Mar 6, 1991
SOUTH AND NORTH GAIN ANNUAL $ 50 BILLION BY MFA ABOLITION.
GENEVA, 4 MARCH (BY CHAKRAVARTHI RAGHAVAN) – The abolition of the Multifibre Arrangement (MFA) and the bilateral quotas for textiles and clothing exports under it, along with the concomitant measures in exporting countries, would result in welfare gains in both importing and exporting countries to the tune of over $50 billion a year, a new study shows.The study suggests that there is a welfare gain of over $25 billion for the Third World exporting countries and an equivalent amount in the three major importing markets (U.S., EC and Canada). The estimations of gains for the Third World exporting countries, due to removal of MFA quotas, in the study is eight times that estimated in previous studies and, except perhaps for two or three, benefit all Third World countries. The dramatic increase in gains, not caught in previous studies, is attributable to the fact that the new study takes into account also the welfare gains of ending the internal quota allocation schemes in the exporting countries. Earlier studies had put a three billion dollar value on the gains and, while viewing the abolition as of benefit to the Third World on balance, had also suggested there would be some losers among the exporters - eleven of the 34 exporting countries. The new study under the UNCTAD Uruguay Round technical assistance project for the Third World participants in the Round was completed in November 1990 and has now become available. The MFA enables importing countries to negotiate or. impose on individual exporting countries overall country quotas for exports in respect of various textile and clothing product categories. The exporting country administers these quotas and has to make sure that the quotas for the country as a whole are not exceeded. This is done in each of the exporting countries by allocating the overall country/product quotas to individual exporters according to various criteria that each country determines. Countries lose as a result of foregone exports but gain some as a result of the acquired rents from the export quotas. The earlier studies have estimated the effects on Third World exporters taking into account these gains and losses, but have ignored the further effects on exporting countries by their own quota allocation procedures. In economic and welfare terms the ways the quotas are allocated, used and/or traded or transferred has its own effects and generate inefficiencies. Ignoring these effects from any cost-benefit analysis of the MFA abolition, the new study by Irene Trela and John Whalley says, "is much like Hamlet without the prince". The various internal quota allocation schemes, the study notes, have two important additional effects: One is the "lock in" effect of quota allocations, which largely reallocate quotas to, established producers, making it difficult for new producers to enter export markets. The second is the further effect of "rent dissipation" - the dissipation of the quota rents under the internal quota allocation schemes, which apply various criteria before allocating quotas. The effect of this second is more difficult to estimate due to scarcity of data, but the authors have attempted through some assumptions of how these might operate. But over a range of variations of the underlying parameters associated with the lock-in and dissipation effects, the study says that the currently estimated gains to the Third World countries would need to be revised upwards by a factor of eight. Under various previous studies several of the exporting countries were seen as losers by the abolition of quotas and having to compete in the market. These countries, with estimated losses within brackets in millions of dollars, were: Bulgaria (one), Dominican Republic (20), Haiti (11), Hong Kong (1058), India (73), Macao (89), Pakistan (36), Singapore (86), Thailand (48) and Yugoslavia (57). Under the extended model of taking account of effects of abolition of internal quota allocation schemes, the losers are Costa Rica (6), Dominican Republic (15), and Panama (3). Everyone else gains. In the importing markets, as against a original welfare gain of $15 billion, the U.S. gain (when the results of internal quota allocation in exporting countries is taken into account) is $20 billion, the EC $5.5 billion as against an earlier $3.5 and Canada $712 million as against an earlier $372 million. The overall welfare gains are more if along with the abolition of the MFA quotas and the internal quota allocation schemes, existing very high protective tariffs also are removed. The net annual gain to the Third world exporting countries is estimated at $31 billion and nearly $22 billion for the importing markets. Some of the gains of the abolition of internal quota schemes could be captured even now by the Third World countries by abolishing the schemes and auctioning the quotas, the study agrees. But this would enable the Third World exporting countries to capture only a portion of the welfare gains of abolition of internal quota schemes, according to the study. This is because the value of the MFA quota permits within the Third World tends to rise with the entry of new producers under the removal of the locking and rent dissipation effects. But a portion of the gains would still not be captured. The only way to capture all the welfare gains and benefits would be for the removal of the MFA itself.