The Multi-Fibre Agreement - Essay Example

What was the Multi-Fibre Agreement? Exports of textiles and clothing from developing countries have long faced restrictive blocks to their exports called quotas. Brought in force as a temporary relief measure in favor of the domestic textile manufacturers in the developed countries, it has been in force for 40 years now. In 1962, a Long Term Agreement (LTA) regarding international trade in cotton textiles was signed. It replaced the one-year Short Term Agreement that existed at the time. LTA underwent several renewals and was subsequently replaced by the Multi-Fibre Agreement (MFA) in 1974, which was expanded to cover exports of synthetic fibres and woolen products, besides cotton. MFA came into force to allocate export quotas to the low cost developing countries, limiting the amount of imports to countries whose domestic industries were facing serious challenge from rapidly increasing imports. It sought to expand trade, reduce barriers to trade and progressively liberalise world trade. The MFA regime existed for 25 years, until 1994 when the Uruguay Round of Multilateral Trade Negotiations resulted in the Agreement on Textiles and Clothing (ATC). The ATC sought to phase out all quota restrictions in four phases spread over a period of 10 years. The first three partial phase-outs were in January 1995, January 1998 and January 2002. The final one is due on January 01, 2005. The Agreement for Textiles and Clothing (ATC): - This came into force along with the WTO framework for multilateral trade in 1995: stipulated that the quota system for textile exports and imports under the Multi-Fibres Agreement (MFA) was finally phased out on January 1, 2005. More specifically, in terms of the agreement, the transition period, which began in 1995, would be operative for ten years and, by the end of that time, all textiles and apparel articles will have to be brought under the GATT discipline, subject to the same rules, as are the products of other sectors. China and the Multi-Fibre Agreement: - China was a participant country of the MFA, the implications of the end of the MFA regime on world trade generally in textiles and apparel, also the projected impact on the Chinese textile and apparel industry. To set the perspective, the MFA was negotiated under GATT 1947 and was functional from 1974 to 1994. In the eyes of the USITC, the agreement was intended to deal with domestic market disruption in importing countries: that is, developed economies - while allowing the exporting, or developing, nations to expand their textile and apparel trade as much as possible. This was achieved by the MFA through the instrument of negotiating bilateral agreements on export quotas. Cotton fibre is considered as an agricultural product and therefore covered by the WTO agreement on agriculture. All other cotton-based products, such as yarn, weaves and other textile products were subject, until January 2005 to the Multi-fibres Agreement. That agreement which came into force in 1974 was intended to protect the textile industries of developed countries from the growing exports of developing countries by way of a system of quotas. The European Union’s Cotton Textile Policy: - The EU cotton regime was put in place in 1981 when Greece joined the European Economic Community. The accession of Spain and Portugal in 1986 enlarged the number of countries covered by the WTO agreement on cotton. Aid was paid to cotton ginners on condition that cotton producers benefited from a minimum price per tone of cottonseeds. This system made it possible to protect producers from variations in world prices while enabling companies to sell cotton fiber at the international price. The aid per tone of cottonseeds was equal to the difference between the guide price (fixed every year) and the world market price. The payment of aid was limited to a maximum guaranteed quantity (MGQ) set annually. From 1987, a guide price cut-off system was introduced to protect growers from the risk of very big falls in the minimum price. The original cut-off was 15% but this was increased over time to 25%. However, all in all MGQ over-runs led to reductions in the price paid to growers of up to 25%. In 1992, the EU cotton regime was modified: the annual fixing of the MGQ was abandoned. Chinese-EU Textiles and Clothing Trade: Embracing Free Trade Chinese Mission to the EC: - China is the largest exporter and fifth largest importer of textiles and clothing in the world, while the 15-nation European Union (EU) is the 2nd largest exporter and 2nd largest importer of these products in the world. The expectation for the further development of textiles and clothing trade between China and the EU is still very high among business communities on both sides. Integrating textiles and clothing products in the EU According to the Agreement on Textiles and Clothing (ATC), the time for the full integration of textiles and clothing products is set at the beginning of 2005. The EU virtually followed the integration process within the framework of the ATC in the previous three stages of liberalization. As a result, a substantial part of the quota restrictions by the EU in the textiles and clothing