The road leading to the MFA, then to its subsequent extensions and finally to its agreed-upon phase-out, in the context of the ATC, by the year 2005, has often been described, analysed and commented upon on its impact, thoroughly.
It suffices for this article to merely broad-brush some 50 years of restrictions on the Textile and Clothing (T&C) trade, which (after WW II) began in the second half of the 50's, with Japan being pressured by the US into imposing "voluntary export restraints" on cotton textiles.
These were followed by "voluntary restrictions" (likewise on cotton textile products) being placed by the United Kingdom first on Hong Kong, then on India and Pakistan.
Under the auspices of the GATT, which had already paved the way for measures dealing with market disruptions, the Short Term Arrangement (STA) was agreed-upon in July of 1961, only to be replaced with the Long Term Arrangement (LTA) in February of 1962.
However, in the course of the 60's and particularly into the early 70's, as numerous Asian countries began to develop their textile and clothing industries, it become quite obvious to the respective governments in importing countries that it was "necessary" to design a more all - encompassing package of restraints.
This was deemed essential to effectively regulate the rapidly expanding spectrum of T&C products emerging from the Developing Countries (DCs) and "threatening" the T&C industries in the Industrialised Countries (ICs).
The growth rates of DCs in the period 1965-1973 speak for themselves.
The ensuing negotiations, which went down to the wire, gave birth to the MFA, which designated to come into being, as of 1 January 1974.
While it and its successors, up to the completion of the Uruguay agreements, contained wordings that underlined the short-term nature of the agreement to permit structural adjustment in the ICs, the short-term nature had by no means become apparent by the end of the 80's.
What had become apparent, however, was that the entire set-up had become so complex, that there seemed to be almost no other reasonable solution than to phase-out the MFA in the course of the Uruguay agreements.
Hence, the birth of the Agreement on Textile and Clothing (ATC) took place. The agreed-upon solution in the form of the ATC set down the following basic framework: the MFA is to be phased out in four tranches over a 10-year period (1/1/1995; 1/1/1998; 1/1/2002; 1/1/2005), encompassing 16%, 17%, 18% and 49% of imports of all specified T&C products based on volumes in the year 1990; products not liberalised, but under quota or otherwise restrained will have their growth rates increased during the first three steps of phase-out period by 16%, 25% and 27% respectively; each of the four groups, into which the entire spectrum of textile products had been broken down (ie tops/yarns, fabrics, made-ups and clothing), must be included in each of the liberalisation tranches during the 10-year period.
In the case of the EU, the volume of total ATC imports in the base year, 1990, consisted of 37% tops and yarns, 22% fabrics, 24% made-ups and 17% clothing; the liberalisation process for members is binding and final.
And finally, it could have been concluded that the negotiating parties were indeed serious in effectively dismantling the MFA, as in Article 7, para 1 of the ATC (GATT 1994) , the word "promote" had been replaced with the more forceful word "achieve."
As successful as the countries were in achieving an agreement on T&C products, they were just as unsuccessful in structuring it in a manner which would have effectively brought T&C products under the jurisdiction of the GATT framework throughout the phase-out period.
It was indeed a masterpiece of watering down and postponing. It watered down the liberalisation process by including a far wider range of T&C products in the population of products to be liberalised than was ever included, to begin with.
It postponed any significant liberalisation until the final liberalisation tranche as of 1/1/2005, at which time - as it stands now - the most sensitive products will be subjected to basic GATT principles.
The sham result is best represented by simply noting that - believe it or not - fire cords, tampons and tents were products liberalised by Canada, the EU and the USA in the first liberalisation tranche as of 1/1/1995 in this context).
It can thus hardly be surprising that in the preparations for the December, 1996, Singapore WTO Ministerial, developing countries (ie major exporters) virtually threatened to allow the Ministerial to collapse, if significant changes were not effected to force a structure of liberalisation which would reduce the probability of an impasse, in the year 2005, when the remaining 49% of T&C products have to be liberalised.
That the situation was critical is underlined by the comment made by the WTO's Council for Trade in Goods, an institution not known for being overly frank that the first stage integration had not meaningfully improved access to these markets [ie basically those of the US, Canada and the EU].
There were no indications that the second stage of integration would be more commercially meaningful.
"The initiative on part of the T&C exporting countries to have the ATC effectively eliminate Non Tariff Barrier (NTBs) over the course of the ATC, and not just in the final tranche, proved to be unsuccessful, aside from being able to have stronger wording introduced into the final communiqué.
One reason for this was the attempt by some ICs (in particular the US) to have social and labour standards to be included in the WTO's brief Hence, the mere inclusion of stronger wording concerning the ATC could be considered to be the price paid for keeping the WTO's involvement with social and labour standards limited to co-operation with the ILO.
The question about whether it will remain at this level is an open question. But is it more open than the question about whether the ATC will be carried out as agreed upon?
SO WHERE ARE WE NOW? All the above mentioned developments in the flows of T&C products have brought us to where we are today, almost eight years after the conclusion of the Uruguay Round. They reflect numerous influences, that is the impact of
-- The MFA and tariff barriers on T&C products,
-- Regional trade agreements,
-- Changing locational demands,
-- Normal development trends and
-- Shifting factor intensities of production.
