Jul 5, 1984
THE COSTS OF CONTINUING THE MULTIFIBRE ARRANGEMENT.
GENEVA, JULY 3 (IFDA/CHAKRAVARTHI RAGHAVAN) — Continuation of restrictions under the MFA will increase prices of clothing and household textiles in OECD countries, and reduce production and employment in their export industries, according to the GATT secretariat study.-The international textile and clothing trade has been governed since the 60's, first by the Long-Term Arrangement on cotton textiles (LTA), and since 1974 by the Multifibre Arrangement (MFA).- The current MFA regime (MFA-III) is due to expire in july 1985, and GATT Contracting Parties at their November 1984 session are to address themselves to the question of further liberalisation of this trade, including possibilities of full application of GATT principles.- The issue is being studied now in a GATT working party that expects to complete its work by October. Third World MFA members are due to meet in Karachi later this month to decide on their common course of action.- The GATT study brings out that apart from Quantitative Restrictions (QRs) and country and product quotas under MFA, OECD countries have much higher tariffs on textiles and clothing than on other manufactures.- After the Tokyo Round cuts, the weighted average of tariffs on textiles and clothing in OECD countries range from 8.5 percent in Switzerland to 11.5 in Japan and the EEC, 19 in the U.S.A., 21.5 in Canada, and 29 and 30 percent respectively in Finland and Austria.- On other manufactures the weighted average tariffs range from 2.5 percent in Switzerland to five in the U.S.A., 5.5 in Japan, six in Finland and EEC, ten in Canada, and l2.5 in Austria.- While Third World countries have much higher tariffs, and other import restrictions, they are not specific to textiles and clothing but to all imports, and justified by them on grounds of balance-of-payments considerations.- The GATT study projects that if the MFA regime be continued, prices of clothing and household textiles in the importing countries would be higher than otherwise.- And to the extent that this holds in particular for lower quality classes of clothing and textiles, it implies a regressive effect on income distribution, it adds.- Also, when quotas are imposed on a product available in several versions in terms of quality, the exporting firms have an incentive to move up the quality scale to get as much value added per unit as possible, and import competition is concentrated at the upper end of the quality spectrum.- One result has been the reduction of supply of childrens' clothing, causing their prices to rise relative to those of adult clothing, in importing countries.- Third World MFA members cite other studies to show that in 1978, apparel prices in the U.S.A. increased by an average of 23 percent at the factory or wholesale level, while in Australia import restrictions resulted in Australian producers receiving about 76 percent higher prices than world clothing prices.- Another U.S. study shows that the annual economic cost to U.S.A. of the MFA restrictions is 406 million dollars for apparel and 19 million for textiles.- After subtracting the cost of displaced labour in this sector, the net welfare cost to the U.S.A. is estimated at 193 million dollars a year. This means the cost per job saved in the U.S.A. for maintaining restrictions is twice the average annual wage for the apparel industry.- Apart from this, there are also other costs, GATT says.- Since under MFA the level of imports of textiles and clothing is lower than otherwise, the Third World countries earn, and import, less.- Third World countries, who commissioned their own study, estimate the probable annual loss in export incomes due to U.S. restrictions on apparel to be of the order of 225-400 millions.- The loss in export earnings of the Third World due to MFA restrictions in the world as a whole are estimated at "several hundred million, and perhaps as high as one billion dollars a year".- In their trade with MFA Third World suppliers, the export surpluses of both the EEC and the U.S.A. in 1980 for all manufactures in about four times greater than their import surplus in textiles and clothing, and in engineering products alone it is about three times greater.- The GATT study notes that the general propositions that any decline in a country's imports will be matched by a reduction in exports "has been cast in bold relief recently by the severe debt service problems among developing countries".- "Shortages of foreign exchange in the heavily indebted countries have forced sizeable cutbacks in imports, leading to lower employment in the export industries in the industrial countries".- In the U.S.A., in the chemical and allied products sector 15 percent of employment is export-related, while in machinery it is 21 percent and in transport equipment 15 percent.- In the textiles sector itself, due to the continued trend in automation, the net impact on employment in textiles will continue to be negative, while the outlook is less clear for clothing.- The GATT study also suggests that if the MFA regime continued, there will be a continuation of past trends in textile production, and the industrial country textile industries will continue to remain heavily dependant on growth of domestic clothing production.- Increases in domestic consumption, which GATT says will be lower in future in the Industrial countries compared to the Third World, would be "shared" among domestic and foreign producers.- The degree of sharing would depend on how comprehensively the restrictions are applied, the growth rates applied to existing quotas, and the degree of flexibility allowed.- According to the Third World MFA members, their own study shows that while the impact of the MFA has varied among the Third World countries, the largest suppliers have so far lost most in absolute and even relative terms as a result of restrictions.- Since wages in countries like Hong Kong and South Korea have been increasing more rapidly than in other Asian countries or low-wage countries of Africa and Latin America, comparative advantage could be expected to shift from the larger exporters.- But if the MFA restrictions continue in their present form, and quota levels are not cut back unexpectedly, quotas on clothing for today's most competitive MFA exporters would become redundant, and the quotas would have the effect of protecting "their share of the market against rising, lower-wage competitors".- Overall, Third World MFA members contend that MFA has had "a net harmful impact" on the Third World, depressing output and employment in their textiles and clothing sectors, and preventing these countries from reaping gains that would accrue from exploiting sectors particularly well-suited to their resource base and factor costs.- The GATT study says that apart from its direct impact, the MFA regime and protection in the Industrial countries have reinforced "protectionist and pro-import-substitution groups" within the Third World because "it helps foster a fear of being clamped down on as soon as they become competitive in any industry".- While any system of restraints would have this effect, the MFA could be said "to contribute, in addition, to a bilateral approach towards management of trade relations in both the developed and developing countries which goes beyond textiles and clothing".- GATT also says that in addition to the "equity" and "demonstration" effects, the LTA and MFA may have contributed to a misallocation of resources within the Third World by inducing them to shift labour and capital from the textile and clothing industries to other industries where their comparative advantage could be smaller.- "This could have the effect of increasing competition in other product lines in the markets of the developed countries, as well as reducing the range of products which the developing countries import from the developed countries".-