INTRODUCTION TO ECONOMICS
TEXTILES AND CLOTHING IN INTERNATIONAL TRADE
Since the U.K. first showed the way, textiles and clothing have traditionally been the initial industries to arise in emerging nations aspiring to developed status. However the developed nations have shown generally an aversion to allowing others to follow their example. This perhaps was most clearly demonstrated in history by the notorious Multi Fibre Arrangement. [MFA]
MULTI FIBRE ARRANGEMENT
In the textiles and clothing industries,
particularly in the making up of basic or non-fashion clothing, a supply
of relatively unskilled, and hence cheap, labour is the basic
requirement for a viable industry. The need for capital is of lesser
importance. Such industries
are often referred to as being labour intensive.
Newly emerging [usually a synonym for poor], countries generally
have a surplus of such labour and hence have a comparative advantage in
As basic economic theory demonstrates,
comparative advantage translates into trade, which trade is of benefit
to all who engage in it. Since
poor countries typically possess few comparative advantages, such trade
is of particular importance to them in alleviating poverty and
developing the country. To a lesser extent such trade is also of importance to
the developed nations, particularly to the poor therein, who spend
relatively more of their income on clothing than their better-off
Beginning particularly in the 1960s, governments
of the developed nations strove generally to protect their clothing and
textile industries from competition from newly emerging nations. In 1974
textiles and clothing were exempted from the General Agreement on
Tariffs and Trade [GATT], the predecessor of the World Trade
Organisation [WTO], the members of which organisation otherwise bound
themselves to eliminating restrictions and impediments placed in the way
of expanding world trade. This
was the so-called MFA.
The ostensible purpose of the MFA was to allow a
short time for the textile and clothing industries of the developed
nations to adjust to competition from the then newly emerging nations,
particularly China and India. To
that end the MFA purported by quotas to freeze within exporting nations
the existing proportions of world trade. The agreement was originally
meant to last 5 years. However it kept getting renewed, eventually 5 times
Amongst economists, the MFA is largely regarded
as an example of chicanery by the developed world, which seriously
harmed and exploited emerging countries.
Whilst it constrained expansion in those developing countries
which had quotas, it encouraged all sorts of dubious bilateral political
trade-offs between the governments of the developed and of the emerging
nations, whereby favoured nations were given preferential treatment.
Domestically it encouraged corruption as exporters competed for
scarce quota. Generally it
meant increased waste and cost and reduced production and innovation.
According to a recent World Bank/IMF study the
MFA has entailed a loss to emerging nations of 27 million jobs and US
$40 billion per year in lost exports.
At the same time protection by the US government of its textile
and clothing industries is calculated to cost the American public US$ 13
billion per year.
Paradoxically perhaps, one of the most
significant results of the MFA was to see large scale textile and
clothing industries set up, often as subsidiaries of developed nation
firms, in countries so poor as previously to have had little or no part
in world trade and hence not to have been constrained by MFA quota.
Thus large industries now exist in such places as Bangla Desh,
Cambodia, Pakistan, Mauritius, Egypt, Sub-Saharan Africa, Sri Lanka and
so forth. Such nations’ industries are heavily dependent on the
goodwill of the particular developed nation or nations to which they
export and which favour them.
The dependency of such least developed countries often comes at a significant cost and is a means whereby poor countries are caused to subsidise the wealthy. Heavy tariffs are usually applied on their goods when imported into developed nations. In 2001 tariffs on imports from Bangla Desh contributed US$ 331 million to the US Treasury. By contrast US aid that year to Bangla Desh totalled US$87 million.
AGREEMENT ON TEXTILES & CLOTHING [ATC]
In what was widely regarded as the greatest
single achievement of the so-called Uruguay Round of trade talks
[1986-94], the members of the WTO agreed to phase out over 10 years the
MFA and bring trade in textiles and clothing within the auspices of the
WTO. This was the so-called
ATC. The phase out
commenced on 1 January 1995 and was completed at the commencement of
Abolition of the MFA has been described as the
largest industrial shift in the last century.
Whilst seemingly of undoubted benefit, sceptics have warned
against seeing it as a consequence of any increased economic awareness
or integrity amongst the governments of the developed world. Rather, they suggest, it is indicative of a greater
recognition of the waste and costs involved and that developed nations
are less able than before to be able to so indulge in such
Predicably following the end of the MFA the
export of clothing and textiles from China and India leapt whilst those
of the less developed nations fell significantly.
Interestingly the figures gave the lie to those who allege that
trade liberalisation simply leads to a transfer of jobs to the lowest
paid. Rather what is likely
to occur is a transfer of jobs to the most productive, which does not
necessarily equate to the cheapest labour costs, but rather to the
cheapest cost per unit of output. If the cost of labour itself were the
crucial factor then Bangla Desh and Sub-Saharan Africa would have little
to fear from China or India.
Following the abolition of quotas at the start of
the year, exports of clothing and textiles from China to the West rose
100%. The US and the EU
were thereupon enabled to rely on the special terms of the ATC which
enabled them to restrict growth to 7.5% for 3 years, in effect
reintroducing quotas till 2008. By
agreement with the EU [but not the US] China was able to increase this
to 10% per year. This agreement followed Tony Blair’s visit to China in
September. In August, 75 million items of imported Chinese garments had
been held up in EU ports, an incident the British press dubbed “Bra
Wars”. In an effort to
defuse the situation China has made seeming concessions by itself
imposing an export tax on textiles, an instance of what has been
described as reverse protectionism.
In the developed nations manufacturers who
concentrated on fashion and quality rather than basic lines have
generally kept their market share.
The outlook for the least developed nations however, who relied
on the quotas of the MFA is gloomy.
Many millions of jobs are predicted to be lost in Asia, Central
America, the Caribbean and elsewhere prompting calls that the developed
nations should do more to assist by opening their markets more,
particularly by reducing high tariffs.
Importantly consumers in developed nations should see a benefit from the abolition of the MFA with continuing downward pressure on the price of basic textiles and clothing. Interestingly for Australia reform of the international textile and clothing trade leaves agriculture as the last remaining major anomaly in rational world trade.