Let us start with the impact of the MFA with its tariff and non-tariff bafflers. As far as analysing the impact of UR is concerned, there is no product group which produces world welfare increases to the extent that the elimination of MFA is posited as doing.
Based on average estimates made around the end of the UR, liberalising the area of T&C products accounted for almost 40% of the welfare gains calculated from liberalisation measures agreed-upon in the UR.
This is an impressive number, and one, which could be, used as a verification of the importance of such multilateral trade negotiations.
Unfortunately, a caveat needs to be injected here, as different models giving these figures have so far fail to take into account some crucial aspects of the MFA:
-- First of all, the quota rents applied in the models defined during the Uruguay round reflect the world as it was in the 1980's, in particular the world as it was in Hong Kong.
Times have changed and quota rents in Hong Kong - as well as in other countries - have been decreasing sharply and are even approaching zero in many cases.
In other words, one of the major factors attributed to decreasing the world's welfare seems to be disappearing.
One key reason behind this is the shift in demand away from large Asian suppliers to exporters closer to home markets.
-- Secondly, economies like Hong Kong, South Korea and Taiwan have long since become involved in producing many of those T&C products offshore, which they used to manufacture domestically.
In doing so they are still taking advantage of quota rents, but doing this abroad, that is, of course, to the degree they still exist.
The models' calculations of welfare gains do not allow for the flow of capital assets and/or human capital from Hong Kong (or Taiwan or some other far eastern countries) to a third country (eg Thailand, Mauritius).
Perhaps more importantly, they do not allow for the transfer back to Hong Kong of rents accruing to this capital.
Hence, at least, the distribution, if not the size of the welfare gains and regional disaggregation is not correctly taken into consideration.
In such cases, it may not just be the regional distribution of welfare gains, but perhaps, even more important - the more productive use of capital and human resources in other countries.
All in all, the published calculations of welfare increases from an elimination of the MFA may well be misspecified, and particularly overestimated, to the extent that quota rents have not been correctly adjusted to levels prevailing at the start of the ATC or rather to current levels.
As far as the UR tariffs are concerned, across the board, the tariffs on T&C products remain the highest, except for the agriculture sector.
They vary between 3-5 times the value of tariffs for all industrial goods in the ICs.
Their percent reduction, however, ranks as one of the lowest among the product categories - a sure sign of the sensitivity of this sector to liberalisation.
As can be seen, the clothing products were - generally speaking - subjected to smaller tariff changes than textile products.
Only in the case of the EFTA countries and Japan, were the reductions in clothing products almost in line with the reductions in textile products.
It also becomes quite apparent that the DCs still have to decrease tariffs considerably in order to truly improve market access.
Since relative tariff rates did not change all that much, trade in T&C products was probably not noticeably affected.
A major impact on trade flows ensues from the establishment of regional integration schemes (including offshore processing legislation), together with changing locational demands dictated by just-in-time policies and ever-faster fashion cycles.
In the case of the EU, these were already having a far more profound effect on Europe's economic landscape than the ongoing initial implementation of the UR agreements.
Specifically, the completion of the single market in the EU, as of January 1, 1993, the expansion of the EU from 12 to 15 members, as of January 1, 1995, and the attempts to integrate the Central and Eastern European economies, all had prompted T&C industries throughout Europe to more rapidly rethink corporate strategies.
Given the importance of minimising the economic distance between locations of production and consumption in such a time-conscious sector as the fashion industry, just-in-time production, rapid reordering and quick fashion response were all obviously easier to achieve with countries next door than with producers far away in Asia.
On the other side of the Atlantic came the implications of the NAFTA, which likewise was shifting demand away from suppliers of T&C products in Asia.
In both cases it was also the existence of offshore processing legislation, which enabled firms to circumvent MFA quotas and helped induce them to establish more than just arm's length production platforms in (almost) neighbouring countries.
All these trends portray the country structure of clothing imports for Germany, United Kingdom, Italy and Sweden.
In the case of the four EU countries, the Asian countries, in particular the East-Asian countries, have been loosing out to the Euro-Med countries since around 1993, whereby Germany and Italy imported more from Euro-Med by 1996 than from Asia or the EU. Sweden, after very rapidly expanding imports from Asia - especially East-Asia - through 1994 (its share increased by over 55% from 1990-1994), tapped to an ever greater degree East-European countries (their share jumped over 25% in the period 1994- 1996).
The pattern in the US was similar vis-à-vis Latin America; with its share virtually doubling over the seven year period, accounting for almost all of the decrease in the share of imports from Asia.
The impact of the normal development trends can be best described as a growing up process, in which countries switch into more physical-capital or human-capital intensive areas of production as their income levels increase.
To some degree, countries like Korea and Taiwan shifted out of the labour-intensive production of clothing in the early 80's and have in the meantime concentrated on the capital - intensive production of textiles.
