NEGOTIATIONS FOR MFA-4 RESUME.

Apr 4, 1986

NEGOTIATIONS FOR MFA-4 RESUME.

GENEVE, APRIL 3 (IFDA/CHAKRAVARTHI RAGHAVAN) - Negotiations over the future of the Multifibre Arrangements (MFA) resumed here Thursday at a two-day meeting of the GATT Textiles Committee, chaired by the GATT Director-General, Arthur Dunkel.

The current MFA-3 is due to expire on July 31, 1986.

Negotiations were formally kicked off in August 1985, but so far there has been no dialogue, leave aside negotiations.

The third world exporting countries, members of the MFA, have been stating and re-stating their positions, but the industrial importing countries, and specially the U.S.A. and the EEC (the two major importing markets) have not specified their stands.

But they are expected to present their formal positions Thursday.

Recently, statements in Washington and Brussels make clear that both want the MFA to continue, along with bilateral accords with individual third world exporting countries to restrict imports from these sources.

And while the EEC has been talking of some growth in imports, and liberalisation of trade and quota restrictions in selected product lines and from some of the third world countries, the U.S. has been talking about the need for little or no growth, and even freeze, in imports from big and medium suppliers from third world.

The third world exporting countries, who have been co-ordinating their stands and tactics for the negotiations, most recently at their Beijing Meeting in march, appear to be determined to oppose a renewal of MFA with more restrictive provisions or one that does not lead to the eventual phase-out.

Some of the big and medium suppliers are even talking of refusing to sign any new MFA unless it really provides for liberalisation and eventual phase-out.

The MFA negotiations are also seen as a test of the claims of the U.S. and other industrial countries that a new GATT round (which they want to launch) would lead to liberalisation of world trade and more access to third world countries in industrial markets.

The U.S. stance for a more restrictive MFA-4 comes, even as data available show that in value terms, import penetration by the third world exporting countries in the U.S. and EEC markets have been only about ten percent of apparent consumption of textiles and clothing.

Also, between 1982 and 1985, industry in both U.S. and EEC appear to have increased their profits and investments.

A new complicating factor in the negotiations for the MFA is the entry of Spain and Portugal into the EEC.

The entire case, albeit running in face of economic theory, for discriminatory import restrictions against third world textile and clothing exporting countries has been on the basis of their so-called "low-cost" production and supplies that compete with higher-cost production of the industry in the industrial countries.

However, with the expansion of the EEC, Spain and Portugal now join Greece and Italy (within the EEC) as competitive "low-cost" suppliers in several product lines covered by the MFA.

According to an analysis done by the International Textiles and Clothing Bureau (the third world group of MFA members), in as many as 30 individual product items, most of them the so-called "sensitive" categories, unit values of imports from Italy, Greece, Portugal or Spain, are less than for same product categories from any of the third world suppliers.

These involve such variegated items as cotton or manmade fibre yarn, woollen fabrics of manmade fibres, T shirts and knitted shirts, jerseys and pullovers, trousers, men shirts, blouses, bed and table linen, socks and stockings, pants and briefs.

The study on "developments in industry, technology and trade during MFA-III", prepared by the Bureau (and obtained by IFDA), also show that in the U.S. consumer expenditure on clothing showed a strong expansion in 1983 and 1984, and continued to expand in 1985 though less rapidly than in previous two years.

Despite the image projected in the media of an U.S. industry battered by imports, in value terms about 85 percent of the U.S. consumption of textiles and clothing are met from domestic production.

As a result of strong profits, investments in the U.S. textile industry increased by six percent in 1983 and 24 percent in 1984 – one of the most rapid rates recorded in post-war period.

These high investment rates have been recorded during a period of high interest rates and high value of the U.S. dollar.

The high investments are attributable to:

--Favourable prospects of further rise in domestic consumption, for both traditional and new products.

--Efforts to maintain competitiveness, especially in more labour-intensive products, through increased use of labour-saving machinery (microelectronics, robotics, etc.).

--Acquisition of new equipment to permit faster response to fashion changes, and

--Expectations that restrictions on imports from the third world continue, if not increase.

The strong rise of investment in labour-saving machinery has also been reflected in important gains in productivity, and decline or stabilisation in employment.

Due to the high value of the dollar, U.S. exports declined, and imports showed a strong upward trend in 1983 and the first three-quarters of 1984, but fell sharply in the last quarter of 1984.

In 1985, imports into U.S. of MFA products increased by eight percent over 1984.

However, in 1985 discriminatory restrictions against imports into the U.S. from third worlds supplier increased, widening the gap between growth in imports from restrained and unrestrained sources.

As a result, imports in 1985 from third world supplier rose by four percent as against a 24 percent increase from West European suppliers.

The share of the third world MFA suppliers in total U.S. imports of MFA textiles and clothing declined from 61 percent in 1982 to 56.4 percent in 1985, while that from West Europe increased from nine percent to 15.3 percent.

In value terms, total imports into the USA in 1984 were 15 percent of apparent consumption, with third world suppliers accounting for roughly ten percent.

In the EEC, where recovery was slower and behind the U.S., between 1982 and 1983 consumer expenditure on textiles and clothing rose only one percent, but accelerated in 1985.

Production recovered significantly since mid-1983, with production in third quarter of 1985 being ten percent higher than that in third quarter of 1983.

Unlike in the U.S., where the rise in production was due to domestic consumption, in the EEC it was due to strong expansion of exports.

As in the U.S., in the EEC too, there has been a rise in profits and investments in the industry over the period.

In the EEC as a whole, investments in the group of processing industries (of which textiles and clothing is a part) increased by three percent in 1983, and by 12 percent each in 1984 and 1985.

Within the EEC, between 1982 and 1984, investments in the textiles and clothing industry increased by 40 percent in Italy, by 32 percent in France, and 25 percent in West Germany.

The main reason for the rise in investments has been efforts to maintain or regain competitivity in the labour-intensive product lines through use of labour-saving equipment, and the expectation that the domestic markets would continue to be protected.

While imports into the EEC from third world MFA suppliers rose faster than production during 1982-85, in value terms the share of imports from the third world in apparent consumption in EEC was only about ten percent in 1984, or of the same order of magnitude as in the U.S.

While the EEC is still a net importer of textiles and clothing (taken together), the growth of exports (in tonnage) of seven percent in 1983 and 11 percent in 1984 exceeded that of imports.

The vigorous rise in EEC exports are attributable to improved competitivity due to depreciation of EEC currencies against the U.S. dollar, the "double preference" (no tariffs and no quantitative restrictions) enjoyed by the EEC on the European market, and the intensification of discriminatory provisions against third world suppliers on the U.S. markets.

Viewed in terms of international specialisation based on comparative advantage, in trade exchanges between the third world countries and the industrial world, apart from primary products, textiles and clothing are the only broad categories for which third world suppliers have an export surplus in their trade with industrial countries.

The export surplus of third world in textiles in relatively small at 2.6 billion dollars in 1984, while in clothing it reached nearly 18 billion dollars.

But in other categories of manufactures, the industrial countries had an export surplus in trade with the third world.

In 1984, third world countries had been forced to reduce their imports of machinery and chemicals for balance of payments reasons, but still the export surpluses of the industrial world in these two categories were respectively 39 billion and 14 billion.

The debt service payments, amortisation plus interest, of the third world MFA suppliers in 1984 amounted to approximately 75 billion dollars.

Though no data are yet available for 1985 as a whole, all indications are that the trade balances of third world MFA suppliers with the industrial countries worsened significantly in 1985, due to the levelling off or decline in shipments of textiles and clothing, as well as the steep fall in prices of oil and other primary products.