sector has been eliminated, although there’s much to be done in some sensitive categories. The Decision on Implementation-related Issues and Concerns, adopted at the WTO Doha Ministerial meeting last November, injected new impetus into the integration process of textiles and clothing products, by reaffirming the commitment to full and faithful implementation of the ATC, and agreeing that its provisions relating to the early integration of products and the elimination of quota restrictions should be effectively utilized. The Ministerial meeting also requested the Council for Trade in Goods to examine the proposals concerning the acceleration of the integration process by favorably utilizing the growth-on-growth provisions. China’s accession to the WTO: - China’s accession to the WTO evidently demonstrated the commitments of the Chinese Government to further reform and opening up of its economy. Since accession to the WTO, the Chinese government has done its best to implement its commitments. China has bound its tariff rates of textiles and clothing and, at the beginning of the year 2002, it substantially lowered the tariff rates in the sector, offering enormous opportunities to foreign exporters of textiles and clothing products with comparative advantages. With the gradual liberalization, according to China’s commitments, of sectors for foreign investment in capital-intensive chemical fiber industry and others where Chinese technology still lags behind, there exists a huge potential for foreign investment. Moreover, foreign investment in the distribution sector might also join hands with the Chinese textiles and clothing industry to achieve a win-win outcome. After China’s accession to the WTO, it will be able to enjoy the systematic resolution of trade conflicts with the EU in the textiles and clothing sector within the framework of the Textiles Monitoring Body (TMB) and the Dispute Settlement Body (DSB), which will ensure legal certainty and predictability. As a member of the WTO, China is also entitled to enjoy the benefits brought by the previous three stages of integration of textiles and clothing products within the meaning of ATC. China therefore is now subject to fewer EU quotas and is enjoying the growth-on-growth provisions of the ATC. In the coming years, China will be able to benefit from the further liberalization of the sector. EU downstream producers, at the same time, may benefit from less expensive raw materials or fabrics from China to enhance their competitiveness. All these elements will surely contribute to the further development of Sino-EU textiles and clothing trade, and the key is how the business communities on both sides tap the potentiality. Existing and potential barriers to Chinese-EU textiles and clothing trade: - China is currently second only to North Korea in the textiles and clothing sector in terms of the numbers of categories restricted by quotas by the EU. China also is the only third country, which is still subject to quota restrictions in non-MFA products. Currently, there is flexibility provisions in the Sino-EU Textiles and Clothing Agreement notified to the WTO. However, the approval procedure for the Chinese request of using flexibility provisions is still quite lengthy, reducing the effectiveness of the provisions. In addition to this, the EU has substantially lowered, or even eliminated, tariff rates in the textiles and clothing sector with regard to those EFTA, Central and East European, Mediterranean and ACP countries, as well as Mexico and South Africa, which have free trade agreements (FTAs) with the EU. There are also quite a number of least-developed countries and developing countries, which enjoy non-tariff, or very low, tariff rates on their exports of textiles and clothing products to the EU under its Generalized Scheme of Tariff Preferences (GSP). Compared to these countries, China benefits from the GSP scheme in the textile sector alone; Chinese clothing products have already been graduated out of that scheme and are therefore disadvantaged in this regard. With the ongoing dismantling of tariff and quota restrictions in the global textiles and clothing trade, some countries are frequently tempted to use other instruments to protect their own industry, such as anti-dumping and technical barriers. The EU has initiated anti-dumping investigations against Chinese cotton fabrics three times, but without succeeding in imposing anti-dumping duties. Other WTO members should obviously question the threshold for the initiation of anti-dumping investigations by the EU. This safeguard measure is perhaps more dangerous since it can more easily be used or abused. As for technical barriers, the adoption of over-strict ecological regulations might severely influence the healthy flow of bilateral trade in the sector. Anti dumping and China: An ongoing controversy: - The issue of dumping is one of the most contentious and complex in international trade. This is especially the case for China and the EU, two of the most important actors in the international trade system, as was shown at a recent forum in Brussels. China is currently the target of a high proportion of the anti-dumping actions initiated