain the rule of law as intended.

"In the absence of independent authority and mutual respect, national interests and raw bargaining power have prevailed. As in other areas of north-south relations it has been the interests of powerful groups in the developed countries that most often have been served".

This weakness should be heeded in designing similar mechanisms within other areas of GATT jurisdiction.