It becomes particularly evident in the ever-increasing share of those countries which were not among the top 13, but had become, in the course of the years, ever more adept at efficiently producing clothing.
Of course, some of this increase in the value of exports must be attributed to the MFA itself, as countries still maintained production activities, but with higher value-added shares, particularly, in order to capture rent from the quotas they held.
It might thus be contended that it was to a notable degree that the MFA hindered countries from following an efficient development path.
That is, it kept valuable productive resources flowing into the T&C industries long after they should have been flowing into more efficient production areas.
The differing capital intensities of production between the T&C industries has been one factor, which has driven trade flows in T&C products. But it also has been the MFA, which has influenced this trend.
Especially, in the production of textile products, major advances in technology have been achieved, which have helped maintain textile production in ICs.
While sewing together pieces of fabric to produce a shirt is extremely labour intensive - and will continue to be so in the coming years - parts of the textile industry have become some of the most capital intensive processes in the manufacturing industry.
The result of these developments could be seen where the ICs in the upstream areas of production were able to able to perform relatively better.
These wide differences in capital intensities between the textile and clothing industries also helps to explain why, given the possibility of efficiently carrying out various stages of production in different locations - it has become worthwhile for countries like Germany, Italy and the USA to produce the capital-intensive inputs and then have them turned into clothes just east or south of the border.
But even here the constellation may change once NTBs are removed, as it is quite likely that it was the MFA which kept major European producers of high-quality textile inputs from establishing large spinning and fabric manufacturing facilities in those countries with high productivity and low labour costs, namely in Asia.
After all, the European companies could not be sure that such facilities would be able to produce at adequate capacity levels, given the existence of quotas.
However, since quotas are now in the process of being eliminated it is quite possible - and there are indications that this is indeed occurring - that these producers will be investing in this part of the world.
But there is also another issue, which affects the production of the machines themselves. In the past these have been almost entirely produced in LCs (almost 90%), with Germany, Japan, Italy and Switzerland accounting for the lion's share.
Here, the interface with the local textile and clothing industry proved to be an essential ingredient in producing ever better, ever more efficient machines, as the actual testing of the machines could be carried out at a textile manufacturing company, virtually around the corner.
This interface between the textile machine industry and the textile industry plays an important role from which both parties profited.
It was not only the synergetic effect stemming from approaching the problem from different angles, it was also the ability to test machines under true working conditions before they came on the market.
But now, with ever larger shares of the T&C complex being located in DCs, textile machinery companies have begun to establish production facilities in DCs, which do not just merely assemble imported parts of textile machines, but actually engage in testing the machines at the site.
Furthermore, and no doubt even more important, the companies are creating machines more adapted to conditions in DCs, so they can be more efficiently utilised.
Hence the shifting of the T&C industry to DCs is also leading to a shifting of the T&C machinery industry to the same countries (eg India, China, Indonesia and Brazil). But this shifting will only apply to parts of the industry as there are still other reasons to maintain research and production facilities in ICs (eg the productive interface between the industry and technical universities).
BEYOND THE MFA PHASE-OUT: In summarising the above, for beyond the MFA phase-out I can only come to the conclusion that the crystal ball is clouded. Nonetheless, as Michael Evans used to say: "Often wrong, but never in doubt."
The good news: There are signs out there which seem to be pointing to, or at least supporting, a successful conclusion to phasing out the MFA and returning to international trade in textiles and clothing, determined by traditional division of labour factors.
For instance, Norway and Canada have recently opted out of certain restraints on T&C products. This could perhaps induce other countries to do the same.
The above mentioned T&C machinery industry, as well as the textile industry itself, have created joint interests which could possibly lead them to supporting a complete integration, so they themselves can remain competitive.
And on top of this, the Asian crisis may very well prove to be a blessing in disguise for the phase-out of the MFA: It may place restraints on importing countries, trying to back out of the ATC agreements by denying access to countries trying to improve their economic situation, in line with assistance and advice received from international organisations.
THE BAD NEWS: The current and future Asia crisis could very well make exports from these countries so inexpensive (ie sold at "dumping prices") that ICs apply more contingent protection measures.
Furthermore, the bias injected into international trade with T&C products, by setting up regional integration schemes, works against a global division of labour.
This could be seen in particular in the case of Sweden after it joined the EU. That the EU also opted out of certain restrictions vis-à-vis bordering countries only strengthens this contention.
The US in its attempt in 1998-99 to maintain protection despite the ATC, by "forcing" Turkey to agree to new restrictions is perhaps only the beginning of an increased use of such contingent protection.
Likewise, the EU doesn't seem to be able to restrain itself from applying anti-dumping duties to greige textiles, even though it rejected this action earlier - France and the Southern alliance seem to be determined to push this through.
They do not evidently realise that one of the most competitive industries in the T&C complex, namely the dying and finishing sector, will be damaged by these actions.
To conclude: If we can make it past the millennium bug, we can make it past January 1st, 2005. It won't be without glitches, and maybe some side stepping, as well as a little postponing also, but given the trends in trade, the pressure to relent, rather than stonewalling, may just be too large. Let us hope so.
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