worldwide, with the EU accounting for a significant share. While the EU will argue that use of the anti- dumping instrument is a legitimate defense against unfair trade practices, China and many other developing countries attack its use as being protectionist and inherently unfair. On the other hand, industries in Europe that see their home markets eroded may argue that the EU is not rigorous enough in protecting their interests. To add a further complication, China has begun to make use of its own anti-dumping regime, and has recently taken action to strengthen and improve the regulations and system under which actions are carried out. Conclusion: - To conclude, both China and the EU need to embrace free trade in the textiles and clothing sector, both bilaterally and multilaterally. It is advisable that China makes its textiles and clothing products more environmentally friendly, based on current achievements, and encourages its producers to apply for international and/or EU eco-labels. The research institutes on both sides will have a very important role to play in the exchange of information concerning testing methods, etc. After the final integration in 2005, there will be no quotas by the EU against Chinese textiles and clothing products and, as a result, it might become more attractive for EU entrepreneurs to invest in China, due to the low labor costs and sound environment for investment. The high technology, advanced equipment, design and fashion of EU enterprises could come to blossom in China if they are well integrated with Chinese competitive advantages. Both sides should make efforts to prevent trade defensive measures, such as anti-dumping, countervailing and safeguard, from interrupting the healthy, developing momentum of their bilateral textiles and clothing trade. The EU is highly recommended to strengthen the disciplines with regard to the initiation of anti-dumping cases. At the Doha Ministerial meeting, the members rightly agreed that they will “exercise particular consideration before initiating investigations in the context of anti-dumping remedies on textile and clothing exports from developing countries previously subject to quantitative restrictions under the Agreement, for a period of two years following full integration of this Agreement into the WTO.” Electronic licensing might be another way to facilitate bilateral textiles and clothing trade, although both sides should study whether it will be worthwhile, since there will be only about two years before the final elimination of all quotas in the WTO. Last but not least, both China and the EU could explore the possibility of negotiating a free trade agreement on textiles and clothing products. That will surely inject a new impetus into their bilateral textiles and clothing trade. Embracing free trade, we have reasons to believe that Chinese-EU textiles and clothing trade will score a new high in the years to come. The European garment industry was being written off some two decades ago as a sunset industry, both within the European Union (EU) and outside it. Many claimed that it was sure to be submerged by a rising tide of cheap imports from Asia. Defensive measures included import quotas under the GATT Multi-fibres Arrangement (MFA); anti-dumping action; relocation in low-wage countries and, more recently, a vigorous demand that developing exporting countries open up their markets to European textiles and garments, under the terms of the 1994 Agreement on Textiles and Clothing (ATC). The MFA was basically an aberration if the spirit of GATT was considered, and being such it was only a matter of time before it was terminated — though not without a protracted struggle put up by the protagonists on both sides of the divide. The MFA regime is going to end on the last day of December 2004, and it is clear that because of this there will be a disturbance in the flow of international trade in textiles and apparel. As far as China is concerned, the USITC says, that the country is likely to be the "supplier of choice". However, uncertainly regarding textile-specific safeguards contained in Chinas WTO accession agreement with the European Union would make the future uncertain for importers. The Commission says that Chinese per-unit labor costs are very low due to low wages and high productivity. As far as inputs are concerned, the country itself produces fabrics, packaging and most other components that are used to make apparel and made-up textile articles. The liberalization of the textile sector has not benefited all developing countries: China is the big winner and the ACP textile-exporting countries, which had special access to the EU market, have lost their trade preferences. List of References: - 1. US-China Law Review: http://www.jurist.org.cn/doc/uclaw200507/uclaw20050708.pdf 2. Textiles and Clothing, Enterprise and Industry: http://ec.europa.eu/enterprise/textile/trade.htm 3. Centre for Trade and Development: http://www.centad.org/events_8.asp 4. Millions to lose textile jobs, BBC Corporation: http://news.bbc.co.uk/2/hi/business/4100249.stm 5. Cotton: Executive brief, agritrade, 2007: http://agritrade.cta.int/en/commodities/cotton_sector/executive_brief Read More